10-K

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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K


FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. (Mark One)

     /X/  Annual report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 [Fee Required] for the fiscal year ended December
          31, 1996.

     / /  Transitional report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 [No Fee Required] for the transition period from
          ___________ to ____________.

                         COMMISSION FILE NUMBER: 2-31438

                         NUKO INFORMATION SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)


                                                                     
DELAWARE                                                                           16-0962874
(State of other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification Number)

2391 QUME DRIVE, SAN JOSE, CALIFORNIA                                                  95131
(Address of principal executive offices)                                             (Zip Code)


Registrant's telephone number, including area code: (408) 526-0288
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

Indicate by check mark whether the issuer (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.  Yes /X/  No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  / /

Based on the closing sales price for the Registrant's Common Stock on The Nasdaq
Stock Market's National Market System on March 21, 1997, the aggregate market
value of the voting stock held by non-affiliates of the Registrant was
approximately $55,302,962.

As of February 28, 1997, 10,489,534 shares of the Registrant's Common Stock were
outstanding.

                            Exhibit Index on page 33

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                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of Registrant's definitive Proxy Statement for its forthcoming
Annual Meeting of Stockholders are incorporated herein by reference into Part
III of this Report.

                           FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains certain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which provides a new "safe harbor" for these types of statements. To the
extent statements in this Annual Report involve, without limitation, product
development and introduction plans, the Company's expectations for growth,
estimates of future revenue, expenses, profit, cash flow, balance sheet items,
sell-through or backlog, forecasts of demand or market trends for the Company's
various product categories and for the industries in which the Company operates
or any other guidance on future periods, these statements are forward-looking
and involve matters which are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by such forward-looking statements. These risks and uncertainties
include product development or production difficulties or delays due to supply
constraints, technical problems or other factors; technological changes; the
effect of global, national and regional economic conditions; the impact of
competitive products and pricing; changes in demand; increases in component
prices or other costs; and a number of other risks including those identified by
the Company under the caption "Risk Factors" in Item 1 and elsewhere in this
report, and other risks identified from time to time in the Company's filings
with the Securities and Exchange Commission, press releases and other
communications. The Company assumes no obligation to update forward-looking
statements.

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

        The Company designs, markets and sells one-way and two-way video
networking products that form essential building blocks in the development of
broadband (high capacity) video networks. The Company's standards compliant
products allow its customers to compress and decompress digital video and to
transmit signals over many types of networks using different interfaces and
protocols. The Company's digital compression and decompression products are sold
under the tradenames Highlander and RAVE and its network solutions are sold
under the tradename Intelligent Broadband Services Network ("IBSN"). The Company
markets its products and network solutions for enterprise-wide private networks
and public networks offered by carriers such as telephone companies, cable
companies, satellite companies and microwave communication companies.

        The Company's products are comprised of codecs and multiplexors, which
enable video compression and decompression and network interfacing. Such
products enable a user to digitize analog signals and to encode, compress,
transmit, receive, decompress, decode and display multimedia data streams,
allowing the rapid and cost-effective communication of data from the point of
origin to remote locations.

        The Company's Highlander products serve the one-way broadcast television
market and markets for corporate broadcasting and remote surveillance
applications. The Company has targeted its RAVE products at two-way video
conferencing, telemedicine, distance learning, remote arraignment and
post-


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production video editing. The Company sells its Highlander and RAVE products
separately and in combination as part of its IBSN integrated platform. The
Company intends to provide its IBSN customers with Highlander and RAVE products,
other standards compliant products, video network consulting services and
software to integrate the various pieces of the network, creating a turnkey
video network solution.

INDUSTRY BACKGROUND

        The rapid development of video networking technology has created many
new commercial and residential markets for digital video services. Business and
residential end-user demand for new and better telecommunications services has
grown as telcos and information service providers increase their offerings of
video applications. Commercial markets for digital video products include video
teleconferencing, distance learning, telemedicine, remote arraignment and
post-production video editing. Residential markets have developed for broadcast
digital video, Internet access and interactive applications such as home
shopping.

        Commercial Applications

        Teleconferencing. The largest of the new commercial markets for digital
video is teleconferencing. Companies may communicate and share business
presentations through the use of video conference calls. The availability of
high resolution teleconferencing systems offers the promise of reduced travel
costs and improved training programs. Dramatic decreases in transmission costs,
the increased availability of switched digital services for both domestic and
international networks, improvements in picture quality from improved
compression technology and the adoption of worldwide standards have spurred
demand for video conferencing products.

        Distance Learning. Digital video networking has been used by schools and
continuing education providers to deliver lectures in real time to students at
remote locations. The development of two-way communication systems permits
student-teacher interaction.

        Telemedicine. Digital video networking increasingly is being used by
medical professionals to diagnose and treat patients. Declining reimbursement
for radiological interpretations and increased specialization of radiologists
have placed pressure on radiologists to increase their numbers of
interpretations and compete for business over larger geographic areas. Such
pressures have resulted in a need to develop equipment and systems capable of
transmitting medical images rapidly to and from remote locations. The use of
digital video reduces health care providers' dependence on film and paper,
minimizes the risk of loss of the master image and reduces the overall costs of
providing efficient radiology services. An Arthur D. Little study estimates that
telemedicine can save the health care industry up to $36 billion annually.

        Remote Arraignment. The high cost of transporting suspects from jails to
the courthouse may be reduced by using high-resolution video conferencing to
enable people in the courtroom to view prisoners in rooms at the jail facility.
Court systems already have begun to use digital video for remote arraignments.

        Post-production. Motion picture companies use digital video networks to
transfer video from remote locations to centralized post-production editing
facilities. The time sensitivity and expense of motion picture projects often
make real-time production editing over video networks a necessary and
cost-effective alternative to transporting movie reels to various locations for
post-production editing.


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        Residential Applications

        Broadband networks also offer numerous applications for residential use.
The development of two-way networks capable of handling large amounts of video,
audio and other data simultaneously allow service providers to offer telephone
service, Internet access, broadcast digital video and other interactive
applications such as home shopping over the same infrastructure.

        Competition for Telecommunications Markets

        Telcos and cable companies increasingly are competing with each other
and with other video providers, such as Direct Broadcast Satellite ("DBS") and
Multichannel Multipoint Distribution Systems ("MMDS") companies, to supply
bandwidth for the transmission of video signals. Such competition has been
prompted by the development of technologies which permit telcos, cable companies
and other providers to provide new services through their existing
infrastructures. The enactment of the Telecommunications Act of 1996 (the
"Telecommunications Act") has further fueled such competition by reducing
barriers to entry to the telecommunications market and has eliminated many
restrictions on the provision of a wide range of telecommunications services by
telcos and other service providers. While cable companies and alternative access
providers are now permitted to supply phone service to customers, telcos are
exploring means of providing video to their customers. Cable companies have
begun testing cable modems, which permit a customer to effect two-way data
transmission over the customer's existing cable connection, and telcos have
sought to develop methods for providing broadcast video and Internet access
through existing phone lines. Meanwhile, alternative access providers have begun
to deploy fiber and wireless systems for high volume data transmission to
business centers and other high density metropolitan areas. In an effort to
maintain market share in the face of such deployments, telcos have accelerated
their efforts to upgrade their networks and increase their telecommunications
service offerings.

        Networks

        Digital video may be transmitted through many types of networks, from
telecommunications networks, which may be wired or wireless, to private
networks, which usually are wired. Wired networks include fiber optic to the
curb ("FTTC"), hybrid fiber coax ("HFC") and Asymmetric Digital Subscriber Line
("ASDL") transmissions over twisted-pair copper wiring. Wireless networks
include Direct Broadcast Satellite ("DBS") networks and Multichannel Multipoint
Distribution Systems ("MMDS") networks.

        In order to distribute compressed MPEG-2 streams over terrestrial or
non-terrestrial wide area networks, a company must interleave or "multiplex"
multiple channels of audio, video and data streams into streams meeting MPEG-2
standards and adapt them to the network over which it will be transmitted.
Different network interfaces and protocols such as IP, ATM/SONET, DS3, IFMP and
RSVP are used at different points in video networks depending on what type of
network function is being performed.


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NUKO SOLUTION

        While service providers and end users generally expect video networks to
communicate and interoperate in the same manner as existing data networks, the
various types of applications, networks, interfaces and protocols have made this
objective difficult to achieve. However, the Company offers a number of products
and services to meet the growing demand for flexible and interoperable video
networking products and services. The Company's standards compliant products
allow its customers to compress and decompress digital video and to transmit
signals over many types of networks using different interfaces and protocols.
The Company has targeted its Highlander products at the one-way cable television
broadcast market and markets for corporate broadcasting and remote surveillance
applications. The Company has targeted its RAVE products at two-way video
conferencing, telemedicine, interactive distance learning, remote arraignment
and post-production video editing. The Company's IBSN platform provides an
integrated end to end solution with interoperability between NUKO products,
products from NUKO's strategic alliances and standards based products from other
vendors.

STRATEGY

        The Company's objective is to become a leading supplier of commercial
and residential video networking products and services. The Company's strategy
includes the following principal elements.

        Maximize Flexibility Through Software Configuration. The Company's
strategy is to focus on the development of software to provide customized
"end-to-end" solutions to meet each of its customer's unique needs. The Company
believes that its focus on software solutions offers its customers the
interoperability, flexibility, customizability and rapid product migration that
they will require with respect to their video networks. The Company believes
that this focus on software customization differentiates the Company from other
video network companies which focus primarily on their hardware products. The
Company believes that growth in the video networking industry will be dependent
on the Company's ability to meet customers' specific software requirements in
implementing and developing a variety of interoperable private and public video
network systems encompassing different geographic areas with varied and
potentially large numbers of end-users and subscribers.

        Develop Strategic Alliances. The Company's strategy is to develop
various strategic alliances with established telecommunications equipment and
service providers, Internet equipment and service providers and original
equipment manufacturers of networking products and consumer electronics. The
Company believes entering into strategic alliances with these larger and more
established companies will provide faster market penetration of its video
networking products. These companies are competing among themselves and against
cable television companies and other telecommunications companies to offer
expanded video networking services and products to both commercial and
residential customers. The Company believes that these strategic alliances will
allow it to more rapidly expand its customer base as these video networks are
deployed. The Company has currently entered into strategic alliances with among
others Northern Telecom ("Nortel"), Pacific Bell, Alcatel, Telus, Cisco,
Samsung, Daewoo, BroadBand Technologies and Korea Network Corporation. The
Company intends to aggressively pursue additional alliances with other major
companies in this area as opportunities become available. The Company's most
significant current alliance with Nortel has already provided the Company
numerous customer opportunities and other strategic partners.

        Rapidly Deploy and Commercialize Products. The Company's strategy is to
use its current technology leadership position and strategic alliances to
immediately begin offering its video networking products and services to the
commercial markets for teleconferencing, distance learning, telemedicine,


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remote arraignment and post-production video editing. In addition, the Company
believes that its video networking products are also suitable for the
potentially vast video networks which are being developed for residential
consumers to provide telephone service, Internet access, on-demand video
entertainment and interactive home shopping. The Company believes that
implementation of video networking infrastructure will require significant
expenditures as these markets develop.

        Develop International Market Presence. The Company's strategy is to
focus on international as well as domestic market opportunities. The
international networking markets are not only potentially much larger than the
U.S. markets but are generally much less developed and less regulated than U.S.
markets. As a result, international customers must spend more capital on
establishing initial infrastructure, but with less investment in such initial
infrastructure and fewer regulatory constraints, international customers usually
are willing to bypass earlier technologies and begin developing the most
advanced technology. For example, the Company has recently entered into a
strategic alliance with Samsung which is currently deploying, with Korea
Telecom, FTTC video networking technology to South Korean residential and
commercial customers.

        Provide Products Which Comply With Open Industry Standards and Necessary
Regulatory Certifications. The Company's strategy is to configure its software
products to be interoperable with well-established and emerging "open" video
network technologies, including MPEG-2, DS3, ATM/SONET and OC3. Also, the
Company seeks to have its products interface with all network software protocols
including RSVP, IFMP, Phased Slot Allocation, IP and ATM. The Company chooses
its strategic partners with the objective of providing open system architecture
which promotes and develops these emerging industry standards. The Company
believes that interoperability among all video network and network equipment
will become an absolute requirement for all customers and end-users in the same
manner as interoperability is now required among current Internet and data
network users. In addition, the Company has devoted substantial resources to
achieving regulatory certifications required by telcos before they will deploy
certain products. The Company believes that these regulatory compliance
certifications, which are often time-consuming and costly, can serve as a future
barrier to entry for new competitors.

PRODUCTS

        The Company's Highlander and RAVE products perform compression,
decompression and multiplexing functions. The Company also manufactures and
sells network access products and an integrated network solution sold under the
tradename Intelligent Broadband Service Network ("IBSN"). The Company's products
may be sold separately or in different combinations as required by a customer's
needs.


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        Highlander

        The Company designs and markets codecs under the Highlander tradename.
The term "codec" is used to describe a compression/decompression system which
encodes and compresses digital signals prior to broadcast and decodes and
decompresses them for viewing or other use after reception. The Company's
Highlander products (i) digitally encode, (ii) compress, (iii) transmit, (iv)
decompress and (v) decode data, thereby minimizing the time required to transmit
video and audio data to remote locations. Highlander products also have the
ability to combine or "multiplex" multiple channels of data into a single
transmission signal on a high-capacity line, such as a fiber-optic cable, then
uncombine the signal into multiple channels after reception of the transmission.
Because they comply with the MPEG-1 and MPEG-2 international standards for data
compression, Highlander codecs not only can compress data at ratios ranging from
1:10 up to 1:200 (depending on content), they also are compatible with all other
equipment that meets MPEG design standards.

        Single Channel MPEG-2 Encoders. The Company's VF-1000 single channel
encoders provide MPEG-2 real time encoding capability with bit rates ranging
from 1.5Mb/s to 15Mb/s. The single channel encoder takes data, audio or video
input in PAL or NTSC analog format or digital format and compresses the input
signal into a MPEG-2 stream. The single channel product can be deployed by
itself or in combination with other single channel units through a "rack and
stack" solution to provide multiple channel capabilities. The VF-1000 product
can be managed by any standards based Simple Network Management Protocol
("SNMP") network manager or by NUKO's network management products. Various
parameters can be configured in each Highlander system, such as bit rate,
compression mode and selection of input, to accommodate various applications and
to optimize bandwidth utilization on the network. The VF-1000 single channel
product can be connected to the wide area network through the Company's
multiplexor products.

        Multichannel MPEG-2 Encoders. The Company's VF-9000 multichannel
encoders offer the same MPEG-2 real time encoding capabilities as the VF-1000
single channel encoders, while supporting up to nine channels per chassis. The
Company currently is developing a multichannel encoder that will support up to
twenty channels per chassis, which would provide the industry's most compact
multichannel encoder. The VF-9000 encoders include a SPARC controller and each
channel can be configured to have complete redundancy and hot-swap capabilities.

        Audio/Video/Data Router. The Company's audio/video/data router is a key
component of its integrated multichannel encoding solution, which provides
source input redundancy. The audio/video/data router is a cross matrix switch
that supports up to nine inputs and outputs of audio, video or data signals. The
router connects to the Company's VF-9000 multichannel encoders or to a rack and
stack configuration of single channel encoders and provides auto-switching of
the input signal to the backup channel configured in the VF-9000 or the rack and
stack configuration.

        Single Channel Decoder and Monitoring Decoder. The Company has developed
a single channel decoder which may be used for real time decoding of MPEG-2
transport streams into analog signals. It also can be used as a monitoring
decoder to monitor the signal quality of the MPEG-2 encoder. The monitoring
decoder typically is configured as a stand alone decoder and is a key component
in the integrated Highlander solution.

        Multichannel Decoder. The Company's multichannel decoder, also known as
an Integrated Receiver Decoder ("IRD"), may be used at locations such as a cable
television head-ends, distance learning


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classrooms or multiple dwelling units to receive multiple channels of encoded
MPEG-2 transport streams from terrestrial ATM or DS3 networks or wireless
satellite or MMDS networks. At the receiving site, the channels are decoded in
real time into analog signals for display or for local distribution over an
analog network. Also, in commercial applications, local channels can be added at
the head-end for redistribution of the desired MPEG-2 streams over the local
network.

        Highlander Cabinet and Integrated Encoding Solution. The Company offers
an integrated MPEG-2 encoding solution in a 19" Highlander cabinet which
contains five sections: (i) an audio/video/data router for input signal
redundancy; (ii) a fully redundant encoder section that provides MPEG-2 encoder
redundancy with hot-swap capabilities; (iii) a multiplexor section that provides
access to a terrestrial network (such as ATM or DS3) or to a wireless network
(such as DBS or MMDS); (iv) a completely redundant power supply section; and (v)
a monitoring decoder to monitor the quality of the compressed video signal prior
to transmission over the video network. The entire integrated encoding solution
can be managed from any standards based SNMP network manager on the network or
the Company's network management products.

        Highlander Management Solution. The Company has developed a Highlander
Management Solution to provide configuration, performance, fault and application
management capabilities, including redundancy and backup configuration. The
Highlander Management Solution is based on the SNMP open standard. The Company
has designed an extensive Management Information Base ("MIB"), which is a
dictionary of manageable objects that can be integrated with any network manager
selected by the customer. The Company has made the MIB available to integration
partners and customers. Each of the Highlander devices, such as codecs and
multiplexors, have an agent module that provides the management capability for
the device.

        RAVE Product Line

        The Company has targeted the RAVE product line for two-way communication
applications, such as interactive distance learning, telemedicine, remote
arraignment, broadband conferencing, and Inter/Intranetworking applications. One
such RAVE product is the Company's Broadband Conferencing System ("BCS"). BCS is
a high quality turnkey conferencing system for audio, video and data, which
provides high bandwidth broadband conferencing solutions. The Company believes
BCS will first be used for video conferencing and data transfer among multiple
participants at different sites. Typical bit rates for BCS range from 3 Mb/s to
20 Mb/s, permitting MPEG-2 transmission over DS3 and ATM networks. BCS is based
on open standards and is compatible with products from other vendors, which
makes BCS attractive to service providers. The Company expects that future
versions of BCS will provide LAN to LAN communication, an important application
for commercial networks such as corporate enterprise networks. The BCS product
accommodates conference scheduling, room controls, device management and data
transfer based on TCP/IP protocols. The integrated solution also includes video
servers and permits Internet access.

        Access Products

        The Company's access products provide application level and network
connectivity (access) between an end node and a wide area network for both
terrestrial and non-terrestrial networks. The Company's ATM Multiplexor, for
example, converts multiple MPEG-2 streams into ATM packets for transmission on
an ATM network. It can support up to eighteen MPEG channels with variable bit
rates ranging from 3 to 40 Mb/s per input channel. The ATM Multiplexor also can
support several line interfaces to the wide area network, including interfaces
based on DS3 (45Mb/s) or OC3 (155Mb/s)


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standards in North America and E3/STM1 in Asia and Europe. The ATM Multiplexor
product line permits intelligent video routing based on IP, IFMP, and RSVP
protocols for routing multimedia traffic from LANs to WANs and is fully
compatible with ATM UNI 3.0 and 3.1 specifications. The Multiplexor has a
controller and a network management agent that supports SNMP and can be managed
from the Highlander Management System.

        IBSN Integrated Solution

         The Company's Intelligent Broadcast Services Network ("IBSN") is a
platform that provides end to end solutions for broadband video networking. The
Company intends to position IBSN as a turnkey video network solution. The
Company will provide its IBSN customers with Highlander and RAVE products, other
standards compliant products, video network consulting services and software to
integrate the various pieces of the network. The IBSN solution's integration of
various hardware and software components offers content origination, content
transmission and content reception capabilities in a single end to end network
solution.

SALES AND MARKETING

        In selling and marketing its products, the Company relies on its
in-house sales and marketing personnel, the sales and marketing resources of
many of its strategic partners and agents the Company engages as necessary. The
Company believes that its relationships with its strategic partners, many of
which have established themselves in digital networking markets, help make its
products more visible and attractive to customers. The Company's products are
complex, requiring the Company's sales people and those of its strategic
partners to have a high degree of technical sophistication in order to market
the products effectively.

        The Company's direct sales efforts are focused on telcos, cable TV
companies and DBS companies, as well as private network users such as
corporations, governments and the military. The Company's also relies on telcos,
cable TV companies and systems integrators to provide the Company's products to
end users as parts of networking packages assembled by such companies. In
addition, the Company has established a number of OEM relationships, such as its
relationship with Nortel for the manufacture and sale of two-way codecs. See "--
Risk Factors -- Dependence on Certain Customers."

CUSTOMERS

        During the fiscal year ended December 31, 1996, sales by the Company to
its largest customer, Nortel, accounted for 44.6% of the Company's consolidated
revenues. The loss of Nortel as a customer would have a material adverse effect
on the Company. The Company also made significant sales of its products in
fiscal 1996 to Southwestern Bell Telephone, Daewoo and Samsung. The Company
expects to continue to make sales to Daewoo and Samsung, but it has completed
its contract with Southwestern Bell.

COMPETITION

        The markets in which the Company competes are intensely competitive and
are characterized by declining average selling prices and rapid technological
change. The Company believes that the principal factors of competition in its
markets are product definition, product design, system cost, functionality,
time-to-market, reliability and reputation. The Company competes with major
domestic and international companies, most of which have substantially greater
financial and other resources than the Company with


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which to pursue engineering, manufacturing, marketing and distribution of their
products. Some of these companies own proprietary video compression technology
competitive with the Company's standards-based systems. The Company may also
face increased competition in the future from new entrants into its markets. In
particular, as the markets for the Company's products develop, competition from
large companies may increase significantly. The ability of the Company to
compete successfully in the rapidly evolving markets for high performance
audio/video compression technology depends on factors both within and outside of
its control, including success in designing and subcontracting the manufacture
of new products that implement new technologies, adequate sources of raw
materials, protection of the Company's products by effective utilization of
intellectual property laws, product quality, reliability, price and the
efficiency of production, the pace at which customers incorporate the Company's
products into their products, success of competitors' products and general
economic conditions. There can be no assurance that the Company will be able to
compete successfully in the future.

        In its compression and networking business, the Company competes with
vertically integrated system suppliers including General Instrument, Scientific
Atlanta and Philips, as well as more specialized suppliers including the DMV
division of News Corp., C-Cube Microsystems, Inc.'s DiviCom subsidiary, ADC,
FutureTel, ABL, Wegener and Optivision. In particular, the Company's RAVE
products compete with products with MPEG-2 and ATM capabilities developed by MPR
Teltech and the Atrium product line from AG Communications Systems.

        In addition to direct competition from other suppliers, the Company also
competes with producers of low cost analog (uncompressed) and digital
(proprietary) technologies.

RESEARCH AND DEVELOPMENT

        The Company believes its success will depend in large part on its
ability to enhance existing products and continue developing new products
incorporating emerging digital video networking technologies. The Company has
devoted a substantial portion of the investment capital it has received since
inception to research and development. The Company expended approximately
$6,700,000 and $1,300,000 on Company-sponsored research and development during
the fiscal year ended December 31, 1996 and the eight-month fiscal period ended
December 31, 1995, respectively. Although the Company did not engage in any
customer-sponsored research and development activities during the fiscal years
ended April 30, 1995 or 1994, in the fiscal period ended December 31, 1995 and
the fiscal year ended December 31, 1996, the Company performed research and
development under contract of Nortel.

        The Company develops most of its products in-house and currently has a
research and development staff which includes over 20 engineers. The Company
augments its own research and development efforts through strategic
relationships it has developed with NUKO Information Systems (India) Private
Limited ("NUKO India") and Tata Unysis. The Company owns 48% of NUKO India,
which performs certain development activities on behalf of the Company. During
the periods ending December 31, 1996, December 31, 1995 (eight months) and April
30, 1995, the Company advanced approximately $96,000, $82,000 and $48,000,
respectively, to NUKO India. In the fiscal year ended December 31, 1996, Tata
Unysis provided the services of two engineers for six months and one engineer
for six months. The Company paid Tata Unysis approximately $117,000 for the
research and development work performed by the engineers.

        The Company is committed to continuing the development of its core
technologies and anticipates that it will devote a significant portion of
revenues to ongoing research and development, particularly with respect to
software development. The Company is currently developing the next generation of
Highlander


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products, which are anticipated to support form factor reduction, ATM
and DS3 networks with enhanced network management capabilities and better
integration of features for carrier companies.

INTELLECTUAL PROPERTY

        Although the Company has sought patent protection for certain of its
technology, the Company relies primarily on know-how and trade secrets to
protect its intellectual property. The first patent application filed by the
Company relates to technology that enables customers to use unused portions of
the spectrum.

        The Company attempts to protect its trade secrets and other proprietary
information through agreements with its customers, suppliers, employees and
consultants, and through other security measures. Each of the Company's
employees is required to sign a nondisclosure and noncompetition agreement.
Although the Company intends to protect its rights vigorously, there can be no
assurance that these measures will be successful. In addition, the laws of
certain countries in which products incorporating the Company's technology may
be developed, manufactured or sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. There is also no assurance that any particular aspect of the Company's
technology or products will not be found to infringe the claims of existing
patents, although, to date, the Company has not received any claims that its
products infringe on the proprietary rights of third parties.

        While the Company's ability to compete may be affected by its ability to
protect its intellectual property, the Company believes that, because of the
rapid pace of technological change in the telecommunications industry, its
technical expertise and ability to introduce new products on a timely basis will
be more important in maintaining its competitive position than protection of its
existing intellectual property and that patent, trade secret and copyright
protections are important but must be supported by other factors such as the
expanding knowledge, ability and experience of the Company's personnel, new
technology and products and product enhancements.

MANUFACTURING

        The Company subcontracts the manufacture of its products to other
companies that have ISO 9000 certified manufacturing facilities and that produce
chip sets having the high-speed processors needed in video compression. Digital
compression chip-sets typically command higher prices than the analog-based
chip-sets used in conventional analog codecs. The Company believes that the
digital video compression market is currently in an embryonic stage and that
advancements in digital video compression technology will result in smaller form
factors and lower prices for these chip-sets.

        The Company has formalized contractual relationships with its most
significant vendors, which the Company believes are of significant size and
scope as to minimize risk from both the manufacturers' process capability as
well as procurement capabilities; however, any possible delays in the
manufacture and delivery of product could result in a need to find alternative
manufacturing resources. Should it be required to find alternative sources of
manufacturing, the Company believes it could do so, but there could be
significant delays in production that could have a necessary adverse impact on
the Company's results of operations. Of the product lines which the Company
offers for sale, certain products are based upon the existing technologies
available, which in some cases are single sourced. Although there is no current
shortage for these components, there is no guarantee of future availability for
these parts.


                                       11
   12
        Most of the materials and supplies purchased by the Company are standard
electronic components, including transistors, integrated circuits, resistors,
capacitors and circuit boards manufactured by multiple suppliers. Currently, the
Company purchases only one component, its video-compression RISC processors,
from a single qualified source. In the event of a failure of the current sole
source supplier, a material delay in shipments could result. The Company is
seeking to qualify additional video compression vendors; however, there is no
assurance that the Company will be able to locate additional sources of supply
in a timely manner.

GOVERNMENT REGULATION

        The telecommunications industry, including most of the Company's
customers, is subject to regulation by federal and state agencies, including the
Federal Communications Commission ("FCC") and various state public utility and
service commissions. While such regulation does not necessarily affect the
Company directly, the effects of such regulations on the Company's customers
may, in turn, adversely affect the Company's business and results of operations.
For example, FCC regulatory policies affecting the availability of telco
services and other terms on which telcos conduct their business may impede the
Company's plans for deployment of its technology.

        In February 1996, the Telecommunications Act was enacted. A primary
factor in passage of the Telecommunications Act was the desire to deregulate and
foster competition in the telecommunications markets. While the Company believes
deregulation and increased competition, in general, will be favorable to its
operations and business plan, the effect of the Telecommunications Act on the
telecommunications industry is unclear. The Company's strategy depends, in part,
on the RBOCs and other leading telcos remaining in a dominant position as
consumers of digital compression and networking products from the Company or its
OEMs. If the product market for digital compression and networking equipment or
other such products becomes more fragmented as a result of deregulation, then
the Company could experience a material adverse effect on its business,
financial condition or results of operations.

        In addition, the Company's business and operating results may also be
adversely affected by the imposition of certain tariffs, duties and other import
restrictions on components that the Company or its OEM customers obtains from
non-domestic suppliers or by the imposition of export restrictions on products
sold internationally and incorporating the Company's technology.
Internationally, governments of the United Kingdom, Canada, Australia and
numerous other countries actively promote and create competition in the
telecommunications industry. Changes in current or future laws or regulations,
in the U.S. or elsewhere, could materially and adversely affect the Company's
business, financial condition or results of operations.

EMPLOYEES

        As of December 31, 1996, the Company had 96 full-time employees. Of this
total, 28 were engaged in research and development, 30 in marketing and sales,
26 in manufacturing and 12 in administration and finance. In addition, there are
10 engineers supporting the Company's efforts through an associated firm by the
name of NUKO Information Systems (India) Private Ltd. located in Bangalore,
India.

RECENT DEVELOPMENTS

        On January 7, 1997, the Company consummated its reincorporation from New
York to Delaware by effecting the merger of the Company, formerly a New York
corporation ("NUKO New York"), into its


                                       12
   13
wholly owned Delaware subsidiary ("NUKO Delaware"). The reincorporation was
previously approved by the Company's board of directors and by its shareholders
at a special meeting held on December 11, 1996. On the effective date of the
merger, each share of NUKO New York Common Stock and each share of Series A
Convertible Preferred Stock, par value $.001 per share ("Convertible Preferred
Stock"), of NUKO New York issued and outstanding immediately prior thereto were
converted into and exchanged for one fully paid and nonassessable share of
common stock, $.001 par value, and one fully paid and nonassessable share of
Convertible Preferred Stock, $.001 par value, of NUKO Delaware, respectively. In
addition, NUKO Delaware assumed the obligations of NUKO New York under the
option plans and all other employee benefit plans of NUKO New York. Each
outstanding and unexercised option, warrant or other right to purchase NUKO New
York Common Stock became an option, warrant or right to purchase NUKO Delaware
Common Stock, respectively. See "Item 4. Submission of Matters to a Vote of
Security Holders."

RISK FACTORS

        In addition to the other information contained in this Annual Report,
the following risk factors should be carefully considered in evaluating the
Company.

        HISTORY OF LOSSES. Since its decision to enter the video networking
market, the Company has operated at a loss because the Company's revenues have
been insufficient to support the comparatively substantial expenses incurred by
the Company, primarily for research and development. The Company recorded net
losses of approximately $700,000 in fiscal 1994, $1,700,000 in fiscal 1995,
$2,000,000 for the eight months ended December 31, 1995 and $14,700,000 in
fiscal 1996. The Company's accumulated deficit at December 31, 1996 is
approximately $19,100,000. The Company expects to continue to incur substantial
losses in future periods. There can be no assurance that the Company's products
will be widely accepted in the marketplace or to the extent sales are made, that
the volume, pricing and timing will be sufficient to permit the Company to
achieve profitability in the future. As of December 31, 1996, the Company has
net operating loss carry forwards of approximately $16,000,000 and $4,500,000
available to offset future federal and state taxable income, respectively, which
losses expire at various dates from 1997 to 2011. The utilization of these
losses is contingent upon the Company's ability to generate taxable income in
the future. Management does not believe, based upon available evidence, that it
is more likely than not that the Company will be able to realize the deferred
tax assets.

        INDISPENSABLE NEED FOR CAPITAL/REPORT OF INDEPENDENT ACCOUNTANTS
REGARDING ABILITY TO CONTINUE AS A GOING CONCERN. Primarily because of the
Company's history of operating losses, there is substantial doubt about the
Company's ability to continue as a going concern unless the Company is able to
obtain additional equity financing. The Company anticipates that without
additional financing it would likely run out of cash to fund its operations
during the second fiscal quarter of 1997. The Company currently does not have
any arrangements to obtain other sources of financing. If the Company were
unable to secure such financing, the Company would at a minimum be forced to
revise its 1997 Operating Plan. The report of independent accountants on the
Company's financial statements included herein includes an explanatory paragraph
to this effect. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and the
Financial Statements.

        ADDITIONAL CAPITAL REQUIREMENT. At closings held on December 16, 1996
and February 28, 1997, the Company issued to a single institutional investor
(the "Investor") an aggregate of 10,000 shares of the Company's Series A
Convertible Preferred Stock ("Convertible Preferred Stock") for an aggregate
purchase price of $10,000,000 (the "Private Placement"). Although the Company
believes that its existing cash resources and the proceeds of the Private
Placement will provide adequate funding for its capital


                                       13
   14
requirements through the first quarter of 1997, the Company expects it will need
additional funds to support its operating plan at some time during the first
half of 1997. The Company's capital requirements will depend on many factors,
including the progress of its research and development efforts, its timely
receipt of revenue from sales of its products to large customers, the need to
devote resources to manufacturing operations, and the demand for the Company's
products. Additional future financing may occur through the sale of unregistered
Common Stock or convertible securities in exempt offerings or through the public
offering of registered stock or convertible debt. Pursuant to the Securities
Purchase Agreement dated as of December 13, 1996 between the Company and the
Investor, however, the Company may not, without the prior written consent of the
Investor, negotiate or contract with any party to obtain any additional equity
financing (including debt financing with an equity component) until June 28,
1997 unless such financing is by way of a firm commitment underwriting, the
issuance of securities in connection with a merger, consolidation or sale of
assets or the issuance of securities in connection with a strategic investment
or joint venture. The Investor will also have a right of first refusal during
the 240 days beginning June 28, 1997 to purchase securities on the same terms
offered by potential investors during such period, subject to the same
exceptions applicable during the period ending June 28, 1997. There can be no
assurance that new financing will be available when needed by the Company or
that the terms, if available, will be satisfactory to the Company. If adequate
funds are not available, the Company may be required to delay, scale back or
eliminate one or more of its research and development or manufacturing programs
or to obtain funds through arrangements that may require the Company to
relinquish rights to certain of its technologies or potential products or other
assets that the Company would not otherwise relinquish. The inability of the
Company to raise needed funds would have a material adverse effect on the
Company's business, financial condition and results of operations.

        SHORT OPERATING HISTORY. The Company's operations are subject to all of
the risks inherent in a new business enterprise, including the absence of a
substantial operating history and the expense of new product development.
Various problems, expenses, complications and delays may be encountered in
connection with the development of the Company's products and business. Future
growth beyond present capacity will require significant expenditures for
expansion, marketing, research and development. These expenses must be paid out
of future equity or debt financings or out of generated revenues and Company
profits. The availability of funds from any of these sources cannot be assured.

        The Company was incorporated in the State of New York in 1968 under the
name Yondata Corporation and, in October 1992, changed its name to Growers
Express Corporation. In May 1994, Growers Express Corporation merged with NUKO
Technologies, Inc., a California corporation, and following the merger, Growers
Express changed its name to NUKO Information Systems, Inc. and commenced
operations through NUKO Technologies, Inc., which survived the merger as the
Company's wholly owned subsidiary. In January 1997, the Company effected a
reincorporation from New York to Delaware by merging itself into its
wholly-owned Delaware subsidiary. From 1970 to 1994, the Company had no
operations and no revenues. The Company's management, which had no affiliation
with Growers Express prior to the merger with NUKO Technologies in May 1994, has
almost no knowledge of the Company's activities between its incorporation in
1968 and the merger, and very few corporate records relating to the period
between 1970 and 1994 are available. As a result, while management believes that
there are no material liabilities relating to the predecessor company, there can
be no assurance that there are no potential liabilities relating to such period
or that the Company always conducted its corporate activities during this period
in accordance with the New York Business Corporations Law.

        EARLY STAGE OF PRODUCT DEVELOPMENT. Since early 1994, the Company has
been primarily engaged in research and development of its technologies, product
design and establishment of strategic alliances on which the Company expects to
depend for manufacturing, sales and distribution of its potential


                                       14
   15
products. The Company has only recently begun to generate significant revenues
from the commercialization of products. The Company has to date sold its initial
products only in limited quantities, primarily for use in development,
demonstration and testing of prototypes. Certain contracts may relate to new
technologies that may not have been previously deployed on a large-scale
commercial basis. The Company's products are based on technologies that have not
been widely deployed, and there can be no assurance that the Company will be
able successfully to market its initial products to generate the increased
revenues necessary to sustain full scale commercial production or that the
Company's products will be well received when introduced into the marketplace on
a full commercial scale. The Company's products also must interoperate
effectively among a wide variety of different equipment, different protocols and
different transmission speeds. While the Company believes its products
interoperate effectively among the principal configurations of equipment,
protocols and transmission speeds that are currently commercially deployed,
there can be no assurances that the Company's products will continue to
interoperate effectively among other configurations of equipment, protocols and
transmissions which may be developed or utilized in the future. Moreover,
management of the Company has limited experience with the distribution of
technologically complex products in commercial quantities and there can be no
assurance that the Company will be able to make necessary adaptations to
successfully move from the research and development stage to full commercial
production and distribution.

        COMPETITION. The segments of the telecommunications industry in which
the Company competes are intensely competitive and are characterized by
declining average selling prices and rapid technological change. The Company
competes with major domestic and international companies, virtually all of which
have substantially greater financial, technical, production and marketing
resources than the Company with which to pursue engineering, manufacturing,
sales, marketing and distribution of their products. For example, in its
compression and networking business, the Company competes with vertically
integrated system suppliers including General Instrument Corporation,
Scientific-Atlanta, Inc. and Philips, as well as more specialized suppliers
including the DMV division of News Corp., C-Cube Microsystems' DiviCom Inc.
subsidiary, and the TV/COM subsidiary of Hyundai. In addition, some of the
Company's customers are actual or potential competitors of the Company,
competing against the Company with its own products. The Company believes that
the principal criteria for competition in its market include cost
competitiveness, flexibility, revenue generation capability, compatibility with
existing networks and upgradeability, as well as customer support. There is no
assurance that the Company will be able to compete successfully with these other
companies on these factors or otherwise. See "-- Competition."

        MANAGEMENT OF GROWTH. During 1996, the Company began to experience
significant growth which the Company expects will continue at a rapid pace for
the foreseeable future. Such growth has placed, and will continue to place,
significant strain on the Company's limited personnel and other resources. The
Company's ability to manage any further growth, should it occur, will require it
to implement and continually expand operational and financial systems, recruit
additional employees and train and manage both current and new employees. There
can be no assurance that the Company will be able to find qualified personnel to
fill needed positions or be able to successfully manage a broader organization.
The failure of the Company to effectively expand or manage these functions
consistent with any growth that may occur could have a material adverse effect
on the Company's business and results of operations.

        DEPENDENCE ON CUSTOMER CAPITAL SPENDING REQUIREMENTS AND PURCHASING
TRENDS. The Company's business is directly impacted by capital spending
requirements and funding of the Regional Bell Operating Companies ("RBOCs") and
other major customers in the telecommunications industry. The capital budgets of
these customers or potential customers is beyond the control of the Company and
can be affected by numerous factors completely unrelated to the performance,
quality and price of the Company's products. Should the Company's customers or
potential customers suffer budgeting cutbacks affecting their


                                       15
   16
capital purchasing plans, the Company's results of operations could be adversely
affected. In addition, in recent years, the purchasing behavior of the Company's
customers has increasingly been characterized by the use of large contracts with
few suppliers. This trend is expected to intensify and will contribute to the
variability of the Company's results. Such larger purchase contracts typically
involve longer negotiating cycles, require dedication of substantial amounts of
working capital and other resources and, in general, require investments that
may substantially precede recognition of associated revenues. Moreover, in
return for larger, longer-term purchase agreements, customers often demand more
stringent acceptance criteria, which may also cause revenue recognition delays.
For example, if customers ask the Company to price its products based on
estimates of such customers' future requirements, and such customers fail to
take delivery of an amount comparable to the estimated amount on which the
Company bases its prices, the Company may recognize lower margins on product
revenue.

        RELIANCE ON TELCOS. Before purchasing products such as those of the
Company, telephone companies ("telcos") subject such products to lengthy
approval processes, which can take several years or more for complex products
based on new technologies. The Company expects to be required to submit each
successive generation of its products as well as new products to its telco
customers for approval. The length of the approval process will depend upon a
number of factors, including the complexity of the product involved, development
priorities of telcos, telcos' budgets and regulatory issues affecting telcos.
Moreover, the need for regulatory approval from the Federal Communications
Commission (the "FCC") for certain new telco services prior to their
implementation may delay the approval process. Any such delay would have a
material adverse effect on the Company's business, financial condition and
results of operations.

        Historically, telcos have been cautious in implementing new
technologies. Telcos' deployment of the Company's compression and networking
technologies may be prevented or delayed by a number of factors, including
telcos' lengthy product approval and purchase processes; cost; regulatory
barriers that may prevent or restrict telcos from providing interactive
multimedia services; the lack of demand for Internet access and other
interactive multimedia services; the lack of sufficient programming content for
interactive multimedia services; the availability of alternative technologies;
and telcos' policies that favor the use of such alternative technologies. In
addition, telcos are generally reluctant to deploy new technologies available
only from a single source, especially when the supplier is as small as the
Company, and often require alternative sources before deploying a new
technology. This reluctance may put the Company at a competitive disadvantage
relative to some of its competitors. Even if telcos adopt policies favoring
full-scale implementation of the Company's compression and networking
technologies, there can be no assurance that sales of the Company's products
will become significant or that the Company will be able successfully to
introduce its products on a timely basis or to sell those products in material
quantities. The failure of telcos to deploy the Company's technologies would
have a material adverse effect on the Company's business, financial condition
and results of operations. Even if demand for the Company's products is high,
telcos may have sufficient bargaining power to demand low prices and other terms
and conditions which may have a material adverse effect on the Company's
business, financial condition and results of operations.

        DEPENDENCE ON SUPPLIERS. The Company purchases certain of the chips and
chip sets needed in its products from single source suppliers. The Company is
dependent upon such suppliers to deliver parts and components as needed for the
manufacture of the Company's products, but there can be no assurance that such
suppliers will continue to be able to serve the Company's needs. While there are
alternative sources of supply for each of the components outsourced by the
Company, the Company would incur delays if required to switch to another
supplier. Any disruption of the Company's relationships with any of


                                       16
   17
its key single source suppliers or manufacturers or other limitations on the
availability of these products provided by such suppliers could have an adverse
effect on the Company's business and operating results.

        PRICING PRESSURES. The markets into which the Company sells or will sell
its products are characterized by extreme price competition, and the Company
expects the average selling prices of its products will decrease over the life
of each product. In order to partially offset declines in the selling price of
its products, the Company will need to reduce the cost of its products by
implementing cost reduction design changes, obtaining cost reductions as and if
volumes increase and successfully managing manufacturing and subcontracting
relationships. Since the Company does not operate its own manufacturing
facilities and must make binding commitments to purchase products, it may not be
able to reduce its costs as rapidly as companies that operate their own
manufacturing facilities. The failure of the Company to design and introduce
lower cost versions of its products in a timely manner or to successfully manage
its manufacturing relationships would have a material adverse effect on its
business and results of operations.

        DEPENDENCE ON SUBCONTRACTORS. The Company's reliance on subcontractors
to manufacture and assemble certain products involves significant risks,
including reduced control over delivery schedules, quality assurance,
manufacturing yields and cost, the potential lack of adequate capacity and
potential misappropriation of its intellectual property. Although the Company
has not experienced material disruptions in supply to date, there can be no
assurance that manufacturing or assembly problems will not occur in the future
or that any such disruptions will not have a material adverse effect upon the
Company's results of operations. Further, there can be no assurance that
suppliers who have committed to provide product will do so, or that the Company
will meet all conditions imposed by such suppliers. Failure to obtain an
adequate supply of products on a timely basis would delay product delivery to
the Company's customers, which would have a material adverse effect on the
Company's business and results of operations. In addition, the Company's
business could also be materially and adversely affected if the operations of
any supplier are interrupted for a substantial period of time, or if the Company
is required, as a result of capacity constraints in its industry or otherwise,
to increase the proportion of goods purchased from higher cost suppliers in
order to obtain adequate product volumes.

        DEPENDENCE ON CERTAIN CUSTOMERS. The Company has derived a substantial
amount of its revenues from contracts with a limited number of customers. During
the fourth quarter of 1996, Nortel accounted for approximately 60% of the
Company's revenues. Although the Company expects that Nortel will represent a
significantly smaller portion of revenues in future periods, it is anticipated
that it will continue to be an important revenue source for the foreseeable
future. Nortel's contract does not require any minimum purchases. The loss of
Nortel as a customer would have a material adverse effect on the Company's
business and results of operations. During 1996 approximately 25% of the
Company's revenues were derived from contracts with Southwestern Bell, all of
which have been completed. While the Company is continuing to seek additional
opportunities with Southwestern Bell, there can be no assurances that any
additional revenues will be derived from contracts or arrangements with
Southwestern Bell.

        FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG. The Company has
experienced, and expects to continue to experience, significant fluctuations in
its quarterly results of operations. Factors that have contributed or may
contribute to future fluctuations in the Company's quarterly results of
operations include the size and timing of customer orders and subsequent
shipments, customer order deferrals in anticipation of new products, timing of
product introductions or enhancements by the Company or its competitors, market
acceptance of new products, technological changes in the telecommunications
industry, competitive pricing pressures, accuracy of customer forecasts of
end-user demand, changes in the


                                       17
   18
Company's operating expenses, personnel changes, changes in the mix of product
sales and contract and consulting fees, quality control of products sold,
disruption in sources of supply, regulatory changes, capital spending, delays of
payments by customers and general economic conditions. The timing and volume of
customer orders are difficult to forecast. The Company does not have a material
backlog of orders for its products.

        The Company intends to continue to make significant ongoing research and
development expenditures for new products and technologies, which may have a
material adverse effect on the Company's quarterly results of operations. The
Company's expense levels are based in part on expectations of future revenues
and are relatively fixed in the short term. The Company intends to increase
operating expenditures as the Company expands its operations to develop and
market its compression and networking products. Consequently, a shortfall in
quarterly revenues due to a lack of sales of the Company's products or otherwise
would adversely impact the Company's business, financial condition and results
of operations in a given quarter due to the Company's inability to adjust
expenses or inventory to match revenues for that quarter. In addition, there can
be no assurance that, as the Company increases sales of its products, warranty
returns will not become significant or that warranty returns, if significant,
will not have a material adverse effect on the Company's business, financial
condition and results of operations.

        GOVERNMENT REGULATION. Although the extensive regulation of telcos by
Federal, state and foreign regulatory agencies, including the FCC and various
state public utility and service commissions, does not directly affect the
Company, the effects of such regulation on the Company's customers may have a
material adverse effect on the Company's business, financial condition and
results of operations. For example, FCC regulatory policies affecting the
availability of telco services, and other terms on which telcos conduct their
business, may impede the Company's penetration of certain markets. Although the
Telecommunications Act of 1996 eliminated or modified many FCC restrictions on
telcos' ability to provide interactive multimedia services, the remaining or any
future restrictions may have a material adverse effect on telcos' demand for the
Company's products. Cable operators, which may become another market for the
Company's products, are also subject to extensive governmental regulations that
may discourage them from deploying the Company's compression and networking
technology. In addition, rates for telecommunications services are generally
governed by tariffs of licensed carriers that are subject to regulatory
approval. These tariffs could have a material adverse effect on the demand for
the Company's products. The imposition of certain tariffs, duties and other
import restrictions on components which the Company intends to obtain from
non-domestic suppliers, the imposition of export restrictions on products which
the Company intends to sell internationally or other changes in laws or
regulations in the United States or elsewhere could also have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Government Regulation."

        POTENTIAL PRODUCT LIABILITIES. One or more of the Company's products may
contain undetected component, hardware, software or mechanical defects or
failures when first introduced or may develop defects or failures after
commencement of commercial production or shipments. Any such defects or failures
could cause loss of goodwill, if any, with distributors and with customers,
prevent or delay market acceptance of the Company's products, result in
cancellations or rescheduling of orders or shipments or product recalls or
returns and expose the Company to claims from customers. The Company also could
incur unexpected and significant costs, including product redesign costs and
costs associated with customer support. The Company expects to sell its products
with a limited warranty against defects in materials and workmanship. If any of
the Company's products are found within the warranty period to contain such
defects, the Company could be required to repair or replace the defective
products or refund the purchase price. The occurrence of any such defect or
failure could have a material adverse effect on the Company's


                                       18
   19
business, financial condition and results of operations. The Company does not
maintain insurance to protect against claims associated with the use of its
products and there can be no assurance that the Company will be able to satisfy
claims that may be asserted against the Company.

        INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company attempts to
protect its technology through a combination of patents, copyright and trade
secret laws, confidentiality procedures and licensing arrangements. While the
Company currently has no patents, the Company has applied for certain patents
and intends to continue to seek patents on its technology, when appropriate.
There can be no assurance that patents will issue from any of the pending
applications or that any claims allowed from pending patents will be
sufficiently broad to protect the Company's technology. While the Company
intends to protect its intellectual property rights vigorously, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company will endeavor to keep the
results of its research and development program proprietary, but may not be able
to prevent others from using some or all of such information or technology with
or without compensation. The Company's ultimate success will depend to some
extent on its ability to avoid infringement of patent or other proprietary
rights of others. The Company is not aware that it is infringing any such
rights, nor is it aware of proprietary rights of others for which it will be
required to obtain a license in order to market its initial products. However,
there is no assurance that the Company is not infringing proprietary rights of
others or that it will be able to obtain any technology licenses it may require
in the future. See "-- Intellectual Property."

        DEPENDENCE ON EMERGING MARKETS. The markets into which the Company is
targeting its products are newly developing. The potential size of the market
opportunities and the timing of their development is uncertain. In addition, the
emergence of markets for certain digital video applications will be affected by
a variety of factors beyond the Company's control. In particular, certain
sectors of the communications market will require the development and deployment
of an extensive and costly communications infrastructure. There can be no
assurance that the communications providers will make the necessary investment
in such infrastructure or that the creation of this infrastructure will occur in
a timely manner. In addition, the deployment of such infrastructure will be
subject to governmental regulatory policies, taxes and tariffs. The development
of such markets could be delayed or otherwise adversely affected by new
governmental regulations or changes in taxes or tariffs, or by the failure of
government agencies to adopt changes to existing regulations necessary to permit
new technologies to enter the market.

        POSSIBLE TECHNOLOGICAL ADVANCES. The market for the Company's initial
products is expected to be characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. The
Company's future success will depend in part upon its ability to successfully
bring to market and then enhance its existing products and to introduce new
products and features to meet changing customer requirements and emerging
industry standards. There can be no assurance that the Company will successfully
complete the development of its future products or that the Company's initial or
future products will achieve market acceptance. Any delay or failure of these
products to achieve market acceptance would adversely affect the Company's
business. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's initial or future products or
technologies non-competitive or obsolete.

        ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS. Certain provisions
of the Company's Amended and Restated Certificate of Incorporation and Bylaws
could discourage potential acquisition proposals, could delay or prevent a
change in control of the Company and could make removal of management more
difficult. Such provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers that are priced above the
then current market value of


                                       19
   20
the Common Stock. Additionally, the Board of Directors of the Company, without
further shareholder approval, may issue up to 4,990,000 shares of Preferred
Stock, in one or more series, with such terms as the Board of Directors may
determine, including rights such as voting, dividend and conversion rights which
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock may be issued quickly with terms which delay or
prevent the change in control of the Company or make removal of management more
difficult. Also, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock.

        DEPENDENCE ON KEY PERSONNEL. The ability of the Company to build and
maintain its competitive technological position will depend, in large part, on
the continued service of its key technical and management personnel and on its
ability to attract and retain highly-skilled technical, marketing and management
personnel. Competition for such personnel is intense and there is no assurance
that qualified people will be available when required. The Company does not
currently have employment agreements with any of its key employees other than
John H. Gorman, the Company's Vice President--Finance, Chief Financial Officer,
Treasurer and Secretary. The Company does not have, and is not contemplating
securing, key man life insurance on any of its executive officers or other key
personnel. There can be no assurance that any of these individuals or any other
key employee will not voluntarily terminate his or her employment with the
Company. The loss of certain key employees, particularly the Company's President
and Chief Executive Officer, Pratap Kesav Kondamoori, would have a material
adverse effect on the business of the Company. In addition, there can be no
assurance that the Company will be able to enforce noncompetition agreements
against employees who have executed such agreements.

        CONTROL BY OFFICERS AND DIRECTORS. As of March 21, 1997, the officers
and directors of the Company control, directly or indirectly, approximately
32.0% of the voting power of the Company's voting stock, including options and
warrants immediately exercisable or exercisable within 60 days. Although
management does not control a majority of the outstanding voting stock, it holds
a sufficient amount to make it more difficult for an independent third party to
effect a change in control of the Company than would be the case if the stock
ownership were less concentrated among members of management.

        STOCK MARKET VOLATILITY; VOLATILITY OF THE COMPANY'S COMMON STOCK. There
have been periods of extreme volatility in the stock market that, in many cases,
were unrelated to the operating performance of, or announcements concerning, the
issuers of the affected securities. General market price declines or volatility
in the future could adversely affect the price of the Common Stock. There can be
no assurance that the Common Stock will maintain its current market price.
Short-term trading strategies of certain investors can have a significant effect
on the price of specific securities. The price of the Company's Common Stock, in
particular, has been extremely volatile.

        ABSENCE OF DIVIDENDS. The Company does not expect to declare or pay any
cash or stock dividends in the foreseeable future, but instead intends to retain
all earnings, if any, to invest in the Company's operations. The payment of
future dividends is within the discretion of the Board of Directors and will
depend upon the Company's future earnings, if any, its capital requirements,
financial condition and other relevant factors.

        CONVERTIBLE SECURITIES, WARRANTS AND OPTIONS; POTENTIAL DILUTION AND
ADVERSE IMPACT ON ADDITIONAL FINANCING. As of March 21, 1997, the Company had
outstanding options and warrants to purchase an aggregate of 3,164,760 shares of
Common Stock at a weighted average exercise price of $5.25 per share. The
Company also is obligated to issue additional Warrants to acquire 750,751 shares
of Common Stock and 1,501,502 shares of Common Stock upon conversion of the
Convertible Preferred Stock (subject to certain limitations contained in the
Certificate of Designation for the Series A Convertible


                                       20
   21
Preferred Stock and the Stock Purchase Warrant issued to the investor) based on
a conversion price of the Convertible Preferred Stock at the time of such
conversion of $6.66 (90% of the average closing bid price over the ten trading
days prior to March 21, 1997). Pursuant to the terms of the Convertible
Preferred Stock, the minimum number of shares available for resale is 937,500
(including shares underlying Warrants), based on a fixed maximum conversion
price of $16.00 per share. Subject to such minimum number, the exact number of
shares of Common Stock issuable upon conversion of Convertible Preferred Stock
and exercise of Warrants issued pursuant to such conversion cannot be estimated
with certainty because such issuances of Common Stock will vary inversely with
the market price of the Common Stock at the time of such conversion. The number
of warrants and shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock is also subject to various adjustments to prevent
dilution resulting from stock splits, stock dividends or similar transactions.
To the extent that such options and warrants are exercised or shares of
Convertible Preferred Stock are converted (and the Warrants issuable upon such
conversion are exercised), substantial dilution of the interests of the
Company's shareholders is likely to result and the market price of the Common
Stock may be materially adversely affected. In the case of the Convertible
Preferred Stock, such dilution will be greater if the future market price of the
Common Stock decreases. For the life of such warrants, options and convertible
securities the holders will have the opportunity to profit from a rise in the
price of the underlying securities. The existence of such warrants, options and
convertible securities is likely to affect materially and adversely the terms on
which the Company can obtain additional financing, and the holders of warrants
and options can be expected to exercise them at a time when the Company would
otherwise, in all likelihood, be able to obtain additional capital by an
offering of its unissued capital stock on terms more favorable to the Company
than those provided by such warrants, options and convertible securities.

        SHARES ELIGIBLE FOR FUTURE SALE. Future sales of Common Stock by
existing shareholders under Rule 144 of the Act, pursuant to an effective
registration statement or otherwise could have an adverse effect on the price of
the Common Stock. As of March 21, 1997, there were more than 9,350,000 shares of
Common Stock eligible for sale in the public market, subject to compliance with
Rule 144. In May 1996, the Commission declared effective a registration
statement covering the resale of approximately 5,000,000 shares of such shares,
a portion of which has not been publicly resold as of the date hereof, but could
be so resold at any time. In February 1997, the Commission declared effective a
registration statement covering the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock and the Warrants issuable upon
such conversion. The Company has registered 1,500,000 shares for issuance under
its 1995 Stock Option Plan. In addition, the Company intends to register up to
2,700,000 shares for issuance under its 1996 Stock Option Plan and 1996 Director
Stock Option Plan. The possibility that substantial amounts of Common Stock may
be sold in the public market may adversely affect the prevailing market price
for the Common Stock and could impair the Company's ability to raise additional
capital through the sale of equity securities.

ITEM 2. PROPERTIES

        The Company currently occupies a total of approximately 29,000 square
feet of space in two facilities located in San Jose, California. The Company
subleases approximately 12,000 square feet in a building located at 2235 Qume
Drive, San Jose, California to house its engineering operations. In addition,
the Company leases approximately 40,000 square feet located at 2391-2395 Qume
Drive, San Jose, California. The Company's headquarters and manufacturing
operations are located at 2391 Qume Drive. The Company subleases the
approximately 20,000 square feet located at 2393-2395 Qume Drive to third
parties not affiliated with the Company. Under the terms of the 2391-2395 Qume
Drive lease, the Company has an option to purchase the building during the term
of the lease for $3,000,000. The Company believes that its existing facilities
are adequate to meet its current requirements and that suitable space will be
available as needed.


                                       21
   22
ITEM 3. LEGAL PROCEEDINGS

        On March 18, 1997, Manufacturers' Services Limited ("MSL") commenced
litigation against the Company in the United States District Court for the
Northern District of California. In its complaint, MSL alleges that the Company
breached certain express and implied contractual obligations to MSL by failing
to pay for products manufactured by MSL and for inventory MSL acquired on behalf
of the Company. The relief sought by MSL includes damages estimated at
approximately $3.2 million. The Company intends to vigorously defend against
MSL's claims in this lawsuit.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        On December 11, 1996 the Company held a Special Meeting of Shareholders
of NUKO Information Systems, Inc. Notice of the Special Meeting and a Proxy
Statement were submitted to Shareholders of record as of November 12, 1996. At
the Special Meeting, shareholders were asked to vote on the following proposals:

     1.   To approve a change in the Company's state of incorporation from New
          York to Delaware.

     2.   To approve the adoption of the 1996 Stock Option Plan (as amended and
          restated on November 7, 1996) and the reservation of 2,500,000 shares
          of Common Stock for issuance thereunder.

     3.   To approve the adoption of the 1996 Director Stock Option Plan (as
          amended and restated on November 7, 1996) and the reservation of
          200,000 shares of Common Stock for issuance thereunder.


At the meeting on December 11, 1996, the following results of shareholder votes
were recorded:

PROPOSITION 1

To approve a change in the Company's state of incorporation from New York to
Delaware:

                               
               For                7,143,546
               Against               10,952
               Abstain                3,858
               No Vote            3,243,311



PROPOSITION 2

To approve the adoption of the 1996 Stock Option Plan and the reservation of
2,500,000 shares of Common Stock for issuance thereunder.

                               
               For                6,722,594
               Against              496,308
               Abstain               32,554
               No Vote            3,150,211



PROPOSITION 3

To approve the adoption of the 1996 Director Stock Option Plan and the
reservation of 200,000 shares of Common Stock for issuance thereunder.


                                       22
   23
                               
               For                6,940,948
               Against              386,416
               Abstain               26,448
               No Vote            3,047,855




                                       23
   24
                                     PART II

ITEM 5.  MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        The Company's Common Stock, $.001 par value, trades on The Nasdaq Stock
Market's National Market System ("Nasdaq") under the symbol "NUKO." As of
February 28, 1997 there were approximately 10,489,534 shares of Common Stock
outstanding held by approximately 1,383 holders of record.

        The Company's Common Stock traded on The Nasdaq Stock Market's
over-the-counter Electronic Bulletin Board under the Symbol "NUKO" from the
period of January 1, 1995 through May 27, 1996. The table below lists the range
of high and low bid prices for the Company's Common Stock, as reported on the
Electronic Bulletin Board for the year ended December 31, 1995 and the period
from January 1, 1996 through May 27, 1996.



             FISCAL YEAR 1995                  HIGH                    LOW
             ----------------                  ----                    ---
                                                               
             First Quarter                         6                 2 1/2
             Second Quarter                    5 1/2                 2 3/8
             Third Quarter                     5 3/8                 3 1/8
             Fourth Quarter                   10 5/8                     5




             FISCAL YEAR 1996                   HIGH                   LOW
             ----------------                   ----                   ---
                                                               
             First Quarter                        10                 6 1/2
             Second Quarter                   17 1/2                 7 5/8
              (through May 27, 1996)


        The above quotations represent prices between dealers and do not include
retail mark-up, mark-down or commissions and may not represent actual
transactions.

        The table below lists the range of high and low reported sales prices
per share as reported by Nasdaq.



             FISCAL YEAR 1996                   HIGH                   LOW
             ----------------                   ----                   ---
                                                              
             Second Quarter                   17 3/8                11 3/4
               (beginning May 28, 1996)
             Third Quarter                    19 1/2                 6 1/8
             Fourth Quarter                   18 3/8                11



                                       24
   25
        The Company has never paid cash dividends on its Common Stock. The
Company currently anticipates that it will retain all available funds for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future.

        On December 16, 1996, the Registrant issued to a single institutional
investor (the "Investor") pursuant to Rule 506 under the Securities Act of 1933,
as amended (the "Act"), 5,000 shares of Series A Convertible Preferred Stock,
$0.001 par value per share ("Convertible Preferred"), for an aggregate purchase
price of $5,000,000, upon the first closing under a Securities Purchase
Agreement, dated as of December 13, 1996, by and between the Registrant and the
Investor (the "Purchase Agreement"). The Investor is an "accredited investor"
within the meaning of Rule 501(a) under the Act. The Convertible Preferred,
together with a premium thereon accruing at the rate of 7% per annum, is
convertible into Common Stock at a conversion price equal to the lesser of (i)
$16 per share and (ii) a discount to the per share market price of the
Registrant's Common Stock (based on a ten day average thereof) on the conversion
date. The discount ranges from 0% currently to 15% beginning 90 days after the
first closing. For every two shares of Common Stock issued upon conversion of
the Convertible Preferred, the holder will receive one five-year warrant to
acquire a share of Common Stock at an exercisable price of $18 per share. 


                                       25
   26
ITEM 6.      SELECTED FINANCIAL DATA

        The following selected financial data are derived from the Financial
Statements of the Company which have been audited by Coopers & Lybrand L.L.P.,
independent accountants, for the fiscal year ended December 31, 1996 and by
Grant Thornton LLP, independent certified public accountants, for the fiscal
period ended December 31, 1995 (an eight month period) and the fiscal year ended
April 30, 1995. This selected financial data should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this report.
All amounts except per share amounts are presented in thousands. No cash
dividends have been declared or paid in any of the years. Because the Company
changed its fiscal year-end from April 30 to December 31 in 1995, the financial
information below reflects a fiscal twelve month period ended December 31, 1996,
fiscal eight month period ended December 31, 1995 and a fiscal twelve month
period ended April 30, 1995. Financial information relating to the period prior
to the merger of Nuko Technologies, Inc. with Growers Express Corporation in May
1994 is not meaningful to the Company's current operations and is not provided.



                                        YEAR ENDED          EIGHT MONTHS         YEAR ENDED
                                        DECEMBER 31,            ENDED             APRIL 30,
                                            1996             DECEMBER 31,           1995
                                                                1995
                                         --------             --------             -------
                                                                          
STATEMENT OF OPERATIONS DATA
Net Revenue                              $ 11,082             $    296             $    88

Gross Profit                                1,821                  207                  81
Expenses:
   Research and development                 6,700                1,269                 803
   Selling and administration              10,043                  792                 914
                                         --------             --------             -------
       Total expenses                      16,743                2,061               1,717
                                         --------             --------             -------

Operating loss                            (14,922)              (1,854)             (1,636)

Net loss                                 $(14,733)            $ (1,958)            $(1,743)
                                         --------             --------             -------
Average common shares
   Outstanding                              9,709                2,782               2,158
                                         --------             --------             -------

Loss per share                           ($  1.52)            ($  0.70)            ($ 0.81)
                                         --------             --------             -------




BALANCE SHEET DATA
                                                  December 31
                                                  -----------                     April 30,
                                           1996                 1995                1995
                                         --------             --------            --------
                                                                          
Cash and cash equivalents                $  2,270             $ 11,256             $    --
Total assets                               18,180               13,328                 143

Long term debt                                 39                  427                  --

Total stockholders' equity/(deficit)     $  7,487             $ 11,377             $(1,592)
                                         --------             --------             -------



                                       26
   27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

        The reader of the following discussion and analysis is advised that all
forward looking statements contained in this report are subject to certain risks
and uncertainties, which could cause actual results to differ materially from
those indicated by the forward looking statements.

        The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the related notes thereto, which are
included elsewhere in the Company's current report on Form 10-K. Because in 1995
the Company changed its fiscal year-end from April 30 to December 31, the
discussions of financial information contained herein compare the fiscal year
ended December 31, 1996 to the eight-month fiscal period ended December 31,
1995. The discussion also includes a comparison of financial information from
the Company's eight-month fiscal period ended December 31, 1995 to the fiscal
year ended April 30, 1995.

RESULTS OF OPERATIONS

        Fiscal Year Ended December 31, 1996 Compared to Fiscal Period Ended
December 31, 1995 (an eight-month period)

        Sales for fiscal 1996 increased to $11.1 million compared with sales in
fiscal 1995 of $0.3 million. Sales for 1996 were primarily related to the
purchase of the Company's products by customers for evaluation and testing. A
number of these tests and evaluations have been successfully completed and the
Company expects commercial deployment to begin in 1997. However, there can be no
assurance that demand for the Company's products will continue at the rate
experienced in fiscal 1996 or that the Company's customers will choose to deploy
commercial quantities of the Company's products. Any significant decline in
demand for the Company's products would adversely impact financial results.

        Total orders booked in fiscal 1996 amounted to $13.3 million compared to
$0.3 million in fiscal 1995. The backlog of unfilled orders at December 31, 1996
was $2.3 million. The Company's order trend is characterized by short
customer-scheduled delivery cycles. As a result, a substantial portion of sales
in each fiscal quarter is derived from orders booked during the quarter.

        Gross margin in fiscal 1996 was $1.8 million compared to $0.2 million in
fiscal 1995. Gross margin in 1996 represented 16.4% of sales. The gross margin
in 1996 was adversely affected by lower product margin on the initial production
of the Company's products primarily because the Company's products have been
produced in low quantities. The Company expects that increases in sales volume
will result in improved margins. In addition, the Company experienced start-up
costs, including without limitation costs associated with selecting
sub-contractors.

        Research and development expenses for fiscal 1996 were $6.7 million
compared to $1.3 million for fiscal 1995. The increase in research and
development expenditures was primarily the result of the Company's retaining
additional personnel to engage in on-going development work. Research and


                                       27
   28
development represented 60% of sales in fiscal 1996. The Company anticipates
that spending on research and development will increase in fiscal 1997 as the
Company adds new features to existing products and modifies products so that it
can compete in both the commercial and residential marketplaces. In addition,
the Company expects to incur increased research and development expenses as it
steps up its development of the Company's next generation products.

        Sales, marketing and administrative expenses for fiscal 1996 were $10.0
million compared to $0.8 million for fiscal 1995. The increase in expense
emanated primarily from the Company's addition of personnel and infrastructures
necessary to support the Company's growth. Also contributing to the increase in
expenses was the Company's effort to make the marketplace aware of its products
by participating in numerous trade shows. The Company also recognized
compensation expense of $0.8 million representing the fair market value of stock
option awards to non-employees plus $0.3 million of compensation expense related
to the difference between the exercise price and fair market value of certain
options at the date of grant.

        The interest income (expense) category reflected net interest income
earned on cash, cash equivalents and short term investment balances during 1996
of $0.2 million compared to a net interest expense during fiscal 1995 of $0.1
million. The increase in interest income was principally the result of higher
cash balances during 1996.

        The Company recorded a net loss of $14.7 million or $1.52 per share for
fiscal year 1996 compared with a net loss of $2.0 million or $0.70 per share for
fiscal 1995. Net losses continue to reflect the Company's investment in research
and development, plus expenses to increase its marketing, sales, manufacturing,
and administrative resources to position the Company to deliver commercial
quantities of its products. While the Company anticipates that its customers
will begin to take delivery of commercial quantities of its products, the
Company expects to continue to incur losses in future periods.

        Fiscal Period Ended December 31, 1995 (an eight month period) Compared
to Fiscal Year Ended April 30, 1995

        In December 1995, the Company changed its fiscal year from April 30 to
December 31. Accordingly, financial and certain other information for the fiscal
year ended December 31, 1995 reflects eight months of operations compared to a
full year of operations for the fiscal year ended April 30, 1995. The following
discussion compares the financial information of the Company's eight month
fiscal period ended December 31, 1995 to the fiscal year ended April 30, 1995.

        Revenues for the December 1995 fiscal period was $296,330 compared to
$88,299 in the April 1995 fiscal period. Revenue for the December 1995 fiscal
period includes approximately $175,000 for products shipped for test and
evaluation plus approximately $120,000 for contract development fees. These
development fees were the result of the Company's execution of a Development and
OEM Purchase Agreement with Northern Telecom Limited ("Nortel"), pursuant to
which the Company agreed to develop customized products for Nortel's use and
exclusive distribution.

               The Company incurred operating costs and expenses of $2,150,308
in the December 1995 fiscal period compared to $1,724,050 for the April 1995
fiscal year.


                                       28
   29
        Cost of product sales increased both in dollar amount and as a
percentage of product sales from the April 1995 fiscal year to the December 1995
fiscal period. Cost of sales increased from $6,688 in the April 1995 fiscal year
to $89,296 in the December 1995 fiscal period. Cost of sales increased, as
expected, as the Company moved from field trials toward commercial production of
its products during the December 1995 fiscal period.

        The largest component of costs and expenses in the December 1995 fiscal
period was $1,268,515 of research and development expenses, which accounted for
approximately 59% of costs and expenses during such period and represents an
increase of approximately $470,000 over the amount expended on research and
development during the April 1995 fiscal year. The Company incurred research and
development expenses of $803,449 in the April 1995 fiscal year as it continued
the development of its Highlander video codec. A principal reason for the
substantial increase was the addition of engineering staff members during the
last several months of the December 1995 fiscal period.

        The Company incurred selling, general and administrative expenses of
$792,497 and $913,913 in the December 1995 fiscal period and the April 1995
fiscal year, respectively. The Company added a material number of additional
employees to its staff as it moved into commercial production, which had the
effect of increasing all categories of selling, general and administrative
expense.

        As a result of the foregoing, the Company's operating loss for the
December 1995 Fiscal Period totaled $1,853,978 compared to an operating loss of
$1,635,751 for the April 1995 fiscal year. The net loss for such periods was
$1,957,645 (December 1995 fiscal period) and $1,743,862 (April 1995 fiscal
year).

LIQUIDITY AND CAPITAL RESOURCES

        Over the past three fiscal periods, the Company has financed its
operations primarily through debt and equity financings. For the fiscal year
ended December 31, 1996, operating, investing and financing activities in the
aggregate provided/(used) cash of ($17,311,539), ($3,656,201) and $11,982,343,
respectively. At December 31, 1996, the Company had working capital of
approximately $4.1 million, representing a decrease of $7.0 million from the
Company's working capital at December 31, 1995. During fiscal 1996, the Company
used cash to fund an increase in inventories of $5.6 million and an increase in
accounts receivable of $6.7 million. Capital expenditures for both research and
development and manufacturing equipment used approximately $3.7 million of
working capital.

        In February, 1996, the Company received approximately $3.8 million from
a private placement of shares of its Common Stock. In addition, at closings held
on December 16, 1996 and February 28, 1997, the Company received aggregate net
proceeds of $9.6 million from issuances of a total of 10,000 shares of the
Company's Series A Convertible Preferred Stock to a single institutional
investor. See "Item 1. Business -- Risk Factors -- Additional Capital
Requirement."

        In October 1996, the Company obtained a $6.0 million line of credit with
Silicon Valley Bank. The line of credit expires on March 31, 1997. While the
Company currently is negotiating with Silicon Valley Bank to extend the line of
credit, there can be no assurance that the line will be extended. At March 31,
1996, the Company had borrowed $2.2 million under the Silicon Valley Bank Line
of Credit.

        The Company has no long term debt with the exception of a lease
agreement for the purpose of financing the acquisition of general furnishings,
computers and manufacturing equipment. The unpaid long


                                       29
   30
term balance of this obligation was approximately $0.3 million and $0.2 million
at December 31, 1996 and December 31, 1995, respectively.

        Management believes that in order to implement the Company's 1997
Operating Plan, the Company will need additional financing. The Company
currently does not have any arrangements to obtain additional sources of
financing. The Company intends to actively pursue additional debt or equity
financing from institutional or corporate investors or funding opportunities
from strategic partners. There can be no assurance that the Company will be able
to obtain such financing on acceptable terms or at all. In such event, the
Company would consider appropriate financing alternatives and revising its 1997
Operating Plan.

BACKLOG

        The Company's backlog includes sales orders received by the Company that
have a scheduled delivery date prior to December 31, 1997. The aggregate sales
price of orders received and included in backlog was approximately $2.3 million
at December 31, 1996. The Company believes the orders included in the backlog
are firm orders and will be shipped prior to December 31, 1997. However, some
orders may be canceled by the customer without penalty.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See Index to Consolidated Financial Statements appearing in Item 14(a)
of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        None not previously reported.


                                       30
   31
                                    PART III

        As indicated in the following table, the information required to be
presented in Part III of this report is hereby incorporated by reference from
the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be prepared in accordance with Schedule 14A and filed with the
Securities and Exchange Commission within 120 days of the end of the fiscal year
covered by this report:

        MATERIAL IN PROXY STATEMENT FOR 1997 ANNUAL MEETING WHICH IS
        INCORPORATED HEREIN BY REFERENCE:



Item No.   Item Caption                                     Proxy Statement Caption
                                                      
10         Directors and Executive Officers of the          "Directors and Executive
           Registrant                                       Officers"
11         Executive Compensation                           "Executive Compensation"

12         Security Ownership of Certain Beneficial Owners  "Security Ownership
           and Management                                   Stockholders and Management"

13         Certain Relationships and Related Transactions   "Certain Transactions"



                                       31
   32
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)     Financial Statements



                                                                                 Page
                                                                                 ----
                                                                              
        Report of Independent Accountants....................................... F-1

        Report of Independent Certified Public Accounts ........................ F-2

        Consolidated Balance Sheets as of December 31, 1996 and 1995 ........... F-3

        Consolidated Statements of Operations for the year ended December 31,
        1996, eight months ended December 31, 1995 and year ended April 30,
        1995.................................................................... F-4

        Consolidated Statement of Stockholders' Equity for the year ended
        December 31, 1996, eight months ended December 31, 1995 and year ended
        April 30, 1995.......................................................... F-5

        Consolidated Statements of Cash Flows for the year ended December 31,
        1996, eight months ended December 31, 1995 and year ended April 30,
        1995.................................................................... F-6

        Notes to Consolidated Financial Statements ............................. F-7

        Schedule II Valuation and Qualifying Accounts .......................... F-21

        Report of Independent Accountants for Schedule II ...................... F-22


        Except as set forth in the preceeding table, all financial statement
schedules have been omitted because they are not applicable, or the required
information is included in the financial statements or notes thereto.

(b)     Reports on Form 8-K

        On December 20, 1996, the Company filed a Current Report on Form 8-K to
disclose the following pursuant to Item 5 thereof: On December 16, 1996, the
Company issued to a single institutional investor (the "Investor") 5,000 shares
of Series A Convertible Preferred Stock, $0.001 per value per share, for an
aggregate purchase price of $5,000,000, upon the first closing under a
Securities Purchase Agreement, dated as of December 13, 1996, by and between the
Company and the Investor.

        No other reports on Form 8-K were filed during the last quarter of the
period covered by this report.


                                       32
   33
(c)     Exhibits



      
2.1(1)   Agreement and Plan of Reorganization, dated as of May 27, 1994 between
         Growers Express Incorporated and NUKO Technologies, Inc.

3.1(3)   Amended  and  Restated  Certificate  of  Incorporation  of  the
         Registrant

3.2(3)   Certificate of Designation containing the designations, preferences and
         rights of the Registrant's Series A Convertible Preferred Stock.

3.3      Bylaws of the Registrant

4.1(1)   Form of 10% senior notes due June 30, 1997

4.2(1)   Form of specimen Common Stock certificate

4.3(1)   Common Stock Purchase Warrants issued to Alidad Farmanfarma

4.4(1)   Common Stock Purchase Warrants issued to Marc Dumont

4.5(1)   Form of "A" Common Stock Purchase Warrants issued in connection with
         the senior notes (Exhibit 4.1 above)

4.6(1)   Form of "B" Common Stock Purchase Warrants issued in connection with
         the senior notes (Exhibit 4.1 above)

4.7(1)   Registration  Rights  Agreement  among  the  Registrant,  PIRCO
         Investment, S.A. and Nutley Investments, S.A. dated as of
         July 27, 1995.

4.8(4)   Securities Purchase Agreement, dated as of December 13, 1996, by and
         between the Registrant and RGC International Investors, LDC, including
         the Form of Stock Purchase Warrant attached as Exhibit B thereto.

4.9(4)   Registration Rights Agreement, dated as of December 13, 1996, by and
         between the Registrant and RGC International Investors, LDC.

4.10(3)  Stock Purchase Warrant dated February 28, 1997 issued by the Registrant
         to RGC International Investors, LDC.

4.11(3)  Warrant Share Registration Rights Agreement, dated as of February 28,
         1997, by and between the Registrant and RGC International Investors,
         LDC.

4.12(3)  Letter Agreement dated February 28, 1997 between the Registrant and RGC
         International Investors, LDC.

10.1(1)  Consulting Agreement between the Registrant and Alidad Farmanfarma,
         dated as of July 27, 1995

10.2(1)  Sublease  Agreement  dated as of June 13,  1994 by and  between
         Polymetrics, Inc. and the Registrant.

10.3(1)  1995 Stock Option Plan

10.4(2)  Development and OEM Purchase Agreement between the Registrant and
         Northern Telecom, Inc., dated as of December 12, 1995

10.5(2)  Agreement  between the Registrant and  Southwestern  Bell Video
         Services, Inc., dated December 12, 1995



                                       33
   34


      
10.6(5)  Source Code Purchase Agreement between Registrant and Digi
         International, Inc., dated March 26, 1996

10.7     Loan and Security Agreement dated as of October 28, 1996 by
         and between Silicon Valley Bank and the Registrant.

10.8     Lease dated as of July 29, 1996 by and  between  Fortune  Trade
         Associates and the Registrant.

10.9     1996 Stock  Option Plan (as amended  and  restated  November 7,
         1996)

10.10    1996  Director  Stock  Option  Plan (as  amended  and  restated
         November 7, 1996)

10.11    Loan Agreement  dated as of October 17, 1996 by and between the
         Registrant and John H. Gorman and Margaret E. Gorman

11.1     Statement regarding computation of per share loss

27.1     Financial Data Schedule

- -----------
(1)     Incorporated by reference to Registrant's Annual Report on Form 10-KSB
        for the fiscal year ended April 30, 1995.

(2)     Incorporated  by reference  to  Registrant's  Registration  Statement on
        Form SB-2 and subsequent  amendments (File No. 33-01626),  filed with
        the Commission on February 26, 1996.

(3)     Incorporated by reference to Registrant's Current Report on Form 8-K
        filed with the Commission on March 5, 1997.

(4)     Incorporated by reference to Registrant's Current Report on Form 8-K
        filed with the Commission on December 20, 1996.

(5)     Incorporated by reference to Registrant's Annual Report on Form 10-KSB
        for the fiscal period ended December 31, 1995 (an eight month period).



                                       34
   35
                         NUKO INFORMATION SYSTEMS, INC.

Signatures

        Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  March 25, 1997      NUKO INFORMATION SYSTEMS, INC.

                            By:      /s/ John H. Gorman
                                  ----------------------------------------------
                            Title    Vice  President,  Chief  Financial Officer,
                                  ----------------------------------------------
                                     Secretary, Treasurer
                                  ------------------------

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of March 25, 1997.




Signature                                    Title                                Date
- ---------                                    -----                                ----
                                                                          
/s/ Pratap Kesav Kondamoori         President, Director and Chairman            March 25, 1997
- ---------------------------------   of the Board (Principal Executive
Pratap Kesav Kondamoori             Officer)


/s/ John H.Gorman                   Vice President, Chief Financial Officer,      March 25, 1997
- ---------------------------------   Secretary and Treasurer (Principal
John H. Gorman                      Financial Officer and Principal 
                                    Accounting Officer)

/s/ Ram Kedlaya                     Vice President, Strategic Planning          March 25, 1997
- ---------------------------------   and Director
Ram Kedlaya

/s/ Anders O. Field                 Director                                    March 25, 1997
- ---------------------------------
Anders O. Field

/s/ Marc Dumont                     Director                                    March 25, 1997
- ---------------------------------
Marc Dumont

/s/ Robert C. Marshall              Director                                    March 25, 1997
- ---------------------------------
Robert C. Marshall



                                       35
   36
                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors of
NUKO Information Systems, Inc.:

We have audited the accompanying consolidated balance sheet of NUKO Information
Systems, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NUKO
Information Systems, Inc. and Subsidiary as of December 31, 1996 and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has sustained recurring losses from operations
which raises substantial doubt about their ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



San Jose, California                           COOPERS & LYBRAND L.L.P.
March 21, 1997


                                      F-1
   37
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
NUKO Information Systems, Inc.

We have audited the accompanying consolidated balance sheet of NUKO Information
Systems, Inc. and Subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the eight months ended December 31, 1995 and for the year ended April
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NUKO Information
Systems, Inc. and Subsidiary as of December 31, 1995, the consolidated results
of their operations and their consolidated cash flows for the eight months ended
December 31, 1995 and for the year ended April 30, 1995, in conformity with
generally accepted accounting principles.



Grant Thornton LLP

San Jose, California
February 14, 1996


                                      F-2
   38
                        NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY

                                 CONSOLIDATED BALANCE SHEETS



                                     ASSETS
                                                                          December 31,        December 31,
CURRENT ASSETS                                                                1996                1995
                                                                          ------------        ------------
                                                                                        
   Cash and cash equivalents                                              $  2,270,423        $ 11,255,820
   Restricted cash                                                             200,000                  --
   Accounts receivable                                                       6,864,479             120,000
   Receivables from officers                                                        --              27,931
   Share subscriptions receivable, including interest of $30,567                    --             341,967
   Inventories                                                               4,828,632             758,552
   Prepaid expenses                                                            564,729             110,762
                                                                          ------------        ------------
           Total current assets                                             14,728,263          12,615,032


Property and Equipment - Net                                                 3,445,868             459,497

Other Assets                                                                     6,127             253,340
                                                                          ------------        ------------
   Total Assets                                                           $ 18,180,258        $ 13,327,869
                                                                          ============        ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                       $  7,216,513        $  1,319,959
   Accrued liabilities                                                       1,052,553             108,719
   Line of credit                                                            2,160,255                  --
   Current portion of capital lease obligations                                225,105              95,273
                                                                          ------------        ------------
              Total current liabilities                                     10,654,426           1,523,951

   Senior Notes                                                                     --             325,000

   Capital Lease Obligations, less current portion                              39,128             101,686
                                                                          ------------        ------------
              Total liabilities                                             10,693,554           1,950,637
                                                                          ------------        ------------

Commitments and Contingencies (Note 14)

STOCKHOLDERS' EQUITY
   Preferred stock - $.001 par value; 5,000,000 shares authorized;
      Issued and outstanding:  5,000 shares in 1996 and nil in 1995                  5                  --
      (Liquidation value $5,015,342)
   Common stock - $.001 par value; 20,000,000 shares authorized;
      Issued and outstanding:  10,491,101 in 1996 and                           10,491               9,128
                                9,128,418 in 1995
   Additional paid-in capital                                               27,293,448          15,741,718
   Deferred Compensation Expense                                              (710,596)                 --
   Accumulated deficit                                                     (19,106,644)         (4,373,614)
                                                                          ------------        ------------
           Total stockholders' equity                                        7,486,704          11,377,232
                                                                          ------------        ------------
           Total liabilities and stockholders' equity                     $ 18,180,258        $ 13,327,869
                                                                          ============        ============




                   The accompanying notes are an integral part
                   of these consolidated financial statements.


                                      F-3
   39
                        NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY

                            CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                
                                                                          Eight Months          Year
                                                      Year Ended             Ended             Ended
                                                      December 31,        December 31,        April 30,
                                                          1996                1995              1995
                                                      ------------        -----------        -----------
                                                                                    
Net Revenues                                          $ 11,081,590        $   296,330        $    88,299
                                                      ------------        -----------        -----------

Costs and expenses
   Cost of revenues                                      9,260,470             89,296              6,688
   Research and development expenses                     6,699,575          1,268,515            803,449
   Selling, general and administrative expenses         10,042,919            792,497            913,913
                                                      ------------        -----------        -----------
                                                        26,002,964          2,150,308          1,724,050
                                                      ------------        -----------        -----------

           Operating loss                              (14,921,374)        (1,853,978)        (1,635,751)
                                                      ------------        -----------        -----------

Other income (expense)
   Interest expense                                        (94,016)           (84,467)           (65,780)
   Interest income                                         360,210             38,556                 --
   Equity in losses of unconsolidated affiliate            (95,964)           (82,259)           (48,346)
   Other, net                                               18,914             25,303              6,815
                                                      ------------        -----------        -----------
                                                           189,144           (102,867)          (107,311)
                                                      ------------        -----------        -----------

           Loss before income taxes                    (14,732,230)        (1,956,845)        (1,743,062)

Income tax expense                                            (800)              (800)              (800)
                                                      ------------        -----------        -----------

           Net Loss                                   $(14,733,030)       $(1,957,645)       $(1,743,862)
                                                      ============        ===========        ===========

Net loss per common share                             $      (1.52)       $     (0.70)       $     (0.81)
                                                      ============        ===========        ===========

Shares used in per share calculations                    9,709,221          2,782,381          2,158,141
                                                      ============        ===========        ===========



                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-4
   40
                  NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY



                                        Preferred       Preferred            Common            Common             Additional
                                          Shares          Amount             Shares             Stock               Paid-In
                                                                                                Amount              Capital
                                          -----          --------          ----------          --------          -----------
                                                                                                  
Balance, April 30, 1994                                                     4,749,441          $  4,749          $   323,708

Sales of common stock                                                         684,500               685              723,315

Shares issued for services                                                     69,795                69               28,318

Conversion of debt to equity                                                   37,737                38               54,962

Net loss                                                                           --                --                   --
                                          -----          --------          ----------          --------          -----------

Balance, April 30, 1995                                                     5,541,473             5,541            1,130,303

Sales of common stock, net of                                               3,049,833             3,050           13,403,757
offering costs of $119,693

Shares issued for services                                                     70,000                70              174,930

Conversion of debt and accrued                                                467,112               467            1,032,728
interest to equity, net of
unamortized debt issuance costs
of $47,250

Interest on share subscriptions                                                    --                --                  --

Reclassifications                                                                  --                --                  --

Net loss                                                                           --                --                  --
                                          -----          --------          ----------          --------          -----------

Balance, December 31, 1995                                                  9,128,418             9,128           15,741,718

Sales of preferred stock, net of          5,000          $      5                                                  4,799,995
offering cost of $200,000

Sales of common stock, net of                                                 822,500               823            3,833,930
offering cost of $267,148

Warrants exercised                                                            430,000               430              864,570

Stock options exercised                                                       110,183               110              268,549

Compensation expense                                                                                               1,784,686

Net loss
                                          -----          --------          ----------          --------          -----------
Balance, December 31, 1996                5,000          $      5          10,491,101          $ 10,491          $27,293,448
                                          =====          ========          ==========          ========          ===========







                                           Deferred           Share              Accumulated               Total
                                         Compensation      Subscriptions            Deficit
                                            Expense         Receivable
                                          ---------         -----------           ------------           ------------
                                                                                             
Balance, April 30, 1994                                       $(311,400)          $   (672,107)          $   (655,050)

Sales of common stock                                                --                     --                724,000

Shares issued for services                                           --                     --                 28,387

Conversion of debt to equity                                         --                     --                 55,000

Net loss                                                                            (1,743,862)            (1,743,862)
                                          ---------           ---------           ------------           ------------

Balance, April 30, 1995                                        (311,400)            (2,415,969)            (1,591,525)

Sales of common stock, net of                                        --                     --             13,406,807
offering costs of $119,693

Shares issued for services                                           --                     --                175,000

Conversion of debt and accrued                                       --                     --              1,033,195
interest to equity, net of
unamortized debt issuance costs
of $47,250

Interest on share subscriptions                                 (30,567)                    --                (30,567)

Reclassifications                                               341,967                     --                341,967

Net loss                                                             --             (1,957,645)            (1,957,645)
                                          ---------           ---------           ------------           ------------

Balance, December 31, 1995                                           --             (4,373,614)            11,377,232

Sales of preferred stock, net of                                                                            4,800,000
offering cost of $200,000

Sales of common stock, net of                                                                               3,834,753
offering cost of $267,148

Warrants exercised                                                                                            865,000

Stock options exercised                                                                                       268,659

Compensation expense                      $(710,596)                                                        1,074,090

Net loss                                                                           (14,733,030)           (14,733,030)
                                          ---------           ---------           ------------           ------------
Balance, December 31, 1996                $(710,596)          $                   $(19,106,644)          $  7,486,704
                                          =========           =========           ============           ============




                  The accompanying notes are an integral part
                   of this consolidated financial statement.

                                      F-5
   41
                  NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                              Year             Eight Months           Year
                                                              Ended               Ended               Ended
                                                            December 31,        December 31,         April 30
                                                                1996               1995                1995
                                                            ------------        ------------        -----------
                                                                                           
Cash flows from operating activities:
   Net loss                                                 $(14,733,030)       $ (1,957,645)       $(1,743,862)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
         Compensation expense                                  1,074,090
         Allowance for excess and obsolete inventory           1,534,584                  --                 --
         Shares issued for services                                   --             175,000             28,387
         Interest converted to equity                                 --              30,445                 --
         Depreciation and amortization                           676,010              73,216             23,460
         Changes in operating assets and liabilities:
           Accounts receivable                                (6,744,479)           (122,182)             1,680
           Restricted cash                                      (200,000)                 --                 --
           Interest on stock subscriptions                        30,567             (30,567)                --
           Inventories                                        (5,604,664)           (754,330)                --
           Prepaid expenses                                     (453,967)           (103,302)            (7,460)
           Other assets                                          268,964              (9,449)           (10,164)
           Accounts payable                                    5,896,551             479,684            261,338
           Accrued liabilities                                   943,835            (461,007)           488,977
                                                            ------------        ------------        -----------
              Net cash used in operating activities          (17,311,539)         (2,680,137)          (957,644)

Cash flows from investing activities:
   Purchases of property and equipment                        (3,656,201)           (451,264)           (50,234)
                                                            ------------        ------------        -----------

Cash flows from financing activities:
   Debt issuance costs                                                --             (55,500)                --
   Proceeds from issuance of senior notes                             --                  --            325,000
   Proceeds from borrowings                                    2,160,255           1,050,000             25,000
   Sale and leaseback under capital lease                        239,791                  --                 --
   Payments on capital lease obligations                        (172,516)            (14,458)                --
   Proceeds from exercise of common stock
        options and warrants                                     808,659                  --                 --
   Proceeds from share subscriptions                             311,400                  --                 --
   Repayments of borrowings                                           --                  --            (65,850)
   Proceeds from issuance of common stock                      3,834,754          13,406,807            724,000
   Proceeds from issuance of preferred stock                   4,800,000
                                                            ------------        ------------        -----------    
           Net cash provided by financing activities          11,982,343          14,386,849          1,008,150
                                                            ------------        ------------        -----------

           NET INCREASE (DECREASE) IN CASH
           AND CASH EQUIVALENTS                               (8,985,397)         11,255,448                272

Cash and cash equivalents at beginning of year                11,255,820                 372                100
                                                            ------------        ------------        -----------

Cash and cash equivalents at end of year                    $  2,270,423        $ 11,255,820        $       372
                                                            ============        ============        ===========


                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                     F-6
   42
                         NUKO INFORMATION SYSTEMS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS

   ORGANIZATION. The Company was incorporated in the State of New York in 1968
   under the name Yondata Corporation and, in October 1992, changed its name to
   Growers Express Corporation. In May 1994, Growers Express Corporation merged
   with NUKO Technologies, Inc., a California corporation, and following the
   merger, Growers Express changed its name to NUKO Information Systems, Inc.
   and commenced operations through NUKO Technologies, Inc., which survived the
   merger as the Company's wholly owned subsidiary. For accounting purposes, the
   merger has been treated as a recapitalization of NUKO Technologies, Inc. In
   January 1997, the Company effected a reincorporation from New York to
   Delaware by merging itself into its wholly-owned Delaware subsidiary.

   NATURE OF OPERATIONS. The Company designs, markets and sells one-way and
   two-way video networking products that form essential building blocks in the
   development of broadband (high capacity) video networks. The Company's
   standards compliant products allow its customers to compress and decompress
   digital video and to transmit signals over many types of networks using
   different interfaces and protocols. The Company's digital compression and
   decompression products are sold under the tradenames Highlander and RAVE and
   its network solutions are sold under the tradename Intelligent Broadband
   Services Network ("IBSN"). The Company markets its products and network
   solutions for enterprise-wide private networks and public networks offered by
   carriers such as telephone companies, cable companies, satellite companies
   and microwave communication companies.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   BASIS OF PRESENTATION. The accompanying financial statements have been
   prepared assuming that the Company will continue as a going concern. The
   Company has sustained recurring losses from operations. Management has
   developed a fiscal 1997 operating plan in which the Company has placed
   significant reliance on obtaining outside financing. Management is actively
   pursuing additional debt and equity financing from both institutional and
   corporate investors and funding opportunities from strategic corporate
   partners. In addition, the Company plans to increase revenues while
   controlling costs. Since there is no assurance that management will complete
   their plans, there is substantial doubt about the Company's ability to
   continue as a going concern. The financial statements do not include any
   adjustments that might result from the outcome of this uncertainty.

   USE OF ESTIMATES. In preparing financial statements in conformity with
   generally accepted accounting principles, management is required to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and the disclosure of contingent assets and liabilities at the
   date of the financial statements, as well as revenues and expenses during the
   reporting period. Actual results could differ from those estimates.

   PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
   the accounts of NUKO Information Systems, Inc., and its wholly owned
   subsidiary. All significant intercompany accounts and transactions have been
   eliminated. The Company's investment in NUKO Information Systems (India)
   Private Limited is accounted for under the equity method of accounting.


                                      F-7
   43
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

   FISCAL YEAR END. Effective December 31, 1995, the Company changed its fiscal
   year-end from April 30 to December 31 to more closely correspond with the
   Company's business cycle.

   REVENUE RECOGNITION. Revenue under sales agreements are recognized when the
   product has been delivered, provided no significant obligation remains, and
   collection of the receivables is deemed probable. Provision for the estimated
   costs of insignificant obligations and warranty are recorded upon shipment.

   Revenue under development contracts is recognized using the percentage
   completion method, determined by completion of milestones identified in the
   development agreement.

   CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt
   instruments purchased with a maturity of three months or less to be cash
   equivalents. The Company maintains its cash balances, which at times may
   exceed federally insured limits, in primarily two financial institutions. The
   Company has not experienced any losses in such accounts and believes it is
   not exposed to any significant credit risk on cash and cash equivalents.

   INVENTORIES. Inventories are stated at the lower of cost determined on a
   first-in, first-out method basis or market.

   PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
   accumulated depreciation. Property and equipment are depreciated on a
   straight-line basis over the estimated useful lives of the individual assets
   or for leasehold improvements over the term of the respective leases, if
   shorter. The estimated lives of major classes of depreciable assets are as
   follows:

                                                            
              Computer hardware and software                   3 years
              Office furniture and other equipment             5 to 7 years
              Leasehold Improvements                           Term of lease or life of asset



   RESEARCH AND DEVELOPMENT. Costs related to research, design and development
   of products are charged to research and development expenses as incurred.
   Under Statement of Financial Accounting Standards No. 86 (SFAS No. 86),
   software development costs are capitalized beginning when a product's
   technological feasibility has been established and ending when a product is
   available for general release to customers. To date, the establishment of
   technological feasibility of the Company's products and general product
   release are coincident. As a result, the Company has not capitalized any
   software development costs since such costs have not been significant.

   WARRANTY RESERVE. The Company has estimated and accrued costs related to
   warranties offered with its products. The stated warranty period varies from
   3 to 30 months.

   The Company does not have significant historical data with which to estimate
   warranty costs because the products were only introduced within the last
   year. Although the warranty reserve is considered adequate in the Company's
   best judgment, it is reasonably possible that in the near term that the cost
   of upgrade, modification and repair to systems in the field could exceed the
   estimated warranty reserve, and that additional expense could result.


                                      F-8
   44
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

   INCOME TAXES. Deferred income tax assets and liabilities are computed
   annually for differences between the financial statement and tax basis of
   assets and liabilities that will result in taxable or deductible amounts in
   the future based on enacted tax laws and rates applicable to the periods in
   which the differences are expected to affect taxable income. Valuation
   allowances are established when necessary to reduced deferred tax assets to
   the amount expected to be realized.

   NET LOSS PER SHARE. Net loss per share is computed by dividing net loss by
   the weighted average number of common shares outstanding.

   ADVERTISING COSTS. Advertising costs are charged to operations as they are
   incurred. Advertising expense for the year ended December 31, 1996, the eight
   month period ended December 30, 1995 and the year ended April 30, 1995 were
   $34,252, $11,214 and $11,048 respectively.

   RECLASSIFICATIONS. Certain amounts in the prior periods' financial statements
   have been reclassified to conform to the December 31, 1996 presentation. The
   reclassifications did not change previously reported net loss.

   FAIR VALUE OF FINANCIAL STATEMENTS. The carrying value of certain of the
   Company's financial instruments including cash and cash equivalents, accounts
   receivable, accounts payable and other accrued liabilities approximates fair
   value due to their short maturities. Based on borrowing rates currently
   available to the Company for loans with similar terms, the carrying value of
   its notes payable, capital lease obligations and borrowings under the
   Company's line of credit approximates fair value.

   LONG-LIVED ASSETS. Effective January 1, 1996, the Company adopted Financial
   Accounting Standards Board Statement No. 121 (SFAS 121), "Accounting for the
   Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
   which requires the Company to review for impairment of long-lived assets
   whenever events or changes in circumstances indicate that the carrying amount
   of an asset might not be recoverable. In certain situations, an impairment
   loss would be recognized. The adoption of SFAS 121 did not impact on the
   Company's financial condition or results of operations.

   RECENT ACCOUNTING PRONOUNCEMENTS. During February 1997, the Financial
   Accounting Standards Board issued Statement No. 128, "Earnings per Share",
   (SFAS 128) which specifies the computation, presentation and disclosure
   requirements for Earnings Per Share. SFAS 128 will become effective for the
   Company's 1997 fiscal year. The Company's management has not yet studied the
   implications of SFAS 128 but does not expect the adoption of SFAS 128 to have
   a material impact on the Company's financial condition or results of
   operations.


                                      F-9
   45
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3. RISKS AND UNCERTAINTIES

   The Company sells its products primarily to end users with large customer
   service organizations and integrators in North America and Asia. The Company
   performs ongoing credit evaluations of its customer's financial condition and
   may require collateral from its customers. At December 31, 1996 two customers
   accounted for 57.2% and 29.5% of accounts receivable. At December 31, 1995,
   the trade accounts receivable comprised a balance due from one customer. The
   Company has not historically experienced any significant losses related to
   individual customers.

   Substantially all the Company's historical revenue have been to customers for
   evaluation testing and demonstration in field trials. The Company's products
   are based on technologies that have not been widely deployed and there can be
   no assurance that the Company will be able to market successfully its
   products to generate the increased revenue necessary to sustain full scale
   commercial production or that the Company's products will be well received by
   the marketplace on a full commercial scale.

   The Company is dependent upon certain key subcontractors and suppliers, and
   does not have long-term supply agreements. The failure of a subcontractor or
   supplier to deliver components in a reliable and timely manner in accordance
   with the Company's specifications could have a material adverse effect on the
   Company's business, financial condition and operating results in the near
   term.

   The Company's inventories include high-technology parts that may be
   specialized in nature or subject to rapid technological obsolescence. While
   the Company has considered technical obsolescence in estimating required
   reserves to reduce recorded amounts to market values, such estimates could
   change in the near future.

4. CONTRACT DEVELOPMENT

   The Company entered into a development agreement with one of its customers
   whereby the Company developed certain products to be purchased by the
   customer. Under the term of the Agreement, the Company received
   non-refundable payments totaling $610,000 payable in installments upon
   achieving certain milestones identified in the agreement. As of December 31,
   1996, the Company had achieved all milestones and recorded revenue of
   $490,000 in 1996 and $120,000 in 1995. Costs associated with the contract are
   reported as research and development expenses.

5. RESTRICTED CASH

     In January 1996, the Company agreed to place in escrow a sum of $200,000 to
    guarantee a purchase commitment with one of its suppliers. These funds are
    invested in a highly liquid, interest bearing money market account, and are
    carried at cost which approximates market.

6. LINE OF CREDIT

     At December 31, 1996, the Company had available a $6 million collateralized
    bank line of credit, which expires on March 31, 1997. The Company is
    currently negotiating with Silicon Valley Bank to extend the line of credit.
    Borrowing under the line of credit bears interest at the bank prime rate
    plus 0.75%. The agreement contains certain restrictive covenants regarding
    the Company's financial position. At December 31, 1996 the Company had
    borrowed $2.2 million under this agreement.


                                      F-10
   46
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


7. BALANCE SHEET DETAIL



                                                                 December 31
                                                            1996             1995
                                                        -----------        ---------
                                                                     
Inventories
   Raw material                                         $ 1,445,748        $  28,552
   Work in process                                        1,253,617               --
   Finished goods                                         2,129,267          730,000
                                                        -----------        ---------
                                                        $ 4,828,632        $ 758,552
                                                        ===========        =========
Property and Equipment
   Leased assets                                        $   300,892        $ 211,417
   Computer hardware and software                         1,145,968          312,059
   Office furniture and other equipment                   1,734,901           23,203
   Leasehold improvements                                 1,032,151           11,033
                                                        -----------        ---------
                                                          4,213,912          557,712
   Less accumulated depreciation and amortization          (768,044)         (98,215)
                                                        -----------        ---------
                                                        $ 3,445,868        $ 459,497
                                                        ===========        =========


8. ACCRUED LIABILITIES



                                                                              December 31
                                                                         1996            1995
                                                                      ----------       --------
                                                                                 
   Accrued liabilities consist of the following at December 31,
         Payroll and related accruals                                 $  267,859       $ 14,669
         Income taxes                                                     17,336          8,463
         Interest                                                             --         28,785
         Debt issuance cost payable                                           --         27,500
         Customer returns                                                     --         16,162
         Other                                                           767,358         13,140
                                                                      ----------       --------
                                                                      $1,052,553       $108,719
                                                                      ==========       ========


9. INCOME TAXES

       Income tax expense consists of the following:



                                           Eight Months
                        Year Ended            Ended              Year Ended
                       December 31          December 31,          April 30,
                           1996                1995                 1995
                          -----                -----                -----
                                                         
Current
    Federal               $  --                $  --                $  --
    State                  (800)                (800)                (800)
                          -----                -----                -----
                           (800)                (800)                (800)

Deferred
    Federal                  --                   --                   --
    State                    --                   --                   --
                          -----                -----                -----
                          $(800)               $(800)               $(800)
                          =====                =====                =====



                                      F-11
   47

                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9. INCOME TAXES - CONTINUED

   Deferred tax assets consist of the following:



                                                               1996                       1995
                                                           -----------                -----------
                                                                                
          Assets
            Research and development credits               $   246,599                $        --
            Accelerated depreciation                           418,831                         --
            Accrued liabilities                                912,992                     13,000
            Tax loss carry forwards                          5,790,342                  1,471,000
                                                           -----------                -----------
                Total deferred tax assets                    7,368,764                  1,484,000
          Valuation allowance                               (7,368,764)                (1,484,000)
                                                           -----------                -----------  
                Net deferred tax asset                     $        --                $        --
                                                           ===========                ===========


   As of December 31, 1996, management does not believe, based upon available
   evidence, that it is more likely than not that the Company will be able to
   realize the net deferred tax assets. The valuation allowance increased by
   $5,884,764, $598,000 and $637,000 for the year ended December 31, 1996, the
   eight months ended December 31, 1995 and the year ended April 30, 1995,
   respectively. The Company has available tax loss carry forwards which are
   limited in their use on an annual basis; however, complete utilization of the
   losses is expected should sufficient taxable income be generated. These
   losses which expire through 2011, amount to approximately $16,000,000 and
   $4,500,000, and are available to offset future federal and state taxable
   income, respectively.

   At December 31, 1996 the Company has federal and state research and
   development credits of approximately $141,988 and $104,611, respectively. The
   research and development credit expires in 2011 for federal purposes if not
   utilized.

   The Tax Reform Act of 1986 limits the use of net operating loss and tax
   credit carry forwards in certain situations where changes occur in the stock
   ownership of a company. If the Company should have an ownership change, as
   defined, utilization of the carry forwards could be restricted.

   The reconciliation of the income tax expense at the federal statutory income
   tax rate to the Company's income taxes is as follows:



                                                                                Eight Months
                                                      Year Ended                   Ended                 Year Ended
                                                      December 31                December 31,             April 30,
                                                         1996                      1995                      1995
                                                      -----------                ---------                ---------
                                                                                                 
          Expected tax benefit (at 34%)               $ 5,009,230                $ 665,000                $ 593,000
          Operating losses not utilized                (5,009,230)                (665,000)                (593,000)
          State taxes                                        (800)                    (800)                    (800)
                                                      -----------                ---------                ---------

                                                      $      (800)               $    (800)               $    (800)
                                                      ===========                =========                =========


   The Company's tax rate differs from the federal tax rate because net
   operating losses have not been benefited.


                                      F-12
   48
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.  SUPPLEMENTAL DISCLOSURE OF CASH FLOWS



                                                                                                Eight months
                                                                          Year ended               ended              Year ended
                                                                         December 31,           December 31,           April 30,
                                                                             1996                  1995                  1995
                                                                           --------               -------               -------
                                                                                                               
          Supplemental disclosure of cash flow information:
           Cash paid during the year for
             Interest                                                      $ 94,016               $76,143               $45,319
             Income Taxes                                                       800                   800                   800

          Supplemental disclosures of non-cash transactions:
           Cancellation of senior notes in exchange
           for warrants                                                     325,000                    --                    --


11. LONG-TERM DEBT

   The Company issued $325,000 of senior notes (the "Senior Notes") in 1994. The
   senior notes were collateralized by "A" Warrants with annual interest at 10%.
   In June 1996 these senior notes were canceled by the exercise of the "A"
   Warrants in exchange for 130,000 shares of the Company's Common Stock. All
   interest owed on the senior notes was paid in 1996.

12. CAPITALIZED LEASES

   The Company leases items of equipment under capital leases at interest rates
   ranging from 7% to 16% expiring through 1999. Future minimum lease payments
   for the years ending December 31, are as follows:

                                                         
              1997                                             $ 239,159
              1998                                                29,083
              1999                                                 9,695
                                                               ---------
                                                                 277,937
              Less amount representing interest                  (13,704)
                                                               ---------
              Total capital lease obligation                     264,233
              Less current portion                              (225,105)
                                                               ---------
                                                               $  39,128
                                                               =========



   During the year, the Company sold and leased back certain items of equipment
   under capital leases. No gain or loss was recognized on the transaction

   The cost basis of the assets held under capital lease is $300,892 and
   $211,417 at December 31, 1996 and 1995, respectively; accumulated
   amortization for these assets amounted to $132,820 and $15,661, respectively.


                                      F-13
   49
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13. STOCKHOLDERS' EQUITY

   PREFERRED STOCK. On December 16, 1996, the Company issued 5,000 shares of
   Series A Convertible Preferred Stock, $0.001 par value per share
   ("Convertible Preferred"), for an aggregate purchase price of $5,000,000,
   upon the first closing under a Securities Purchase Agreement, dated as of
   December 13, 1996.

   PREFERRED STOCK CONVERSION. Each share of Convertible Preferred is
   convertible at the option of the holder into the number of shares of common
   stock as defined by the stated value of the Convertible Preferred multiplied
   by 7% per annum, divided by the conversion price. The stated value of the
   Convertible Preferred is $1,000 per share and the conversion price is the
   lower of $16 or an average of the Company's share price in the ten (10)
   trading day period prior to conversion multiplied by a percentage ranging
   from 100% to 85% depending on when such shares are converted. In addition, at
   conversion, holders of Convertible Preferred will receive warrants to
   purchase 50% of the number of shares of common stock that they receive on
   conversion with an exercise price of $18. The warrant exercise price is
   subject to certain anti-dilution adjustments in the event of common stock,
   option or warrant issuance's at a discount to market price. All shares of
   Convertible Preferred automatically convert to common stock on December 15,
   2001, if not previously converted. Holders of Convertible Preferred do not
   have voting rights, except for certain protective provisions relating to
   changes in the rights of holders of Convertible Preferred. Shares of
   Convertible Preferred bear no dividends.

   LIQUIDATION. Holders of preferred stock have a liquidation preference of the
   stated value of preferred stock plus 7% per annum.

   REDEMPTION. Upon its filing a registration statement for an underwritten
   public offering, the Company shall have the right to redeem all or part of
   the outstanding shares of Convertible Preferred at the greater of 110% of the
   stated value plus 7% per annum or the value of the number of shares of common
   stock at which the Convertible Preferred can be converted, valued at the then
   closing price. The Company is also required to issue warrants to purchase
   shares of common stock equal to 100% of the redemption amount divided by the
   conversion price, at an exercise price of $18.


                                      F-14
   50
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13. STOCKHOLDERS EQUITY - CONTINUED

   STOCK WARRANTS. In 1996, the Company issued 65,000 Warrants to purchase
   common shares of the Company. These Warrants contained an exercise price that
   ranged from $5.00 to $8.50 per share. At December 31, 1996 all these Warrants
   remained outstanding.

   In 1995, the Company issued 78,400 Warrants to purchase common shares of the
   Company. These Warrants contained an exercise price that ranged from $2.30 to
   $8.50 per share. At December 31, 1996, 78,400 Warrants remained outstanding.

   In 1994, the Company issued 130,000 "A" Warrants and 130,000 "B" Warrants to
   purchase common shares of the Company. The "A" Warrants contained an exercise
   price of $2.50 per share and the "B" Warrants contained an exercise price of
   $10.00 per share. The "A" Warrants were exercised in June 1996 which canceled
   "Senior Debt" of $325,000. The "B" Warrants expire on June 30, 1999. At
   December 31, 1996 all "B" Warrants remain outstanding.

   In June 1995, the Company received $550,000 from the issuance of 8%
   convertible notes. These notes and all accrued interest were converted into
   286,112 common shares of the Company in December 1995. In connection with the
   notes, the Company granted warrants to purchase 333,400 shares of the
   Company's common shares at prices ranging from $1.80 to $2.30 per common
   share. These warrants have an expiration date of July 27, 2000. These
   Warrants were exercised during 1996. On December 31, 1996 there were no
   outstanding Warrants related to this transaction.

   Additionally, in October 1995, the Company issued $500,000 in 8% convertible
   notes payable. These notes and all accrued interest were converted into
   181,000 shares of common stock in December 1995. These Warrants were
   exercised during 1996. On December 31, 1996 there were no outstanding
   Warrants related to this transaction.

14. COMMITMENTS AND CONTINGENCIES

   The Company leases two facilities. One facility contains the Company's
   manufacturing, sales marketing and administration functions. It consists of
   40,000 square feet of which the Company sub-leases approximately 20,000
   square feet. The lease expires June 30, 2001. Under the terms of the lease,
   the Company has an option to purchase the building during the term of the
   lease for $3,000,000. The second facility contains the Company's research and
   development functions. It consists of 12,000 square feet. The lease expires
   in April 1999. Under the term of both leases, the Company is obligated to pay
   property taxes, insurance and maintenance. The Company also leases some of
   its equipment used in operations. Rent expense was approximately $180,774 for
   the twelve month period ended December 31, 1996; $98,837 for the eight month
   period ended December 31, 1995 and $119,984 for the twelve month period ended
   April 30, 1995.


                                      F-15
   51
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14. COMMITMENTS AND CONTINGENCIES - CONTINUED

   Non-cancelable commitments under operating leases are as follows:



      Year ending December 31,
      ------------------------
                                                         
              1997                                             $ 435,600
              1998                                               435,600
              1999                                               345,200
              2000                                               300,000
              2001                                               150,000
                                                              ----------
                                                              $1,666,400
                                                              ==========


   The Company is engaged in various legal proceedings in the normal course of
   business. While Management is unable to determine the outcome of these
   proceedings, Management does not consider that they will have a material
   impact on the Company's financial position or results of operations.

15. UNCONSOLIDATED AFFILIATE

   The Company owns 48% of NUKO Information Systems (India) Private Limited
   ("NUKO India"). NUKO India performs certain development on behalf of the
   Company. During the periods ended December 31, 1996, December 31, 1995 and
   April 30, 1995, the Company advanced $95,964, $82,259, and $48,346,
   respectively, to NUKO India. The carrying value of the Company's investment
   in NUKO India is zero at December 31, 1996 and at December 31, 1995.

16. STOCK OPTION PLANS

   The purpose of the Company's stock option plans is to attract and retain the
   best available personnel for positions of substantial responsibility with the
   Company, to provide additional incentive to the employees and consultants of
   the Company and to promote the success of the Company's business. The 1996
   Stock Option Plan (as amended and restated November 7, 1996) and the 1996
   Director Option Plan (as amended and restated November 7, 1996) were approved
   by the Board of Directors in November 1996 and the shareholders of the
   Company in December, 1996. The 1995 Stock Option Plan was approved by the
   Board of Directors in May 1995 and received shareholder approval in November,
   1995.

   Each Plan became effective upon adoption by the Board of Directors and shall
   continue in effect for a term of ten (10) years unless sooner terminated
   pursuant to terms of such Plan. Vesting periods vary but stock options
   generally vest and become exercisable over three or four years. At December
   31, 1996, 105 optionees held options for the purchase of Common Stock with
   expiration dates occurring between May 25, 2000 and December 17, 2001, with
   an average exercise price of $5.50.

   Options granted under the 1996 Stock Option Plan and the 1996 Directors
   Option Plan will be nonstatutory stock options. Options granted under the
   1995 Stock Option Plan may be either incentive stock options or nonstatutory
   stock options at the discretion of the Board of Directors. All options
   granted through December 31, 1996 under the 1995 Stock Option Plan have been
   nonstatutory options.


                                      F-16
   52
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16. STOCK OPTION PLANS - CONTINUED

   The following table summarizes the Company's option activity during 1996 and
   1995:




                                                                              Outstanding Options
                                                    -----------------------------------------------------------------------
                                    Available for     Number of           Price per           Aggregate           Weighted
                                        Grant          Options              Share             Exercise             Average
                                                                                                Price             Price per
                                                                                                                    Share
                                                                                                  
Balances, April 30, 1994 and
 1995
Authorized                          1,400,000
Options granted                    (1,069,000)        1,069,000        $         2.375       $  2,538,875        $    2.375
                                    ---------------------------------------------------------------------------------------
Balances, December 31, 1995           331,000         1,069,000        $         2.375          2,538,875        $    2.375
Authorized                          2,700,000
Options granted                    (1,992,160)        1,992,160         $5.40 - $11.75         14,299,949        $    7.178
Options canceled                      187,717          (187,717)       $2.375 - $6.875           (906,350)       $    4.828
Options exercised                                      (110,183)        $2.375 - $5.40           (268,660)       $    2.438
                                    ---------------------------------------------------------------------------------------
Balances, December 31, 1996         1,226,557         2,763,260        $2.375 - $11.75       $ 15,663,814        $    5.669



   NUKO recognized compensation expense of $792,800 representing the fair market
   value of stock option awards to non-employees in the year ended December 31,
   1996. NUKO has adopted the disclosure only provisions of SFAS No. 123.
   Accordingly, no compensation cost has been recognized for NUKO's stock option
   awards to employees, other than $281,290 relating to the difference between
   the exercise price and fair market value of options at the date of grant for
   certain option grants to employees in the year ended December 31, 1996. Had
   compensation cost been determined based on the fair value at the grant date
   for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123,
   NUKO's net loss and net loss per share for the year ended December 31, 1996
   and the eight month period ended December 31, 1995, respectively, would have
   been as follows:



                                                       1996          1995
                                                       ----          ----

                                                           
   Net loss - as reported                          $14,733,030   $1,957,645
   Net loss - pro forma                            $17,961,194   $2,973,668
   Net loss per share - as reported                  $1.51          $0.70
   Net loss per share - pro forma                    $1.85          $1.06


   Such pro forma disclosures may not be representative of future compensation
   cost because options vest over several years and additional grants are made
   each year. The weighted average grant date fair value of options granted was
   $5.80 and $1.81 per option for the year ended December 31, 1996 and the eight
   month period ended December 31, 1995, respectively.

   The fair value of each option grant is estimated on the date of grant using
   the Black-Scholes valuation model with the following weighted average
   assumptions:



                                                      1996          1995
                                                      ----          ----
                                                            
   Risk free interest rate                             5.9%          6.1%
   Volatility                                          110%          110%
   Expected life                                     4 years       4 years
   Expected dividends                                    -             -



                                      F-17
   53
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16. STOCK OPTION PLANS - CONTINUED

   The risk-free interest rate was calculated in accordance with the grant date
   and expected life. Volatility was calculated by an analysis of the Company's
   share price. The weighted average expected life was calculated based on the
   vesting period and the exercise behavior of the participants.

   There were 482,000 options exercisable at December 31, 1995 with a weighted
   average exercise price of $2.375.

   The options outstanding and currently exercisable by exercise price at
   December 31, 1996 are as follows:



                                                                                                       Options Exercisable
                                                                                                -----------------------------------
       Exercise Price             Number               Weighted            Weighted                Number                Weighted
                               Outstanding             Average             Average              Exercisable              Average
                                                    Remaining Life     Exercise Price                                Exercise Price
       --------------          -----------          --------------     --------------           -----------          --------------
                                                                                                         
          $ 2.375                 907,766                  3.40            $ 2.375                 797,874               $ 2.375
          $   5.4                  71,500                  4.57            $   5.4                  24,917               $   5.4
          $ 6.125                 144,750                  4.57            $ 6.125                  20,104               $ 6.125
          $   6.5                 331,000                  4.09            $   6.5                 174,694               $   6.5
          $ 6.875               1,069,034                  4.19            $ 6.875                 298,674               $ 6.875
          $ 8.875                  50,000                  4.64            $ 8.875                   5,556               $ 8.875
          $  9.25                  32,160                  4.47            $  9.25                   5,360               $  9.25
          $ 11.75                 157,050                  4.96            $ 11.75                       0               $ 11.75
          -------               ---------                  ----            -------               ---------               -------
                                2,763,260                  4.00            $  5.70               1,327,179               $  5.70



                                      F-18
   54
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. EMPLOYEE BENEFIT PLAN

   The Company initiated a 401(k) plan during 1996 that allows eligible
   employees to contribute up to 20% of their compensation, up to a maximum
   contribution of $9,500 in 1996. Employee contributions and earning thereon
   vest immediately. The Company is not required to contribute to the 401(k)
   plan and made no voluntary contributions through December 31, 1996.

18. CHANGE IN FISCAL YEAR END

   In December 1995, the Company changed its fiscal year end to December 31. In
   accordance with Rule 13a-10 of the Securities Exchange Act of 1934, the
   following table provides unaudited information with respect to the eight
   months ended December 31, 1994.



                                           (unaudited)
                                        
          Revenues                         $   100,740


          Costs and expenses                (1,069,128)
                                           -----------
          Operating loss                      (968,388)
          Other expense, net                   (32,712)
          Income taxes                            (533)
                                           -----------
          Net loss                         $(1,001,633)
                                           ===========
          Loss per share                   $     (0.50)
                                           ===========



                                      F-19
   55
                         NUKO INFORMATION SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


18. CHANGE IN FISCAL YEAR END - CONTINUED

   The unaudited financial statements for the eight months ended December 31,
   1994, have been prepared on the same basis as the audited financial
   statements and in the opinion of management, include all adjustments,
   consisting of normal recurring adjustments necessary for a fair presentation
   of financial position and results of operations in accordance with generally
   accepted accounting principles.

19. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

   The Company currently operates in one industry segment, the video class of
   the networking industry, for financial reporting purposes. Summarized below
   are the Company's export sales, all of which are denominated in U.S. dollars.



                      Year Ended        Eight Months Ended     Year Ended
                   December 31,1996     December 31, 1995    April 30, 1995
                   ----------------     -----------------    --------------
                                                    
   Asia               $1,855,700                  -               -


   Revenues from individual customers in excess of 10% of net sales were as
   follows:



                      Year Ended              Eight Months Ended             Year Ended
                   December 31, 1996          December 31, 1995            April 30, 1995
  Customer       Percent       Amount       Percent        Amount       Percent       Amount
  --------       -------       ------       -------        ------       -------       ------
                                                                    
      A              45%      $4,939,507       40%         $120,000        --            --
      B              26%      $2,924,482        --               --        --            --
      C               --              --       42%         $125,000        --            --
      D               --              --       17%          $49,900        --            --


20. SUBSEQUENT EVENTS

   In connection with a private placement of the Company's common shares,
   subsequent to December 31, 1996, the Company issued 5,000 shares of Series A
   Convertible Preferred Stock, $0.001 par value per share for an aggregate
   purchase price of $5,000,000, pursuant to the second closing under a
   Securities Purchase Agreement dated as of December 13, 1996.

   Subsequent to the end of the year the Company entered into a settlement
   agreement with one customer in which the customer agreed to settle an
   outstanding receivable of $2 million by a cash payment of $0.8 million and
   the agreement by NUKO to repurchase certain inventory for $1.2 million.
   Management considers that the realizable value of this inventory is in excess
   of the purchase price.


                                      F-20
   56
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                     


                                       Balance     Charges to     Deductions     Other (1)     Balance
                                      Beginning     Expenses                                End of Period
                                      of Period
                                                                               

Year ended December 31, 1996

Allowance for excess and
obsolete inventory                            -    $1,534,584              -             -    $1,534,584

Deferred tax valuation
allowance                             1,484,000     5,884,764              -             -     7,368,764

Eight months ended
December 31, 1995

Allowance for excess and
obsolete inventory                            -             -              -             -             -

Deferred tax valuation
allowance                               886,000       598,000              -             -     1,484,000

Year ended April 30, 1995

Allowance for excess and
obsolete inventory                            -             -              -             -             -

Deferred tax valuation
allowance                               249,000       637,000              -             -       886,000


                                      F-21
   57
                       Report of Independent Accountants


To the Board of Directors of
NUKO Information Systems, Inc.:


Our report on the consolidated financial statements of NUKO Information
Systems, Inc. and Subsidiary is included on page F-1 of this Form 10-K. In
connection with our audit of such financial statements we have also audited the
related financial statement schedule as of December 31, 1996 and for the year
then ended which is included on page F-21 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material aspects, the information required to be
included therein.


San Jose, California                            COOPERS & LYBRAND L.L.P.

March 21, 1997


                                      F-22

EX-3.3

   1

                                                                    EXHIBIT 3.3

                                   BYLAWS OF
 
                         NUKO INFORMATION SYSTEMS, INC.
                            (A DELAWARE CORPORATION)
 
                               TABLE OF CONTENTS
 


                                                                                         PAGE
                                                                                         ----
                                                                                   
ARTICLE I -- CORPORATE OFFICES.........................................................    1
     1.1      REGISTERED OFFICE........................................................    1
     1.2      OTHER OFFICES............................................................    1
ARTICLE II -- MEETINGS OF STOCKHOLDERS.................................................    1
     2.1      PLACE OF MEETINGS........................................................    1
     2.2      ANNUAL MEETING...........................................................    1
     2.3      SPECIAL MEETING..........................................................    1
     2.4      NOTICE OF STOCKHOLDERS' MEETINGS.........................................    1
     2.5      ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS..........    2
     2.6      MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............................    2
     2.7      QUORUM...................................................................    2
     2.8      ADJOURNED MEETING; NOTICE................................................    2
     2.9      VOTING...................................................................    3
     2.10     STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................    3
     2.11     RECORD DATE FOR STOCKHOLDER NOTICE; VOTING...............................    3
     2.12     PROXIES..................................................................    3
     2.13     ORGANIZATION.............................................................    3
     2.14     LIST OF STOCKHOLDERS ENTITLED TO VOTE....................................    4
ARTICLE III -- DIRECTORS...............................................................    4
     3.1      POWERS...................................................................    4
     3.2      NUMBER OF DIRECTORS......................................................    4
     3.3      ELECTION AND TERM OF OFFICE OF DIRECTORS.................................    4
     3.4      RESIGNATION AND VACANCIES................................................    4
     3.5      REMOVAL OF DIRECTORS.....................................................    5
     3.6      PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................................    5
     3.7      FIRST MEETINGS...........................................................    5
     3.8      REGULAR MEETINGS.........................................................    5
     3.9      SPECIAL MEETINGS; NOTICE.................................................    5
     3.10     QUORUM...................................................................    6
     3.11     WAIVER OF NOTICE.........................................................    6
     3.12     ADJOURNMENT..............................................................    6
     3.13     NOTICE OF ADJOURNMENT....................................................    6
     3.14     BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING........................    6
     3.15     FEES AND COMPENSATION OF DIRECTORS.......................................    6
     3.16     APPROVAL OF LOANS TO OFFICERS............................................    6
     3.17     SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION...................    7

 
                                        i
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                                                                                         PAGE
                                                                                         ----
                                                                                   
ARTICLE IV -- COMMITTEES...............................................................    7
     4.1      COMMITTEES OF DIRECTORS..................................................    7
     4.2      MEETINGS AND ACTION OF COMMITTEES........................................    7
     4.3      COMMITTEE MINUTES........................................................    7
ARTICLE V -- OFFICERS..................................................................    8
     5.1      OFFICERS.................................................................    8
     5.2      ELECTION OF OFFICERS.....................................................    8
     5.3      SUBORDINATE OFFICERS.....................................................    8
     5.4      REMOVAL AND RESIGNATION OF OFFICERS......................................    8
     5.5      VACANCIES IN OFFICES.....................................................    8
     5.6      CHAIRMAN OF THE BOARD....................................................    8
     5.7      PRESIDENT................................................................    9
     5.8      VICE PRESIDENTS..........................................................    9
     5.9      SECRETARY................................................................    9
     5.10     CHIEF FINANCIAL OFFICER..................................................    9
     5.11     ASSISTANT SECRETARY......................................................   10
     5.12     ADMINISTRATIVE OFFICERS..................................................   10
     5.13     AUTHORITY AND DUTIES OF OFFICERS.........................................   10
ARTICLE VI -- INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND   OTHER AGENTS.....
                                                                                          10
     6.1      INDEMNIFICATION OF DIRECTORS AND OFFICERS................................   10
     6.2      INDEMNIFICATION OF OTHERS................................................   11
     6.3      INSURANCE................................................................   11
ARTICLE VII -- RECORDS AND REPORTS.....................................................   11
     7.1      MAINTENANCE AND INSPECTION OF RECORDS....................................   11
     7.2      INSPECTION BY DIRECTORS..................................................   11
     7.3      ANNUAL STATEMENT TO STOCKHOLDERS.........................................   12
     7.4      REPRESENTATION OF SHARES OF OTHER CORPORATIONS...........................   12
     7.5      CERTIFICATION AND INSPECTION OF BYLAWS...................................   12
ARTICLE VIII -- GENERAL MATTERS........................................................   12
     8.1      RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING....................   12
     8.2      CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................................   12
     8.3      CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED........................   12
     8.4      STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES.........................   13
     8.5      SPECIAL DESIGNATION ON CERTIFICATES......................................   13
     8.6      LOST CERTIFICATES........................................................   13
     8.7      TRANSFER AGENTS AND REGISTRARS...........................................   14
     8.8      CONSTRUCTION; DEFINITIONS................................................   14
ARTICLE IX -- AMENDMENTS...............................................................   14

 
                                       ii
   3
 
                                     BYLAWS
 
                                       OF
 
                         NUKO INFORMATION SYSTEMS, INC.
                            (A DELAWARE CORPORATION)
 
                                   ARTICLE I
 
                               CORPORATE OFFICES
 
     1.1 Registered Office
 
     The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
 
     1.2 Other Offices
 
     The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
 
                                   ARTICLE II
 
                            MEETINGS OF STOCKHOLDERS
 
     2.1 Place of Meetings
 
     Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
 
     2.2 Annual Meeting
 
     The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such designation,
the annual meeting of stockholders shall be held on the third Friday in May in
each year at 3:00 p.m. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
 
     2.3 Special Meeting
 
     Special meetings of the stockholders, for any purpose, or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation, may be
called by the Chairman of the Board or the President and shall be called by the
President or the Secretary at the request in writing of the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
 
     2.4 Notice of Stockholders' Meetings
 
     Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which notice shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. The written notice of
any meeting shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the corporation. To be properly brought before the meeting, business must be
of a nature that is appropriate for consideration at a meeting of stockholders
and must be (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before a stockholder's meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, each such notice must be given either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (1) with respect to a matter to be
   4
 
brought before an annual meeting or a special meeting sixty (60) days prior to
the date set forth in the By-Laws for an annual meeting and (2) with respect to
a matter to be brought before a special meeting the close of business on the
tenth day following the date on which notice of such meeting is first given to
stockholders. The notice shall set forth (i) information concerning the
stockholder, including his or her name and address, (ii) a representation that
the stockholder is entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to present the matter specified in the notice,
and (iii) such other information as would be required to be included in a proxy
statement soliciting proxies for the presentation of such matter to the meeting.
 
     Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at an annual meeting except in accordance with the
procedures set forth in this section; provided, however, that nothing in this
section shall be deemed to preclude discussion by any stockholder of any
business properly brought before an annual meeting in accordance with these
By-Laws.
 
     2.5 Advance Notice of Stockholder Nominees and Stockholder Business
 
     To be properly brought before an annual meeting or special meeting,
nominations for the election of directors or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors or (c) otherwise
properly brought before the meeting by a stockholder.
 
     2.6 Manner of Giving Notice; Affidavit of Notice
 
     Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
 
     An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
 
     2.7 Quorum
 
     The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
 
     When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
 
     If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
 
     2.8 Adjourned Meeting; Notice
 
     When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if
 
                                        2
   5
 
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
 
     2.9 Voting
 
     The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
 
     Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
 
     2.10 Stockholder Action by Written Consent Without a Meeting
 
     Unless otherwise provided in the Certificate of Incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may not be taken without a meeting.
 
     2.11 Record Date for Stockholder Notice; Voting
 
     For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
 
     If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
 
     A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
 
     The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
 
     2.12 Proxies
 
     Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
 
     2.13 Organization
 
     The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such matters
as the regulation of the manner of voting and the conduct of business. The
secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the
 
                                        3
   6
 
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
 
     2.14 List of Stockholders Entitled to Vote
 
     The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
 
                                  ARTICLE III
 
                                   DIRECTORS
 
     3.1 Powers
 
     Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
 
     3.2 Number of Directors
 
     The board of directors shall consist of five members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
 
     3.3 Election and Term of Office of Directors
 
     Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
 
     3.4 Resignation and Vacancies
 
     Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
 
     Vacancies in the board of directors for any reason, and newly created
directorships, may be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director.
 
     If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
 
     If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10)
 
                                        4
   7
 
percent of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
 
     3.5 Removal of Directors
 
     Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, if and so
long as stockholders of the corporation are entitled to cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire board of directors.
 
     3.6 Place of Meetings; Meetings by Telephone
 
     Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
 
     Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
 
     3.7 First Meetings
 
     The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected board of directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
 
     3.8 Regular Meetings
 
     Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors. If
any regular meeting day shall fall on a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding full business day.
 
     3.9 Special Meetings; Notice
 
     Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
 
     Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
 
                                        5
   8
 
     3.10 Quorum
 
     A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
 
     A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
 
     3.11 Waiver of Notice
 
     Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
 
     3.12 Adjournment
 
     A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
 
     3.13 Notice of Adjournment
 
     Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
bylaws, to the directors who were not present at the time of the adjournment.
 
     3.14 Board Action by Written Consent Without a Meeting
 
     Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
 
     3.15 Fees and Compensation of Directors
 
     Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
 
     3.16 Approval of Loans to Officers
 
     The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
 
                                        6
   9
 
     3.17 Sole Director Provided by Certificate of Incorporation
 
     In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
 
                                   ARTICLE IV
 
                                   COMMITTEES
 
     4.1 Committees of Directors
 
     The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
 
     4.2 Meetings and Action of Committees
 
     Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
 
     4.3 Committee Minutes
 
     Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
 
                                        7
   10
 
                                   ARTICLE V
 
                                    OFFICERS
 
     5.1 Officers
 
     The Corporate Officers of the corporation shall be a president, a secretary
and a chief financial officer. The corporation may also have, at the discretion
of the board of directors, a chairman of the board, one or more vice presidents
(however denominated), one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
 
     In addition to the Corporate Officers of the Company described above, there
may also be such Administrative Officers of the corporation as may be designated
and appointed from time to time by the president of the corporation in
accordance with the provisions of Section 5.12 of these bylaws.
 
     5.2 Election of Officers
 
     The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
 
     5.3 Subordinate Officers
 
     The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
 
     The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
 
     5.4 Removal and Resignation of Officers
 
     Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
 
     Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
 
     Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
 
     5.5 Vacancies in Offices
 
     A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
 
     5.6 Chairman of the Board
 
     The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then
 
                                        8
   11
 
the chairman of the board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these bylaws.
 
     5.7 President
 
     Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He or
she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
 
     5.8 Vice Presidents
 
     In the absence or disability of the president, and if there is no chairman
of the board, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these bylaws, the president or the
chairman of the board.
 
     5.9 Secretary
 
     The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
 
     The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
 
     The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
 
     5.10 Chief Financial Officer
 
     The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
 
     The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
 
                                        9
   12
 
     5.11 Assistant Secretary
 
     The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
 
     5.12 Administrative Officers
 
     In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
 
     5.13 Authority and Duties of Officers
 
     In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
 
                                   ARTICLE VI
 
               INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
                                AND OTHER AGENTS
 
     6.1 Indemnification of Directors and Officers
 
     The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
 
     The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
 
     The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it
 
                                       10
   13
 
should ultimately be determined that the director or officer is not entitled to
be indemnified under this Section 6.1 or otherwise.
 
     The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
 
     Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
 
     6.2 Indemnification of Others
 
     The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
 
     6.3 Insurance
 
     The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
 
                                  ARTICLE VII
 
                              RECORDS AND REPORTS
 
     7.1 Maintenance and Inspection of Records
 
     The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
 
     Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
 
     7.2 Inspection by Directors
 
     Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
 
                                       11
   14
 
     7.3 Annual Statement to Stockholders
 
     The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
 
     7.4 Representation of Shares of Other Corporations
 
     The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
 
     7.5 Certification and Inspection of Bylaws
 
     The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
 
                                  ARTICLE VIII
 
                                GENERAL MATTERS
 
     8.1 Record Date for Purposes Other than Notice and Voting
 
     For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
 
     If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
 
     8.2 Checks; Drafts; Evidences of Indebtedness
 
     From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
 
     8.3 Corporate Contracts and Instruments: How Executed
 
     The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
 
                                       12
   15
 
     8.4 Stock Certificates; Transfer; Partly Paid Shares
 
     The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
 
     Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
 
     Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
 
     The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
 
     8.5 Special Designation on Certificates
 
     If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
 
     8.6 Lost Certificates
 
     Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the
 
                                       13
   16
 
board may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
 
     8.7 Transfer Agents and Registrars
 
     The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
 
     8.8 Construction; Definitions
 
     Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
 
                                   ARTICLE IX
 
                                   AMENDMENTS
 
     The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
 
     Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
 
                                       14

EX-10.7

   1
                                                                    EXHIBIT 10.7



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                         NUKO Informations Systems, Inc.

                           LOAN AND SECURITY AGREEMENT


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

   2
                                TABLE OF CONTENTS



                                                                                   Page
                                                                                   ----
                                                                             
1.       DEFINITIONS AND CONSTRUCTION...........................................     1
         1.1     Definitions....................................................     1
         1.2     Accounting Terms...............................................     8

2.       LOAN AND TERMS OF PAYMENT                                                   8
         2.1     Advances.......................................................     8
         2.2     Overadvances...................................................     9
         2.3     Interest Rates, Payments, and Calculations.....................    10
         2.4     Crediting Payments.............................................    10
         2.5     Fees...........................................................    10
         2.6     Additional Costs...............................................    11
         2.7     Term...........................................................    11

3.       CONDITIONS OF LOANS....................................................    11
         3.1     Conditions Precedent to Initial Advance........................    11
         3.2     Conditions Precedent to all Advances...........................    12

4.       CREATION OF SECURITY INTEREST..........................................    12
         4.1     Grant of Security Interest.....................................    12
         4.2     Delivery of Additional Documentation Required..................    12
         4.3     Right to Inspect...............................................    12

5.       REPRESENTATIONS AND WARRANTIES.........................................    13
         5.1    Due Organization and Qualification..............................    13
         5.2    Due Authorization; No Conflict..................................    13
         5.3    No Prior Encumbrances...........................................    13
         5.4    Bona Fide Eligible Accounts.....................................    13
         5.5    Merchantable Inventory..........................................    13
         5.6    Name: Location of Chief Executive Office........................    13
         5.7    Litigation......................................................    13
         5.8    No Material Adverse Change in Financial Statements..............    13
         5.9    Solvency........................................................    13
         5.10   Regulatory Compliance...........................................    14
         5.11   Environmental Condition.........................................    14
         5.12   Taxes...........................................................    14
         5.13   Subsidiaries....................................................    14
         5.14   Government Consents.............................................    14
         5.15   Full Disclosure.................................................    14

6.       AFFIRMATIVE COVENANTS..................................................    14
         6.1    Good Standing...................................................    15
         6.2    Government Compliance...........................................    15
         6.3    Financial Statements, Reports, Certificates.....................    15
         6.4    Inventory; Returns..............................................    15
         6.5    Taxes...........................................................    15
         6.6    Insurance.......................................................    16
         6.7    Principal Depository............................................    16
         6.8    Quick Ratio.....................................................    16
         6.9    Debt-Tangible Net Worth Ratio...................................    16
         6.10   Tangible Net Worth..............................................    16


                                       i



   3
                                                                             
         6.11   Profitability...................................................    16
         6.12   Further Assurances..............................................    16

7.       NEGATIVE COVENANTS.....................................................    17
         7.1    Dispositions....................................................    17
         7.2    Change in Business..............................................    17
         7.3    Mergers or Acquisitions.........................................    17
         7.4    Indebtedness....................................................    17
         7.5    Encumbrances....................................................    17
         7.6    Distributions...................................................    17
         7.7    Investments.....................................................    17
         7.8    Transactions with Affiliates....................................    17
         7.9    Subordinated Debt...............................................    18
         7.10   Inventory.......................................................    18
         7.11   Compliance......................................................    18
         7.12   Officer Compensation............................................    18

8.       EVENTS OF DEFAULT......................................................    18
         8.1    Payment Default.................................................    18
         8.2    Covenant Default................................................    18
         8.3    Attachment......................................................    18
         8.4    Insolvency......................................................    19
         8.5    Other Agreements................................................    19
         8.6    Subordinated Debt...............................................    19
         8.7    Judgments.......................................................    19
         8.8    Misrepresentations..............................................    19

9.       BANKS RIGHTS AND REMEDIES..............................................    19
         9.1    Rights and Remedies.............................................    19
         9.2    Power of Attorney...............................................    20
         9.3    Accounts Collection.............................................    21
         9.4    Bank Expenses...................................................    21
         9.5    Bank's Liability for Collateral.................................    21
         9.6    Remedies Cumulative.............................................    21
         9.7    Demand; Protest.................................................    21

10.      NOTICES................................................................    21

11.      CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.............................    22

12.      GENERAL PROVISIONS.....................................................    22
         12.1   Assignment; Participations......................................    22
         12.2   Indemnification.................................................    23
         12.3   Time of Essence.................................................    23
         12.4   Severability of Provisions......................................    23
         12.5   Amendments in Writing, Integration..............................    23
         12.6   Counterparts....................................................    23
         12.7   Survival........................................................    23
         12.8   Confidentiality.................................................    24




                                       ii

   4
       This LOAN AND SECURITY AGREEMENT is entered into as of October 28, 1996,
by and between SILICON VALLEY BANK ("Bank") and NUKO Information Systems, Inc.
("Borrower").

                                    RECITALS

       Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.

                                    AGREEMENT

       The parties agree as follows:

       1. DEFINITIONS AND CONSTRUCTION

          1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:

              "Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

              "Advance" or "Advances" means a cash advance or cash advances
under the Revolving Facility.

              "Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.

              "Bank Expenses" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), whether or not suit is brought.

              "Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information if such
equipment is necessary for review of such information.

              "Borrowing Base" has the meaning set forth in Section 2.1 hereof.

              "Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.

              "Closing Date" means the date of this Agreement. 

              "Code" means the California Uniform Commercial Code.



                                       1
   5
              "Collateral" means the property described on Exhibit A attached
hereto.

              "Committed Line" means Six Million Dollars ($6,000,000).

              "Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.

              "Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.

              "Daily Balance" means the amount of the Obligations owed at the
end of a given day.

              "Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon thirty (30) days prior written notification
thereof to Borrower in accordance with the provisions hereof. Unless otherwise
agreed to by Bank, Eligible Accounts shall not include the following:

              (a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;

              (b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;

              (c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;

              (d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;

              (e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;



                                       2
   6

              (f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;

              (g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United States
(unless Borrower has complied with the Federal Assignment of Claims Act);

              (h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower, provided this section shall not exclude from
the borrowing base deposits made by an account debtor with Borrower;

              (i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, (fifty percent (50%) for any one
account debtor pre-approved by Bank) to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank, and except as
to accounts of Southwestern Bell, Inc., Nortel, Inc. and Daewoo, Inc.;

              (j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its reasonable discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and

              (k) Accounts the collection of which Bank reasonable determines,
after consultation with Borrower to be doubtful.

              "Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States, that are not excluded under any of the exclusions set forth in the
definition of "Eligible Accounts," and that are supported by one or more letters
of credit negotiated by Bank, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank.

              "Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.

              "ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.

              "GAAP" means generally accepted accounting principles as in effect
from time to time.

              "Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.

              "Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

                                        3




   7
              "Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.

              "Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

              "IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

              "L/C Backed Accounts" means Accounts that are supported by one or
more letters of credit negotiated by Bank, in an amount and of a tenor, and
issued by a financial institution, acceptable to Bank.

              "Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.

              "Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.

              "Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.

              "Maturity Date" means March 31, 1997.

              "Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.

              "Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement between Borrower and Bank, whether absolute or contingent, due
or to become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding.

              "Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.

              "Permitted Indebtedness" means:

              (a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;

              (b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;

                                        4




   8
              (c) Subordinated Debt;

              (d) Indebtedness to trade creditors or with respect to surety
bonds and similar obligations incurred in the ordinary course of business

              (e) Contingent Obligations of any Subsidiary with respect to
obligations of Borrower (provided that the primary obligations are not
prohibited hereby); provided that the incurrence of such Indebtedness or
Contingent Obligations, as the case may be, does not result in a violation of
Section 7.7 as a consequence of the provisos set forth in paragraph (d) of the
definition of "Permitted Investments;"

              (f) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of Borrower with respect to obligations of any Subsidiary (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);

              (g) Indebtedness secured by Permitted Liens other than capital
leases;

              (h) Other Indebtedness not otherwise permitted by Section 7.4 not
exceeding $50,000 in the aggregate outstanding at any time;

              (i) Indebtedness by Borrower and its Subsidiaries consisting of
guarantees (and other credit support) of the obligations of vendors and
suppliers of Borrower or its Subsidiaries in respect of transactions entered
into in the ordinary course of business provided that such guarantees (and other
credit support) shall not at any time exceed $50,000 in the aggregate
outstanding at anytime;

              (j) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition, provided
that the outstanding principal amount of such Indebtedness shall not exceed
$250,000; and

              (k) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (i) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.

              "Permitted Investment" means:

              (a) Investments existing on the Closing Date disclosed in the
Schedule;

              (b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.

              (c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;

                                        5




   9
              (d) Investments (whether consisting of the purchase of securities,
loans, capital contributions, or otherwise) of Subsidiaries in or to other
Subsidiaries or in Borrower;

              (e) Investments consisting of receivables owing to Borrower or its
Subsidiaries by Persons and advances to customers or suppliers, in each case, if
created, acquired or made in the ordinary course of business; provided that this
paragraph (e) shall not apply to Investments owing by Subsidiaries to Borrower;

              (f) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best interests
of Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business; (iii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower
or its Subsidiaries, (iv) other loans to officers and employees approved by the
Board of Directors in an aggregate amount not in excess of $50,000 outstanding
at any time;

              (g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers;

              (h) Investments pursuant to or arising under currency agreements
or interest rate agreements in the ordinary course of business;

              (i) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions to customers and suppliers who are not
Affiliates in the ordinary course of business; provided that this paragraph (i)
shall not apply to Investments by Borrower in any Subsidiary;

              (j) Investments in Subsidiaries, provided Bank has first consented
in writing to such Investments;

              (k) Investments constituting acquisitions permitted under Section
7.3;

              (l) Investments consisting of deposit accounts of Borrower in
which Bank has a Lien prior to any other Lien;

              (m) Investments consisting of deposit accounts of any Subsidiaries
maintained in the ordinary course of business;

              (n) Investments accepted in connection with Transfers permitted by
Section 7.1; and

              (n) Other Investments aggregating not in excess of $50,000 at any
time.

              "Permitted Liens" means the following:

              (a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;

              (b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;

                                        6




   10
              (c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment

              (d) Leases or subleases and license and sublicenses granted to
others in the ordinary course of Borrower's or its Subsidiaries' business not
interfering in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor, licensor
or under any lease or license;

              (e) Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by Borrower or any
Subsidiary (including Liens on assets of any corporation that existed at the
time it because or becomes a Subsidiary);

              (f) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such Equipment;

              (g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Sections 8.4 and 8.8;

              (h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not interfering in any material respect with the
ordinary conduct of the business of Borrower and its Subsidiaries, taken as a
whole;

              (i) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;

              (j) Liens which constitute rights of set-off of a customary nature
or bankers' Liens with respect to amounts on deposit, whether arising by
operation of law or by contract, in connection with arrangements entered into
with banks in the ordinary course of business; provided that with respect to
Liens on amounts on deposit owned by Borrower, such Liens shall not be prior to
the Lien of Bank;

              (k) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums;

              (l) Earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section 7.3; and

              (m) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.

              "Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.

                                        7




   11
              "Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.

              "Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.

              "Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.

              "Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.

              "Schedule" means the schedule of exceptions attached hereto, if
any.

              "Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).

              "Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, be owned by Borrower, either directly or through an Affiliate.

              "Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.

              "Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness.

              1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.

       2. LOAN AND TERMS OF PAYMENT

              2.1 Advances. Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not
to exceed the lesser of (i) the Committed Line minus the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit that have not become Advances in accordance with Section 2.1.1(a) or
2.1.2(a)) or (ii) the Borrowing Base minus the face amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit that have
not become Advances in accordance with Section 2.1.1(a) or 2.1.2(a)). For
purposes of this Agreement, "Borrowing Base" shall mean an amount equal to (i)
seventy-five percent (75%) of Eligible Accounts excluding L/C Backed Accounts
plus (ii) ninety percent (90%) of L/C Backed Accounts. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may
be repaid and reborrowed at any time prior to the Maturity Date.

                                        8


   12
       Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. California time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person whose Bank reasonably believes
to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank will
credit the amount of Advances made under this Section 2.1 to Borrower's deposit
account.

       The Revolving Facility shall terminate on the Maturity Date, at which
time All Advances under this Section 2.1 and other amounts due under this
Agreement shall be immediately due and payable.

              2.1.1 Letters of Credit.

                    (a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued letters of credit for the account of
Borrower in an aggregate face amount not to exceed (i) the lesser of the
Committed Line or the Borrowing Base minus (ii) the then outstanding principal
balance of the Advances provided that the face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) shall not in any
case exceed Four Million Dollars ($4,000,000). Each such letter of credit shall
have an expiry date no later than the Maturity Date. All such letters of credit
shall be, in form and substance, acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank's form of application and
letter of credit agreement. All amounts actually paid by Bank in respect of a
letter of credit shall, when paid, constitute an Advance under this Agreement.

                    (b) The Obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any letters of credit.

              2.1.2 Letter of Credit Reimbursement; Reserve.

                    (a) Borrower may request that Bank issue a letter of credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such letter of credit, Bank shall treat such demand as an
advance to Borrower of the equivalent of the amount thereof (plus cable charges)
in United States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable transfer to
the country of which it is the currency.

                    (b) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Committed Line for letters of credit against fluctuations in currency exchange
rates, in an amount equal to twenty percent (20%) of the face amount of such
letter of credit. The amount of such reserve may be amended by Bank from time to
time to account for fluctuations in the exchange rate. The availability of funds
under the Committed Line shall be reduced by the amount of such reserve for so
long as such letter of credit remains outstanding.

       2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of

                                        9




   13
(i) the Committed Line or (ii) the Borrowing Base, Borrower shall immediately
pay to Bank, in cash, the amount of such excess.

              2.3 Interest Rates, Payments, and Calculations.

                    (a) Interest Rate. Except as set forth in Section 2.3(b),
any Advances shall bear interest, on the average Daily Balance, at a rate equal
to Three Quarters of One (0.75) percentage point above the Prime Rate.

                    (b) Default Rate. At Bank's option and with notice to
Borrower all Obligations shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.

                    (c) Payments. Interest hereunder shall be due and payable on
the last calendar day of each month during the term hereof. Bank shall, at its
option, with notice to Borrower, charge such interest, all Bank Expenses, and
all Periodic Payments against any of Borrower's deposit accounts, or against the
Committed Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.

                    (d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.

              2.4 Crediting Payments. So long as no Event of Default has
occurred and is continuing, Bank shall credit a wire transfer of funds, check or
other item of payment to such deposit account or Obligation as Borrower
specifies. After the occurrence and during the continuance of an Event of
Default, the receipt by Bank of any wire transfer of funds, check, or other item
of payment shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment on account unless such payment is of
immediately available federal funds or unless and until such check or other item
of payment is honored when presented for payment. Notwithstanding anything to
the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon California time shall be deemed to have been received by Bank
as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.

              2.5 Fees. Borrower shall pay to Bank the following:

                    (a) Facility Fee. A Facility Fee equal to Fifteen Thousand
Dollars ($15,000), which fee shall be fully earned and non-refundable;

                    (b) Financial Examination and Appraisal Fees. Within thirty
(30) days after demand, Bank's reasonable customary fees and out-of-pocket
expenses for Bank's audits of Borrower's Accounts, and for each appraisal of
Collateral and financial analysis and examination of Borrower performed from
time to time by Bank or its agents;

                    (c) Bank Expenses. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof,

                                       10




   14
all Bank Expenses, including reasonable attorneys' fees and expenses, within
thirty (30) days of when they become due.

              2.6 Additional Costs. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:

                    (a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);

                    (b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or

                    (c) imposes upon Bank any other condition with respect to
its performance under this Agreement,

and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error; provided, however, that the Borrower
shall not be liable for any such amount attributable to any period prior to 180
day prior to the date of such certificate.

              2.7 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect for a
term ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding (excluding
Obligations under Sections 2.6 and 12.2 to the extent they remain inchoate at
the time all outstanding payment obligations are paid in full).

       3. CONDITIONS OF LOANS

              3.1 Conditions Precedent to Initial Advance. The obligation of
Bank to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:

                    (a) this Agreement;

                    (b) a certificate of the Secretary of Borrower with respect
to incumbency and resolutions authorizing the execution and delivery of this
Agreement;

                    (c) financing statement (Form UCC-1);

                    (d) patent and/or trademark security agreements;





                                       11
   15
                    (e) insurance certificate;

                    (f) payment of the Bank Expenses then due specified in
Section 2.5 hereof; and

                    (g) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.

              3.2 Conditions Precedent to all Advances. The obligation of Bank
to make each Advance, including the initial Advance, is further subject to the
following conditions:

                    (a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and

                    (b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date (except to the extent they relate specifically
to any earlier date, in which case such representations and warranties shall
continue to have been true and accurate as of such date), and no Event of
Default shall have occurred and be continuing, or would result from such
Advance. The making of each Advance shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the accuracy of the facts
referred to in this Section 3.2(b).

       4. CREATION OF SECURITY INTEREST

              4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof,
in each case, to the extent that a security interest in such Collateral can be
perfected by the filing of a financing statement, in the case of Collateral
consisting of instruments, documents, chattel paper or certificated securities,
to the extent that Bank takes possession of such Collateral.

              4.2 Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.

              4.3 Right to Inspect. Subject to Section 12.8, Bank (through any
of its officers, employees, or agents) shall have the right, upon reasonable
prior notice, from time to time during Borrower's usual business hours, to
inspect Borrower's Books and to make copies thereof and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, condition of, or any other matter relating to, the Collateral.

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   16
       5. REPRESENTATIONS AND WARRANTIES

       Borrower represents and warrants as follows:

              5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified except for states as to
which any failure so to qualify would not have a Material Adverse Effect.

              5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default would reasonably be expected to have a Material Adverse Effect.

              5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.

              5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The property giving rise to such Eligible Accounts
has been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor the Accounts of which are included in any Borrowing Base
Certificate as an Eligible Account.

              5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.

              5.6 Name; Location of Chief Executive Office. Except as disclosed
in the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.

              5.7 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending (or, to Borrower's knowledge, threatened) by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.

              5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank, or a material impairment of the prospect of repayment of any
portion of the Obligations or a material impairment of the value or priority of
Bank's security interests in the Collateral.

              5.9 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature. "Solvent" means that the fair saleable
value of Borrower's assets (including goodwill) exceeds the fair value of its
liabilities.

                                       13




   17
              5.10 Regulatory Compliance. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.

              5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.

              5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.

              5.13 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.

              5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted except where the failure to obtain any such consent, approval or
authorization, to make any such declaration or filing or to give any such notice
would not reasonably be expected to have a Material Adverse Effect.

              5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading (it being recognized by Bank that the
projections and forecasts provided by Borrower are not be viewed as facts and
that actual results during the period or periods covered by any such projections
and forecasts may differ from the projected or forecasted results).

       6. AFFIRMATIVE COVENANTS

              Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:

                                       14




   18
              6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a Material Adverse
Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to
maintain, to the extent consistent with prudent management of Borrower's
business, in force all licenses, approvals and agreements, the loss of which
could have a Material Adverse Effect.

              6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which would reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.

              6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, certified by a Responsible Officer; (b) as soon as available, but in any
event within ninety (90) days after the end of Borrower's fiscal year,
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, reviewed by an independent certified public accounting
firm reasonably acceptable to Bank; (c) within five (5) days upon becoming
available, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Form 10-K and 10-Q filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
would reasonably be expected to result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.

       Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.

       Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.

       Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.

              6.4 Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).

              6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory

                                       15




   19
to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.

              6.6 Insurance.

                    (a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.

                    (b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
casualty policy shall, at the option of Bank, be payable to Bank for application
to the Obligations.

              6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.

              6.8 Quick Ratio. Borrower shall maintain, as of the last day of
each calendar month, a ratio of Quick Assets to Current Liabilities of at least
1.5 to 1.0.

              6.9 Debt-Tangible Net Worth Ratio. Borrower shall maintain, as of
the last day of each calendar month, a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than
1.75 to 1.0.

              6.10 Tangible Net Worth. Borrower shall maintain, as of the last
day of each calendar month, a Tangible Net Worth plus Subordinated Debt of not
less than Five Million, Two Hundred Fifty Thousand Dollars ($5,250,000).

              6.11 Profitability. Borrower shall have a minimum net profit of
One Dollar ($1.00) for each fiscal quarter; provided, however, that Borrower may
sustain losses not exceeding Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000) for the quarter ending September 30, 1996, and losses of not more
than Two Million Five Hundred Thousand Dollars ($2,500,000) for the quarter
ending December 31, 1996.

              6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.

                                       16




   20
       7. NEGATIVE COVENANTS

              Borrower covenants and agrees that, without Bank's prior consent,
which may be granted or withheld in Bank's sole discretion, so long as any
credit hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:

              7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment, (iv) Transfers
which constitute liquidation of Investments permitted under Section 7.7, and (e)
other Transfers not otherwise permitted by this Section 7.1 not exceeding
$100,000 in any fiscal year.

              7.2 Change in Business. Engage in any business, or permit any of
its Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership
(other than as a result of the issuance by Borrower of equity securities).
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.

              7.3 Mergers or Acquisitions. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided,
however, that this Section 7.3 shall not apply to transactions among Borrower
and its Subsidiaries in which Borrower is the surviving entity or among its
Subsidiaries, provided no Event of Default exists or would result immediately
after giving effect to such transactions.

              7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.

              7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.

              7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.

              7.7 Investments. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.

              7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.

              7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.

                                       17




   21
              7.10 lnventory. Store the Inventory with a bailee, warehouseman,
or similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest, provided that Borrower may permit up
to three fully integrated systems (including components) at any time to be used
as demonstration units, the locations of which may change without notice to or
consent of Bank.

              7.11 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.

       8. EVENTS OF DEFAULT

              Any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:

              8.1 Payment Default. If Borrower fails to pay the principal of, or
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;

              8.2 Covenant Default. If Borrower fails to perform any obligation
under Sections 6.7 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);

              8.3 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the

                                       18




   22
foregoing shall constitute an Event of Default where such action or event is
stayed or an adequate bond has been posted pending a good faith contest by
Borrower (provided that no Advances will be required to be made during such cure
period);

              8.4 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within ten (10) days (provided
that no Advances will be made prior to the dismissal of such Insolvency
Proceeding);

              8.5 Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could reasonably be expected to have a Material
Adverse Effect;

              8.6 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;

              8.7 Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of twenty (20) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or

              8.8 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.

       9. BANK'S RIGHTS AND REMEDIES

              9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:

                    (a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);

                    (b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;

                    (c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;

                    (d) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;

                    (e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral

                                       19




   23
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank's determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises, Borrower
hereby grants Bank a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;

                    (f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;

                    (g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;

                    (h) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;

                    (i) Bank may credit bid and purchase at any public sale; and

                    (j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.

              9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.

              9.3 Accounts Collection. Upon the occurrence and during the
continuation of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.

                                       20




   24
              9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.

              9.5 Bank's Liability for Collateral. So long as Bank complies with
its obligations under Section 9207 of the Code, Bank shall not in any way or
manner be liable or responsible for: (a) the safekeeping of the Collateral; (b)
any loss or damage thereto occurring or arising in any manner or fashion from
any cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. Subject to the foregoing, all risk of loss, damage or destruction of
the Collateral shall be borne by Borrower.

              9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.

              9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.

       10. NOTICES

              Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:

If to Borrower:          NUKO Information Systems, Inc.
                         2235 Qume Drive
                         San Jose, CA 95131
                         Attn:  John Gorman, CFO

If to Bank:              Silicon Valley Bank
                         3003 Tasman Drive
                         Santa Clara, CA 95054
                         Attn:  Harvey Lum
                         FAX: (408) 492-9786

                                       21




   25
       The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.

       11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER

              This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, 'BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

       12. GENERAL PROVISIONS

              12.1 Assignment; Participations.

                    (a) Bank may sell, negotiate or grant participations to
other financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents without notice to or the approval of
Borrower; provided that any such sale, negotiation or participation shall be in
compliance with the applicable federal and state securities laws and the other
requirements of this Section 12.1. Notwithstanding the sale, negotiation or
grant of participations, Bank shall remain solely responsible for the
performance of its obligations under this Agreement, and Borrower shall continue
to deal solely and directly with Bank in connection with this Agreement and the
other Loan Documents.

                    (b) The grant of a participation interest shall be on such
terms as the Bank determines are appropriate, provided only that (1) the holder
of such a participation interest shall not have any of the rights of Bank under
this Agreement except, if the participation agreement so provides, rights to
demand the payment of costs of the type described in Section 2.6, provided that
the aggregate amount that the Borrower shall be required to pay under Section
2.6 with respect to any ratable share of the Committed Line or any Advance
(including amounts paid to participants) shall not exceed the amount that
Borrower would have had to pay if no participation agreements had been entered
into, and (2) the consent of the holder of such a participation interest shall
not be required for amendments or waivers of provisions of the Loan Agreement
other than those which (i) increase the amount of the Committed Line, (ii)
extend the term of this Agreement, (iii) decrease the rate of interest or the
amount of any fee or any other amount payable to Bank under this Agreement, (iv)
reduce the principal amount payable under this Agreement, or (v) extend the date
fixed for the payment of principal or interest or any other amount payable under
this Agreement.

                    (c) The Bank may assign, from time to time, all or any
portion of its pro rata share of the Committed Line to an Affiliate of the Bank
or to any Federal Reserve Bank, or, subject to the prior written approval of
Borrower (which approval will not be unreasonably withheld), to any other
financial institution; provided, that with respect to an assignment that is
subject to the prior approval of Borrower (i) the amount of the Committed Line
being assigned pursuant to each such assignment shall in no event be less than
$1,000,000, and (ii) the parties to each such assignment shall execute and
deliver to Borrower an assignment agreement in a form reasonably acceptable to
each. Upon such execution and delivery, from and after the effective date
specified in such

                                       22




   26
assignment agreement (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such assignment agreement, have the rights and obligations of Bank
hereunder and (y) Bank shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such assignment agreement,
relinquish its rights and be released from its obligations under this Agreement
(other than pursuant to this Section 12.1(d)), and, in the case of an assignment
agreement covering all or the remaining portion of Bank's rights and obligations
under this Agreement, Bank shall cease to be a party hereto. In the event of an
assignment hereunder, the parties agree to amend this Agreement to the extent
necessary to reflect the mechanical changes which are necessary to document such
assignment and which are standard for a multi-bank credit facility. Each party
shall bear its own expenses (including, without limitation, attorneys' fees and
costs) with respect to such an amendment.

              12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

              12.3 Time of Essence. Time is of the essence for the performance
of all obligations set forth in this Agreement.

              12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.

              12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.

              12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.

              12.7 Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding (excluding Obligations under Sections 2.6 and
12.2 to the extent they remain inchoate at the time all outstanding payment
obligations are paid in full). The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run,
provided that so long as the obligations set forth in the first sentence of this
Section 12.7 have been satisfied, and Bank has no commitment to make any
Advances or to make any other loans to Borrower, Bank shall release all security
interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.

              12.8 Confidentiality. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with


                                       23



   27
Borrower, (ii) to prospective transferees or purchasers of any interest in the
Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank and (v) as Bank may determine in connection with
the enforcement of any remedies hereunder. Confidential information hereunder
shall not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
Notwithstanding any provision of this Agreement to the contrary, neither
Borrower nor any Subsidiaries will be required to disclose, permit the
inspection, examination, copying or making extracts of, or discussions of, any
document, information or other matter in respect to which disclosure to Bank (or
its designated representative) is then prohibited by (a) law, or (b) an
agreement binding upon Borrower or any Subsidiary that was not entered into by
Borrower or such Subsidiary for the primary purpose of concealing information
from Bank. Notwithstanding any provision of this Agreement to the contrary,
prior to the occurrence of an Event of Default, neither Borrower nor any
Subsidiaries will be required to disclose, permit the inspection, examination,
copying or making extracts of, or discussions of, any documents, information or
other matter that constitutes non-financial trade secrets.

       IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

                                   NUKO Information Systems, Inc.


                                   By:                [SIG]
                                       ---------------------------------------
                                   Title:             CFO
                                          ------------------------------------


                                   SILICON VALLEY BANK


                                   By:                [SIG]
                                       ---------------------------------------
                                   Title:          Vice President
                                          ------------------------------------

                                       24



   28
                                    EXHIBIT A

       The Collateral shall consist of all right, title and interest of Borrower
in and to the following:

       (a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

       (b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;

       (c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;

       (d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;

       (e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;

       (f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and

       (g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.

                                       25




   29
                     DISBURSEMENT REQUEST AND AUTHORIZATION

Borrower: NUKO Information Systems, Inc.               Bank: Silicon Valley Bank

================================================================================

LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $6,000,000.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.

SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:

                                                             Revolving Line
                                                             --------------

Amount paid to Borrower directly:                             $__________

Undisbursed Funds                                             $__________

Principal                                                     $ 6,000,000

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:

Prepaid Finance Charges Paid in Cash:                         $__________
       $15,000    Loan Fee
       $______    Accounts Receivables Audit

Other Charges Paid in Cash:                                   $__________
       $   175    UCC Search Fees
       $    50    UCC Filing Fees
       $______    Outside Counsel Fees and Expenses (Estimate)

Total Charges Paid in Cash                                    $__________

AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered _______ the amount of any loan payment. If the funds
in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF ________________, 19__.

BORROWER:

NUKO Information Systems, Inc.

         [SIG]
- -------------------------------
Authorized Officer


================================================================================


   30
                         AGREEMENT TO PROVIDE INSURANCE


Grantor:  NUKO Information Systems, Inc.               Bank: Silicon Valley Bank

================================================================================

       INSURANCE REQUIREMENTS. NUKO Information Systems, Inc. ("Grantor")
understands that insurance coverage is required in connection with the extending
of a loan or the providing of other financial accommodations to Grantor by Bank.
These requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):

Collateral:     All Inventory, Equipment and Fixtures.
Type:           All risks, including fire, theft and liability.
Amount:         Full insurable value.
Basis:          Replacement value.

Endorsements:   Loss payable clause to Bank with stipulation that coverage
                will not be canceled or diminished without a minimum of twenty
                (20) days' prior written notice to Bank.

       INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Bank. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Bank.

       FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of October 28, 1996, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
Loan and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.

       AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.

       GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMEMENT
TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER
28, 1996.

GRANTOR:

NUKO Information Systems, Inc.

x         [SIG]
 --------------------------------
  Authorized Officer

                                FOR BANK USE ONLY
                             INSURANCE VERIFICATION

================================================================================

DATE:               10-31-96                              PHONE: (415) 983-5600
AGENT'S NAME:       SEDGWICK JAMES, 600 MONTGOMERY ST., SAN FRANCISCO, CA 94111
INSURANCE COMPANY:  CHUBB GROUP (FEDERAL INSURANCE CO.)
POLICY NUMBER:      35336852
EFFECTIVE DATES:    3/8/96 TO 3/8/97
COMMENTS:           

================================================================================


   31
                         CORPORATE RESOLUTIONS TO BORROW

================================================================================

Borrower:         NUKO Information Systems, Inc.

================================================================================


       I, the undersigned Secretary or Assistant Secretary of NUKO Information
Systems, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
California.

       I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.

       I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.

       BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:



NAMES                        POSITIONS                     ACTUAL SIGNATURES
- -----                        ---------                     -----------------
                                                     
Pratap Kesar Kondamoori      President/CEO                 PRATAP K. KONDAMOORI

John H. Gorman               Chief Financial Officer       JOHN H. GORMAN


acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

       BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of October 28, 1996 (the "Loan
Agreement").

       EXECUTE NOTES. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Lender's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.

       GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.



                                       1
   32
       NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.

       LETTERS OF CREDIT, FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.

       FURTHER Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.

       BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

       I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.

       IN WITNESS WHEREOF, I have hereunto set my hand on October 31, 1996 and
attest that the signatures set opposite the names listed above are their genuine
signatures.

                                CERTIFIED TO AND ATTESTED BY:


                                x               [SIG]
                                 ---------------------------------------


================================================================================

                                        2




   33
                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

       This Intellectual Property Security Agreement is entered into as of
October 1996 by and between SILICON VALLEY BANK ("Bank") and NUKO Information
Systems, Inc. ("Grantor").

                                    RECITALS

       A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.

       B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.

       NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:

                                    AGREEMENT

       To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including without limitation all proceeds thereof (such
as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.

       This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the

                                       1


   34
Loan Agreement and the other Loan Documents, and those which are now or
hereafter available to Bank as a matter of law or equity. Each right, power and
remedy of Bank provided for herein or in the Loan Agreement or any of the Loan
Documents, or now or hereafter existing at law or in equity shall be cumulative
and concurrent and shall be in addition to every right, power or remedy provided
for herein and the exercise by Bank of any one or more of the rights, powers or
remedies provided for in this Intellectual Property Security Agreement, the Loan
Agreement or any of the other Loan Documents, or now or hereafter existing at
law or in equity, shall not preclude the simultaneous or later exercise by any
person, including Bank, of any or all other rights, powers or remedies.

       IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.

                                      GRANTOR:

Address of Grantor:                   NUKO Information Systems, Inc.

                                      By: [SIG]
- -----------------------------            ------------------------------
                                      Title:
- -----------------------------               ---------------------------

- -----------------------------
Attn:
     ------------------------
BANK:

Address of Bank:                      SILICON VALLEY BANK


3003 Tasman Drive                     By: [SIG]
Santa Clara, CA 95054                    ----------------------------------
                                      Title:
                                            -------------------------------
Attn: Harvey Lum

                                       2




   35
                                    EXHIBIT A

                                   Copyrights

     Description                            Registration/       Registration/
     -----------                             Application         Application
                                                Number               Date
                                                ------               ----




   36



                                    EXHIBIT B

                                     Patents

     Description                            Registration/       Registration/
     -----------                             Application         Application
                                                Number               Date
                                                ------               ----







   37



                                    EXHIBIT C

                                   Trademarks

     Description                            Registration/       Registration/
     -----------                             Application         Application
                                                Number               Date
                                                ------               ----







   38

        This FINANCING STATEMENT is presented for filing and will remain 
effective with certain exceptions for a period of five years from the date of 
filing pursuant to section 9403 of the California Uniform Commercial Code



- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
1.  DEBTOR       LAST NAME FIRST OF AN INDIVIDUAL:                                       1A.  SOCIAL SECURITY OR FEDERAL TAX NO.
    NUKO Information Systems, Inc.                                                                
- -----------------------------------------------------------------------------------------------------------------------------------
1B.  MAILING ADDRESS                                    1C.  CITY, STATE                                     1D.  ZIP CODE
        2235 Qume Drive                                      San Jose, California                                 95131
- -----------------------------------------------------------------------------------------------------------------------------------
2.  ADDITIONAL DEBTOR  (IF ANY)         LAST NAME FIRST--IF AN INDIVIDUAL                2A.  SOCIAL SECURITY OR FEDERAL TAX NO.

- -----------------------------------------------------------------------------------------------------------------------------------
2B.  MAILING ADDRESS                                    2C.  CITY, STATE                                     2D.  ZIP CODE

- -----------------------------------------------------------------------------------------------------------------------------------
3.  DEBTOR'S TRADE NAMES OR STYLES  (IF ANY)                                             3A.  FEDERAL TAX NUMBER

===================================================================================================================================
4.  SECURED PARTY                                                                        4A.  SOCIAL SECURITY NO. FEDERAL TAX NO.
                                                                                              OR BANK TRANSIT AND A.B.A. NO.
        NAME    Silicon Valley Bank 
        MAILING ADDRESS         3003 Tasman Drive                                               94-2875288
        CITY    Santa Clara          STATE    California           ZIP CODE  95054
- -----------------------------------------------------------------------------------------------------------------------------------
5.  ASSIGNEE OF SECURED PARTY  (IF ANY)                                                  5A.  SOCIAL SECURITY NO. FEDERAL TAX NO.
                                                                                              OR BANK TRANSIT AND A.B.A. NO.
        NAME    
        MAILING ADDRESS         
        CITY                         STATE                         ZIP CODE       
- -----------------------------------------------------------------------------------------------------------------------------------
6.  This FINANCING STATEMENT covers the following types or items of property (include description of real property on which located
and owner of record when required by instruction 4).


    See Exhibit A attached hereto and made a part hereof.










- -----------------------------------------------------------------------------------------------------------------------------------
                                                         7B.  DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH
                                                              INSTRUCTION 5(a) ITEM:
7.  CHECK     [ X ]     7A.       PRODUCTS OF COLLATERAL
    IF APPLICABLE           [   ] ARE ALSO COVERED              [   ] (1)     [   ] (2)     [   ] (3)     [   ] (4)
- -----------------------------------------------------------------------------------------------------------------------------------
8.  CHECK     [ X ]
    IF APPLICABLE           [   ]   DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC Section 9105(1)(n)
- -----------------------------------------------------------------------------------------------------------------------------------
9.                                          DATE 10-28-96       C       10  THIS SPACE FOR USE OF FILING OFFICER
        [SIG]                                                   O       (DATE, TIME, FILE NUMBER
                                                                D       AND FILING OFFICER)
SIGNATURE(S) OF DEBTOR(S)                                       E
- ---------------------------------------------------------------

        NUKO Information Systems, Inc.              
                                                                1
TYPE OF PRINT NAME(S) OF DEBTOR(S)
- --------------------------------------------------------------- 2

        /s/  HARVEY W. LUM                                      
                                                                3
SIGNATURE(S) OF SECURED PARTY(IES)  Harvey W. Lum
- --------------------------------------------------------------- 4
                
        Silicon Valley Bank                                     
                                                                5
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)                     
- --------------------------------------------------------------- 6
11. Return copy to:

                                                                7

NAME:           Silicon Valley Bank                             8
ADDRESS:        Attn: Loan Services 
CITY:           3003 Tasman Drive                               
STATE:          Santa Clara, CA 95054                           9
ZIP CODE:                                                       
                                                                0

- -----------------------------------------------------------------------------------------------------------------------------------
                           FORM UCC-1
                           APPROVED BY THE SECRETARY OF STATE


(1)  FILING OFFICER COPY
   39


                                    EXHIBIT A

       The Collateral shall consist of all right, title and interest of Borrower
in and to the following:

       (a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers, and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

       (b) All inventory, now owned or hereafter acquired, including without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;

       (c) All contract rights and general intangibles now owned or hereafter
acquired, including without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;

       (d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;

       (e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;

       (f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and

       (g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.

                                       25

EX-10.8

   1
                                                                   EXHIBIT 10.8
   [LOGO]         AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

           STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
               (Do not use this form for Multi-Tenant Property.)

1.      BASIC PROVISIONS ("BASIC PROVISIONS")

        1.1     PARTIES: This Lease ("LEASE"), dated for reference purposes
only, as of July 29, 1996, is made by and between Fortune Trade Associates, a
California Limited Partnership ("LESSOR") and Nuko Information Systems, Inc., a
New York Corporation ("LESSEE"), (collectively, the "PARTIES," or individually a
"PARTY").

        1.2     PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
and commonly known by the street address of 2391-2395 Oume Drive, San Jose,
California located in the County of Santa Clara, State of California, and
generally described as (describe briefly the nature of the property) a single
story 40,000 square foot free-standing building commonly known as 2391-2395
Qume Drive, San Jose, California ("PREMISES"). (See Paragraph 2 for further
provisions.)

        1.3     TERM: 5 years and 0 months ("ORIGINAL TERM") commencing See
Second Addendum to Lease attached hereto ("COMMENCEMENT DATE") and ending June
30, 2001 ("EXPIRATION DATE"). (See Paragraph 3 for further provisions.)

        1.5     BASE RENT: $25,000.00 per month ("BASE RENT") payable on the
first (1st) day of each month commencing See Second Addendum to Lease attached
hereto (See Paragraph 4 for further provisions.)
[ ] If this box is checked, there are no provisions in this Lease for the Base
Rent to be adjusted.

        1.6     BASE RENT PAID UPON EXECUTION: $  See Second Addendum to Lease 
attached hereto as Base Rent for the period July 1, 1996 - July 31, 1996.

        1.7     SECURITY DEPOSIT: $25,000.000 ("SECURITY DEPOSIT"). (See
Paragraph 5 for further provisions.)

        1.8     PERMITTED USE: sales, marketing, manufacturing, research and
development and all other legally permitted uses. (See Paragraph 6 for further
provisions.)

        1.9     INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)

        1.10    REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
Colliers Parrish International, Inc. represents   [ ] Lessor exclusively
("LESSOR'S BROKER"); [X] both Lessor and Lessee, and ___________________
represents [ ] Lessee exclusively ("LESSEE'S BROKER"); [X] both Lessee and 
Lessor. (See Paragraph 15 for further provisions.)

        1.12    ADDENDA. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 49 through 55 and Exhibits A, B and C and the Second Addendum to
Lease all of which constitute a part of this Lease.

2.  PREMISES.

        2.1     LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.

        2.2     CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
electrical, mechanical, ventilation, sewer systems and loading doors, if any,
in the Premises, other than those constructed by Lessee, shall be in good
operating condition on the Commencement Date. If a non-compliance with said
warranty exists as of the Commencement Date, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
rectify same at Lessor's expense. If Lessee does not give Lessor written notice
of a non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.

        2.3     COMPLIANCE WITH COVENANTS, RESTRICTIONS, AND BUILDING CODE.
Lessor warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.

        2.4     ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.

        2.5     LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.

3.  TERM.

        3.1     TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.

        3.2     EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.

                                                                Initials _____

NET                                  PAGE 1                              _____

(C) 1990 - American Industrial Real Estate Association       FORM 204N-R-12/91
   2
        3.31    DELAY IN POSSESSION.   If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its own option, by notice in writing to Lessor
cancel this Lease, in which event the Parties shall be discharged from all
obligations hereunder; Except as may be otherwise provided, and regardless of
when the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days or delay caused by the acts, changes or
omissions of Lessee.

4.      RENT.

        4.1     BASE RENT.    Lessee shall cause payment of Base Rent and other
rent or charges, to be received by Lessor in lawful money of the United States,
without offset or deduction, on or before the day on which it is due under the
terms of this Lease. Base Rent and all other rent and charges for any period
during the term hereof which is for less than one (1) full calendar month shall
be prorated based upon the actual number of days of the calendar month involved.
Payment of Base Rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses as Lessor may
from time to time designate in writing to Lessee.

        5.      SECURITY DEPOSIT.       Lessee shall deposit with Lessor upon
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including reasonable attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit moneys with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the term of this Lease, Lessee shall, upon written request
from Lessor, deposit additional moneys with Lessor sufficient to maintain the
same ratio between the Security Deposit and the Base Rent as those amounts are
specified in the Basic Provisions. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee [(or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein),] that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.

6.      USE.

        6.1     USE.    Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties. Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessees assignees or subtenants, and
by prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, is not significantly more burdensome to the Premises and the
improvements thereon, and is otherwise permissible pursuant to this Paragraph
6. If Lessor elects to withhold such consent, Lessor shall within five (5)
business days give a written notification of same, which notice shall include
an explanation of Lessor's reasonable objections to the change in use.

        6.2     HAZARDOUS SUBSTANCES.

                (a)     REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. 

                (b)     DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance, or a condition
involving or resulting from same, has come to be located in, on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. lessee shall also
immediately give Lessor a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to all such documents as may
be involved in any Reportable Uses involving the Premises.

                (c)     INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
protect the Premises, from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, permits and reasonable
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee. Lessee's
obligations under this Paragraph 6 shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation (including
consultant's and attorney's fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.

        6.3     LESSEE'S COMPLIANCE WITH LAW.   Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Law specified
by Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Law.

        6.4     INSPECTION; COMPLIANCE.  Lessor and Lessor's Lender(s) (as
defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any
time, in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited to
the installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a contamination, caused by Lessee or its subtenants (excluding the
"Tenants" (as defined herein) is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such contamination. In any such case, Lessee shall upon request reimburse
Lessor or Lessor's Lender, as the case may be, for the costs and expenses of
such inspections.

7.      MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
        ALTERATIONS.

        7.1     LESSEE'S OBLIGATIONS.
                (a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc),
                                                                   Initials
                                                                           -----
                                                                   Initials
                                                                           -----


                                     PAGE 2

     
   3
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily, accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities, boilers
fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or
other automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, about, or adjacent to the Premises.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.  If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.

                (b)  Lessee shall, at Lessee's sole cost and expense, procure
and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.

        7.2     LESSOR'S OBLIGATIONS.  Except for the warranties and agreements
of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof.  It is the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises.  Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of any needed repairs.

        7.3     UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

                (a)     DEFINITIONS; CONSENT REQUIRED.  The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises.  The term "TRADE FIXTURES" shall mean Lessees' machinery and
equipment that can be removed without doing material damage to the Premises. The
term "ALTERATIONS" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion.  "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by lessee that are not yet
owned by Lessor as defined in Paragraph 7.4(a).  Lessee shall not make any
Alterations or Utility Installations in, or, under or about the Premises without
Lessor's prior written consent.  Lessee may, however, make non-structural
Utility Installations and Alterations to the interior of the Premises (excluding
the roof) for a single project, as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof or any
existing exterior walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $100,000.

                (b)  CONSENT.  Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with proposed detailed plans.  All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii) the
furnishing of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon, and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner.  Any Alterations
or Utility Installations by Lessee during the term of this Lease shall be done
in a good and workmanlike manner, with good and sufficient materials, and in
compliance with all Applicable Law.  Lessee shall promptly upon completion
thereof furnish Lessor with as-built plans and specifications therefor.
Lessor may (but without obligation to do so) condition its consent to any
requested Alteration or Utility Installation that costs $50,000 or more upon
Lessee's providing Lessor with a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such Alteration or Utility
Installation.

                (c)  INDEMNIFICATION.  Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest
therein.  Lessee shall give Lessor not less than ten (10) days' notice prior to
the commencement of any work in, on or about the Premises, and Lessor shall
have the right to post notices of non-responsibility in or on the Premises as
provided by law.  If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgement that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises.  If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim.

        7.4     OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

                (a)  OWNERSHIP.  Subject to Lessor's right to require their
removal all Alterations and Utility Additions made to the Premises by Lessee
shall be the property of and owned by Lessee.

                (b)  REMOVAL.  Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.

                (c)  SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary wear
and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.

8.      INSURANCE; INDEMNITY

        8.1     PAYMENT FOR INSURANCE.  Regardless of whether the Lessor or
Lessee is the Insuring Party, Lessee shall pay for all insurance required under
this Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) business days following receipt of an invoice for any
amount due.

        8.2     LIABILITY INSURANCE.

                (a)  CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured) against
claims for bodily injury, personal injury and property damage based upon,
involving or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of
Premises" Endorsement and contain the "Amendment of the Pollution Exclusion"
for damage caused by heat, smoke or fumes from a hostile fire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.

                (b)  CARRIED BY LESSOR. In the event Lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured 
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        8.3     PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

                (a) BUILDING AND IMPROVEMENTS.  The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor not less than adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).

                (b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss not to exceed $1,000 per 
occurrence.

                (d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.

        8.4     LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. Lessee shall be the Insuring Party with respect to the insurance 
required by this Paragraph 8.4 and shall provide Lessor with written evidence 
that such insurance is in force.

        8.5     INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of polices of such insurance or certificates evidencing the existence and
amounts of such insurance with the Insureds and loss payable clauses as required
by this Lease. No such policy shall be cancellable or subject to modification
except after thirty (30) days prior written notice to Lessor. Lessee shall at
least thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Insuring Party's expense.

        8.6     WAIVER OF SUBROGATION. Notwithstanding anything to the contrary
in this Lease: Lessee and Lessor ("WAIVING PARTY") each hereby release and
relieve the other, and waive their entire right to recover damages (whether in
contract or in tort) against the other, for loss or damage to the Waiving
Party's property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the right
to recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.

        8.7     INDEMNITY. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, and protects the Premises from and against any and all claims, loss
of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's
and consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a reasonably required manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not be
limited to, the defense or pursuit of any claim or any action or proceeding
involved therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense.  

        8.8     EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor.  Lessor shall under no circumstances be liable 
for injury to Lessee's business or for any loss of income or profit therefrom.

9.      DAMAGE OR DESTRUCTION.

        9.1     DEFINITIONS.

                (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.

                (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.

                (c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.

                (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.

        9.2     PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required 
insurance was not in force or the insurance proceeds are not sufficient to
effect such repair, the Insuring Party shall promptly contribute the shortage in
proceeds (except as to the deductible which is Lessor's responsibility) as and
when required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof, within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect or
Lessor shall restore the Premises to the extent of the insurance proceeds
received.  Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for 



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any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to
paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some
insurance coverage, but the net proceeds of any such insurance shall be made
available for the repairs if made by either Party.

        9.3  PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an insured Loss occurs, Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.

        9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee.

        9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee has an exercisable option to extend this
Lease or to purchase the Premises, then Lessee may preserve this Lease by,
within twenty (20) days following Lessor's notice, or before the expiration of
the time provided in such option for its exercise, whichever is earlier
("Exercise Period"), (i) exercising such option. If Lessee duly exercises such
option during said Exercise Period Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such funds
or assurance during said Exercise Period, then Lessor may at Lessor's option
terminate this Lease as of the expiration of said sixty (60) day period
following the occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option to
the contrary.

        9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.

                (a) In the event of damage described in Paragraph 9.2 (Partial
Damage - Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b), shall be abated
in proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be preformed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.

                (b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.

        9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor under
the terms of this Lease.

        9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions
of any present or future statute to the extent inconsistent herewith.

10. REAL PROPERTY TAXES.

        10.1    (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment. Upon
request, Lessee shall promptly furnish Lessor with satisfactory evidence that
such taxes have been paid. If any such taxes to be paid by Lessee shall cover
any period of time prior to or after the expiration or earlier termination of
the term hereof, Lessee's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment after such
proration. If Lessee shall fail to pay any Real Property Taxes required by this
Lease to be paid by Lessee, Lessor shall have the right to pay the same, and
Lessee shall reimburse Lessor therefor upon demand.

                (b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, not earlier than twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment of the Base Rent.
If Lessor elects to require payment monthly in advance, the monthly payment
shall be that equal monthly amount which, over the number of months remaining
before the month in which the applicable tax installment would become delinquent
(and without interest thereon), would provide a fund large enough to fully
discharge before delinquency the estimated installment of taxes to be paid. When
the actual amount of the applicable tax bill is known, the amount of such equal
monthly advance payment shall be adjusted as required to provide the funds
needed to pay the applicable taxes before delinquency. If the amounts paid to
Lessor by Lessee under the provisions of this Paragraph are insufficient to
discharge the obligations of Lessee to pay such Real Property Taxes as the same
become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional
sums as are necessary to pay such obligations. All moneys paid to Lessor under
this Paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.

        10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"Real Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Premises or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.

        10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations


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assigned in the assessor's work sheets or such other information as may be
reasonably available.

        10.4    PERSONAL PROPERTY TAXES.  Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere.  When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor.  If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.

11.     UTILITIES.  Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon.  If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.

12.     ASSIGNMENT AND SUBLETTING.  

        12.1    LESSOR'S CONSENT REQUIRED.

                (a)  Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and subject
to the terms of Paragraph 36.

                (d)  An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c).

                (e)  Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.

        12.2    TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

                (a)  Regardless of Lessor's consent, any assignment shall not:  
(i) be effective without the express written assumption by such assignee of the
obligations of Lessee under this Lease, (ii) release Lessee of any obligations
hereunder, or (iii) alter the primary liability of Lessee for the payment of
Base Rent and other sums due Lessor hereunder or for the performance of any
other obligations to be performed by Lessee under this Lease.

                (b)  Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment.  Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default or
Breach by Lessee of any of the terms, covenants or conditions of this Lease.

                (c)  The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee.

                (d)  In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.

                (e)  Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $500.00 as reasonable consideration
for Lessor's considering and processing the request for consent.  Lessee agrees
to provide Lessor with such other or additional information and/or documentation
as may be reasonably requested by Lessor.

                (f)  Any assignee of this Lease shall, by reason of accepting 
such assignment, be deemed, for the benefit of Lessor, to have assumed and greed
to conform and comply with each and every term, covenant, condition and
obligation herein to be observed or performed  by Lessee during the term of said
assignment other than such obligations as are contrary to or inconsistent with
provisions of an assignment to which Lessor has specifically consented in
writing.

        12.3    ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.  The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

                (a)  Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease.  Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease.  Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary.  Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.

                (b)  In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to such sublessor or for any other
prior Defaults or Breaches of such sublessor under such sublease.       

                (c)  Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.

                (d)  No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.

                (e)  Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in the Lease.

13.     DEFAULT; BREACH; REMEDIES.

        13.1    DEFAULT; BREACH.  A "DEFAULT" is defined as a failure by the 
Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease.  A "BREACH"

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is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:

        (a)     The abandonment of the Premises.

        (b)     Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
within five (5) days after such monetary payment becomes due and owing under the
terms of this Lease.

        (c)     Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (ii) the
inspection, maintenance and service contracts required under Paragraph 7.1(b),
(iii) the recission of an unauthorized assignment or subletting per Paragraph
12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the
subordination or non-subordination of this Lease per Paragraph 30, (vi) the
guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), where any such failure continues for
a period of twenty (20) days following written notice by or on behalf of Lessor
to Lessee.

        (d)     A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf
of Lessor to Lessee; provided, however, that if the nature of Lessee's Default
is such that more than thirty (30) days are reasonably required for its cure,
then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.

        (e)     The occurrence of any of the following events: (i) The making
by lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this subparagraph (e) is contrary to
any applicable law, such provision shall be or no force or effect, and not
affect the validity of the remaining provisions.

        (f)     The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.

        (g)     If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.

        13.2    REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within the time periods set forth above
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable
by Lessee to Lessor upon invoice therefor. If any check given to Lessor by
Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its
option, may require all future payments to be made under this Lease by Lessee
to be made only by cashier's check. In the event of a Breach of this Lease by
Lessee, as defined in Paragraph 13.1, with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:

        (a)     Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, reasonable attorneys' fees, and that portion of the
leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages.

        (b)     Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.

        (c)     Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.

        (d)     The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing prior to the termination of the term hereof or by reason of
Lessee's occupancy of the Premises.

        13.4    LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.

        13.5    BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be greater than sixty (60) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written specifying wherein such obligation of
Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than sixty (60) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such sixty (60) day period and
thereafter diligently pursued to completion.

14.  CONDEMNATION.  If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes 

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   8
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that the Base Rent shall be reduced in the
same proportion as the rentable floor area of the Premises taken bears to the
total rentable floor area of the building located on the Premises. No reduction
of Base Rent shall occur if the only portion of the Premises taken is land on
which there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation, except to the extent that Lessee
has been reimbursed therefor by the condemning authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.

15.     BROKER'S FEE.

        15.1  The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.

        15.2  Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of (pursuant to contract) for brokerage
services rendered by said Brokers to Lessor in this transaction.

        15.3  Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation
of an escalation clause herein, then as to any of said transactions, Lessor
shall pay said Brokers a fee in accordance with the schedule of said Brokers in
effect at the time of the execution of this Lease.

        15.4  Any buyer or transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be deemed
to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall
be a third party beneficiary of the provisions of this Paragraph 15 to the
extent of its interest in any commission arising from this Lease and may
enforce that right directly against Lessor and its successors.

        15.5  Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.

        15.6  Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.

16.     TENANCY STATEMENT.

        16.1  Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
party. 

        16.2  If Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designed by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years.  All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth.

17.     LESSOR'S LIABILITY.  The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease.  In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such transfer
or assignment.  Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor.  Subject
to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined, provided the Transferee assumes in writing the obligations of Lessor
under this Lease. 

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

19.     INTEREST ON PAST-DUE OBLIGATIONS.  Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.

20.     TIME OF ESSENCE.  Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.

21.     RENT DEFINED.  All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.

22.     NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER.  This Lease contains
all agreements between the Parties with respect to the lease of the Premises any
matter mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective.  Lessor and Lessee each represents and
warrants to the Brokers that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial  responsibility
of the other Party to this Lease and as to the nature, quality and character of
the Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party.

23.     NOTICES.

        23.1  All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23.  The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice purpose.
Either Party may be written notice to the other specify a different address for
notice purposes, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee.  A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by written notice to Lessee.  For notice purposes, Lessee shall provide Lessor
with an address in the State of California.

        23.2  Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon.  If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid.  Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery
of the same to the United States Postal Service or courier.  If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail.
If notice is received on a Sunday or legal holiday, it shall be deemed received
on the next business day.

24.     WAIVERS.  No waiver by Lessor or Lessee of the Default or Breach of any
term, covenant or condition hereof by Lessee or Lessor, shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent Default or
Breach by Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent.  Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted.  Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.

25.     RECORDING.  Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes.  The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.

26.     NO RIGHT TO HOLDOVER.  Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.


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   9
27.     CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.

29.     BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.

30.     SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

        30.1    SUBORDINATION.  This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.

        30.2    ATTORNMENT.  Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.

        30.3    NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving written assurance (a "NON-DISTURBANCE
AGREEMENT") from the Lender that Lessee's possession and this Lease, including
any options to extend the term hereof, will not be disturbed so long as Lessee
is not in Breach hereof and attorns to the record owner of the Premises.

        30.4    SELF-EXECUTING.  The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.

31.     ATTORNEY'S FEES.  If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "PREVAILING
PARTY" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to reasonable
attorney's fees, costs and expenses incurred in the preparation and service of
notices of Default and consultations in connection therewith, not to exceed
$250.00 per Default Notice whether or not a legal action is subsequently
commenced in connection with such Default or resulting Breach.

32.     LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
during the last one hundred twenty (120) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.

33.     AUCTIONS.  Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.

34.     SIGNS.  The installation of any sign on the Premises by or for Lessee
shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). 

35.     TERMINATION; MERGER.  Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.

36.     CONSENTS.

        (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor not to exceed
$500.00 per consent. Lessor's consent to any act, assignment of this Lease or
subletting of the Premises by Lessee shall not constitute an acknowledgement
that no Default or Breach by Lessee of this Lease exists, nor shall such consent
be deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.

        (b)  All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable.

37.     GUARANTOR.

        37.1  If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as Lessee
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and information called for by Paragraph 16.
        
        37.2  It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.

38.     QUIET POSSESSION.  Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.

39.     OPTIONS.

        39.1  DEFINITION.  As used in this Paragraph 39 the word "OPTION" has
the following meaning: (a) the right to extend the term of this Lease or to
renew this Lease; (b) the right of first refusal to lease the Premises or the
right of first offer to lease the Premises or the right of first refusal to
lease other property of Lessor or the right of first offer to lease other
property of Lessor; (c) the right to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to purchase
the Premises, or the right to purchase other property of Lessor, or the right
of first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.

        39.2  OPTIONS PERSONAL TO ORIGINAL LESSEE.  Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee and/or any Permitted Assignee
while the original Lessee is in full and actual possession of the Premises and
without the intention of thereafter assigning or subletting. Except as set forth
in the Lease the Options, if any, herein granted to Lessee are not assignable,
either as a part of an assignment of this Lease or separately or apart
therefrom, and no Option may be separated from this Lease in any manner, by
reservation or otherwise.


                                                                   Initials 
                                                                           ----
                                                                           ----
NET     
                                     PAGE 9
   10
        39.3    MULTIPLE OPTIONS.  In the event that Lessee has any Multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly 
exercised.

        39.4    EFFECT OF DEFAULT ON OPTIONS.

                (a)  Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the time Lessee is in Breach of this Lease

                (b)  The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).

                (c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, Lessee commits a material Breach of this Lease.

41.     SECURITY MEASURES.  Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Except as set forth in the Lease, Lessee assumes all responsibility for the
protection of the Premises, Lessee, its agents and invitees and their property
from the acts of third parties.

42.     RESERVATIONS.  Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee.  Lessee agrees to any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.

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

44.     AUTHORITY.  If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf.  If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.

45.     CONFLICT.  Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.

46.     OFFER.  Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.

47.     AMENDMENTS.  This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification.  The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.  As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.

48.     MULTIPLE PARTIES.  Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.


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

        IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
        YOUR ATTORNEY FOR HIS APPROVAL.  FURTHER, EXPERTS SHOULD BE CONSULTED TO
        EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
        ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES.  NO REPRESENTATION OR
        RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
        ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES
        AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
        LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
        SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
        CONSEQUENCES OF THIS LEASE.  IF THE SUBJECT PROPERTY IS LOCATED IN A
        STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
        PROPERTY IS LOCATED SHOULD BE CONSULTED.


The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.


Executed at     San Jose, CA            Executed at      San Jose, CA 
            -----------------------                 -------------------------
on       July 29, 1996                  on        July 29, 1996
  ---------------------------------        ----------------------------------
by LESSOR:                              by LESSEE:
      FORTUNE TRADE ASSOCIATES                NUKO INFORMATION SYSTEMS, INC.
  ---------------------------------        ----------------------------------
By:   The Robert S. Waples Trust        By:   a New York corporation
  ---------------------------------        ----------------------------------
By:   [Signature]                       By:   [Signature]
  ---------------------------------        ----------------------------------
Name Printed:  Robert S. Waples
  ---------------------------------        
Title:         Trustee
  ---------------------------------
Address:  248 Del Mesa Carmel
  ---------------------------------
          Carmel, CA  93923
  ---------------------------------
By:   R.C. WERSTED, INC.
  ---------------------------------
By:   [Signature]                       By:   [Signature]
  ---------------------------------        ----------------------------------
Name Printed:  Robert C. Wersted        Name Printed:  John H. Gorman
            -----------------------                 -------------------------
Title:  President                       Title:  CFO
     ------------------------------          --------------------------------
Address:  248 Del Mesa Carmel           Address:  2235 Qume Drive
       ----------------------------            ------------------------------
          Carmel, CA  93923                       San  Jose, CA  95131
       ----------------------------            ------------------------------
Tel. No. (408)625-1762                  Tel. No. (408)526-0288
       ----------------------------            ------------------------------
Fax No.  (408)625-1762                  Fax No.  (408)526-9541
       ----------------------------            ------------------------------

NET                             PAGE 10

NOTICE:  These forms are often modified to meet changing requirements of law
         and industry needs.  Always write or call to make sure you are
         utilizing the most current form: American Industrial Real Estate
         Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
         90071.  (213) 687-8777. Fax. No. (213) 687-8616.


   11





                            FIRST ADDENDUM TO LEASE

         THIS FIRST ADDENDUM is made July 29, 1996 by and between FORTUNE
TRADE ASSOCIATES, a California Limited Partnership ("Lessor") and NUKO
INFORMATION SYSTEMS, INC., a New York Corporation ("Lessee") to that written
lease herewith (the "Lease") between Lessor and Lessee affecting certain real
property, commonly known as the 2391-2395 QUME DRIVE, located in the City of
San Jose, County of Santa Clara, State of California.  The following provisions
are hereby added to the Lease:

         49.     AMERICANS WITH DISABILITIES ACT:

                 a)       As used in this Paragraph 51, "ADA" shall mean Title
                          III of the Americans With Disabilities Act of 1990,
                          42 USC Section 12181, et seq.

                 b)       Lessor represents and warrants that it has not
                          received notice of any alleged violation of or
                          noncompliance with the ADA relating to any portion of
                          the Premises, or any governmental or regulatory
                          actions or investigations instituted or threatened
                          regarding non-compliance with the ADA relating to any
                          portion of the Premises. In the event that Lessor or
                          Lessee receives a written notice alleging violation
                          of or non-compliance with the ADA, Lessor and Lessee
                          shall notify the other party in writing of such
                          notice within seven (7) days after receipt. Lessee
                          acknowledges that as of the date of this Lease Lessor
                          has not made any survey or inspection of the Premises
                          to determine the extent of ADA compliance.

                 c)       Lessee shall, at its sole cost and expense, make any
                          necessary alterations or improvements to the Premises
                          or any part thereof to comply with the ADA if such
                          alterations or improvements are required as a result
                          of (i) Lessee's particular use of the Premises,
                          including the physical accommodation of Lessee's
                          agents, employees, representatives or invitees, or
                          (ii) the conduct of Lessee's business on the
                          Premises. All such alterations and improvements shall
                          be made in accordance with the provisions of
                          Paragraph 7.3 relating to Alterations and Utility
                          installations, and all other provisions of the Lease.

         50.     ASSIGNMENT OF EXISTING LEASES.

                 a)       Purpose.  The purpose of this assignment provision is
                          to transfer to Lessee the present Leasehold interest
                          of Lessor in the premises known as 2393 and 2395 Qume
                          Drive, San Jose, California. Said premises are, as of
                          the date hereof, leased to two unrelated tenants.
                          Lessee will be the "Lessor" under the Existing Leases
                          (as hereinafter defined) , and Lessee's rights,
                          duties and obligations with respect to the Premises
                          as a whole shall at all times be subject to the terms
                          and conditions of this Lease and all addenda.

                 b)       Lessor is the "Lessor" under that certain Lease
                          between Fortune Trade Associates, a California
                          limited partnership, as Lessor, and AMT, Inc., a
                          California corporation, dba AMT, International, the
                          successor-in-interest to Bhopinder S. Sandhu and
                          Tejinder Singh Kaler, the original lessee, as Lessee,
                          (hereinafter the "2393 Tenant") dated May 21, 1990,
                          for approximately 5,000 square feet of the Premises
                          (the "2393 Premises") located at 2393 Qume Drive, San
                          Jose, California, as amended by that certain
                          Extension of Lease between Lessor and the 2393 Tenant
                          dated April 8, 1993, as amended by that certain
                          Second Extension of Lease between Lessor and the 2393
                          Tenant dated February 16, 1994 and that certain Third
                          Extension of Lease between Lessor and the 2393 Tenant
                          (collectively, hereinafter the "2393 Lease").  Lessor
                          is also the "Lessor" under that certain Lease between
                          Fortune Trade Associates, a California limited
                          partnership, as Lessor, and Consolidated Oberg
                          Industries, Ltd, a British Columbia Company and Hytec
                          Flow Systems, a California corporation, jointly and
                          severally as Lessee (collectively, hereinafter the
                          "2395 Tenant"), dated October 10, 1994 for
                          approximately 15,000 square feet of the Premises (the
                          "2395 Premises") located at 2395 Qume Drive, San
                          Jose, California (the "2395 Lease").  The terms the
                          "2393 Lease" and the "2395 Lease" shall sometimes
                          collectively hereinafter be referred to as the
                          "Existing Leases".  The terms the "2393 Tenant" and
                          the "2395 Tenant" shall sometimes collectively or
                          singularly be referred to herein as the "Tenants" or
                          "Tenant", respectively.

                 c)       Assignment.  For valuable consideration, receipt of
                          which is hereby acknowledged, Lessor hereby grants,
                          transfers and assigns to Lessee all of its right,
                          title and interest as Lessor in and to the Existing
                          Leases excluding Paragraph 51 of the 2395 Lease, so
                          that Lessee shall have the same rights and
                          obligations as if Lessee were the originally named
                          "Lessor" in the
   12
                          Existing Leases (the "Assignment of Existing
                          Leases"). The Assignment of Existing Leases shall be
                          effective as of the Commencement Date of the Lease
                          (the "Effective Date"). Upon mutual execution hereof,
                          Lessor shall deliver to Lessee the original
                          ink-signed Existing Leases (or copies thereof
                          certified to be true and correct if Lessor does not
                          possess or have access to the originals).

                 d)       Assumption and Indemnity.  Lessee hereby accepts the
                          Assignment of Existing Leases, and except as set
                          forth below, expressly assumes and agrees to perform
                          and comply with each and every obligation of "Lessor"
                          under the terms of the Existing Leases which accrue
                          on or after the Effective Date. Lessee hereby agrees
                          to indemnify, protect, defend and hold Lessor free
                          and harmless of and from all liability, costs,
                          judgment, damages, claims or demands, including
                          reasonable attorney's fees, arising out of or in
                          connection with the Lessee's failure to comply with
                          and perform the obligations of Lessor under the
                          provisions of the Existing Leases assumed by Lessee.
                          Notwithstanding anything in the Lease or this First
                          Addendum, Lessor hereby acknowledges and agrees that
                          Lessor shall hereby retain, and Lessee shall not
                          assume, the following obligations under the Existing
                          Leases:

                          i.      Any obligation of Lessor under the Existing
                                  Leases to be the "Insuring Party"; 

                          ii.     Any representation or warranty expressly made
                                  by Lessor under the Existing Leases;

                          iii.    Any obligation of Lessor to pay any broker's
                                  commissions, finder's fee or other fees or
                                  commissions in connection with the Existing
                                  Leases or the exercise of any options
                                  therein.  Lessee does not assume any
                                  obligation on the part of the "Lessor" to
                                  indemnify, defend, protect or hold harmless
                                  the Tenant(s) for any broker's commissions,
                                  finder's fees, or other fees or commissions
                                  in connection with the Existing Leases and
                                  Lessor shall remain solely liable for such
                                  costs;

                          iv.     Any obligation of the Lessor to construct or
                                  make any alterations, repairs, renovations or
                                  tenant improvements to the 2393 Premises or
                                  the 2395 Premises, which obligation arose
                                  prior to the Effective Date; and

                          v.      Any obligation of the "Lessor" under the
                                  Existing Leases or any obligation under any
                                  Applicable Law to investigate, clean-up,
                                  remove, remediate, restore, or abate any
                                  Hazardous Substances or Hazardous Substance
                                  release, discharge, disposal, emission or
                                  contamination present at any time in, on or
                                  under the 2393 Premises and/or the 2395
                                  Premises and/or the soil, air, improvements,
                                  groundwater or surface water of the 2393
                                  Premises and/or the 2395 Premises.

                          Lessor hereby agrees to indemnify, defend, protect
                          and hold Lessee harmless from any and all damages,
                          liabilities, claims, judgments, actions, reasonable
                          attorneys' and consultants' fees, costs and expenses
                          arising from the failure of Lessor to perform or pay
                          for the foregoing obligations under the Existing
                          Leases hereby not assumed by Lessee.

                 e)       Damage or Destruction:   Lessor also hereby agrees
                          that if the 2393 Premises or the 2395 Premises are
                          damaged or destroyed and Lessee is required to repair
                          or rebuild any portion of either or both of those
                          Premises under the terms of the Existing Leases,
                          Lessor shall deliver any property insurance proceeds
                          received by Lessor to Lessee.  If Lessor is unable to
                          deliver such insurance proceeds to Lessee or if such
                          proceeds are insufficient, Lessor shall pay to Lessee
                          the cost to repair and rebuild either or both of the
                          2393 Premises and the 2395 Premises, as applicable,
                          to the extent required and in accordance with the
                          Existing Leases, respectively, and Lessor shall
                          indemnify, defend, protect and hold Lessee harmless
                          from any and all damages, liabilities, claims,
                          judgments, actions, reasonable attorneys and
                          consultants' fees, costs and expenses arising from
                          Lessor's breach of the foregoing obligation.  If the
                          2393 Tenant or 2395 Tenant is entitled to an
                          abatement of rent under the terms of the Existing
                          Leases due to damage or destruction, Lessor shall
                          automatically abate the Base Rent, Operating Expenses
                          and Real Property Taxes for the Premises by an amount
                          equal to the amount Lessee reasonably abates the
                          Tenant(s) rent and additional rent under the Existing
                          Leases (except to the extent the damage or
                          destruction is caused by the willful misconduct of
                          Lessee).




                                       -2-
   13
                 f)       Condemnation:    If the 2393 Premises or the 2395
                          Premises are condemned, and Lessee is required to
                          repair or rebuild any part of the Premises under the
                          terms of the Existing Leases, Lessor shall deliver
                          any condemnation proceeds received by Lessor to
                          Lessee.  If Lessor is unable to deliver such
                          condemnation proceeds to Lessee or if such proceeds
                          are insufficient, Lessor shall pay to Lessee the cost
                          to repair and rebuild either or both of the 2393
                          Premises and the 2395 Premises, as applicable, in
                          accordance with the Existing Leases, respectively and
                          Lessor shall indemnify, defend, protect and hold
                          Lessee harmless from any and all damages liabilities,
                          claims, judgments, actions,  reasonable attorneys'
                          and consultants' fees, costs and expenses arising
                          from Lessor's breach of the foregoing obligation.

                 g)       Acknowledgment of Existing Leases.  Lessee hereby
                          represents and warrants that it has reviewed the
                          terms and conditions of the Existing Leases and that
                          it has no objection to the rights, duties,
                          obligations, benefits and privileges created or
                          imposed thereby to the extent assumed hereunder.
                          Lessor shall use its best efforts to ensure that all
                          rents and other charges payable by the Tenants under
                          the Existing Leases which accrue after the Effective
                          Date are paid to Lessee.

                 h)       Termination of Assignment.  Notwithstanding anything
                          to the contrary in this Lease and the Addenda hereto,
                          and irrespective of any consideration now or
                          hereafter given to Lessor by Lessee (or otherwise
                          accruing to the benefit of Lessor), the Assignment of
                          Existing Leases shall automatically terminate (i)
                          upon the expiration or sooner termination of this
                          Lease (unless in the case of the expiration of the
                          term, Lessee has by such date exercised its Option to
                          Purchase the Premises as provided in the First
                          Addendum) or (ii) upon the expiration or sooner
                          termination of the 2393 Lease, or (iii) upon the
                          expiration or sooner termination of the 2395 Lease.
                          In the event the Assignment of Existing Lease
                          terminates by reason of the expiration or sooner
                          termination of this Lease and Lessee does not
                          purchase the Premises, then Lessee shall upon
                          Lessor's demand execute any document(s) reasonably
                          required by Lessor to evidence the termination of the
                          Assignment of Leases, if required.  If Lessee fails
                          to execute and deliver said document(s) as may be
                          required within forty-five (45) days after the
                          expiration or sooner termination of this Lease, then
                          following Lessee's receipt of written notice of such
                          failure from Lessor, and provided that Lessee does
                          not purchase the Property, then Lessee hereby grants
                          to Lessor a limited special power of attorney for the
                          express purposes of executing said appropriate
                          documents(s) on Lessee's behalf, and for that express
                          purpose only.

                 i)       Amendment of Existing Leases.  Lessee agrees that it
                          will not enter into any amendments, modifications,
                          renewals or extensions (excluding any options set
                          forth in the Existing Leases) of the Existing Leases
                          which would increase the liability of Lessor
                          thereunder without the prior written consent of
                          Lessor, which consent shall not be unreasonably
                          withheld. In any event, Lessee shall give Lessor
                          advance notice of, or otherwise provide reasonably
                          detailed information about, any such proposed
                          amendment, modification, renewal or extension.

                 j)       Termination of Existing Leases.  In the event Lessee
                          terminates any of the Existing Leases in accordance
                          with the terms and conditions of said Existing Leases
                          and applicable laws and legal procedures or any
                          Tenant under the Existing Leases terminates any
                          Existing Lease or an Existing Lease expires upon its
                          own terms, then Lessee shall be free to use and
                          occupy that part of the Premises so returned to
                          Lessee for the remainder of the term of this Lease.
                          Lessee shall also have the right to lease the
                          returned portion of the Premises to any other tenant
                          in accordance with the provisions of Article 12
                          (Assignment and Subletting).

                 k)       Notices of Default.  In the event Lessee receives a
                          notice of default of the obligations to be performed
                          by Lessee under the Existing Leases from either of
                          the Tenants thereunder, Lessee shall promptly deliver
                          a copy of such notice to Lessor. Lessor shall have
                          the right, but not the obligation, to cure any
                          default described in the notice of default within the
                          time period provided in the Existing Leases. If
                          Lessor elects to cure such default, Lessee shall
                          promptly upon demand reimburse Lessor for the
                          reasonable expenses incurred in effecting such cure.

                 l)       Proration of Rents and Transfer of Deposits.  Upon
                          the expiration of calendar year 1996, if the Tenants
                          under the Existing Leases are entitled to the return
                          of any amount of excess rent, operating expenses,
                          taxes, insurance or utility charges paid by such
                          Tenants for said





                                      -3-
   14
                          year under the terms of the Existing Leases,
                          respectively, Lessor shall pay to Lessee one half of
                          the amount owed to the Tenant(s). Upon the
                          Commencement Date of this Lease, Lessor shall deliver
                          in cash to Lessee the security deposits paid by the
                          Tenants under the Existing Leases, in the total amount
                          of Fourteen Thousand Two Hundred and Fifty Dollars
                          ($14,250.00).

         51.     PURCHASE AND SALE OF THE PREMISES

                 a)       Lessor's Right to Require Lessee to Purchase.
                          Subject to the terms of the Purchase Agreement (as
                          defined hereinafter below) Lessor has the right to
                          require Lessee to purchase that certain real property
                          more particularly described on Exhibit A (the
                          "Property") attached hereto (the "Put Option") which
                          Put Option shall be exercised, if at all, under the
                          following terms and conditions:

                          i.      Time.  The Put Option may be exercised at
                                  anytime beginning on the sixth (6th) month
                                  following the Commencement Date of this
                                  Lease, and ending on that date which is six
                                  (6) months prior to the Expiration Date (as
                                  defined in Paragraph 1.3 of the Lease).

                          ii.     Method of Exercise: Written Notice. If Lessor
                                  desires to exercise the Put Option, Lessor
                                  shall give Lessee written notice of such
                                  exercise as provided in Paragraph 23 of the
                                  Lease.

                          iii.    Purchase Price.  The purchase price for the
                                  Property under the Put Option shall be Three
                                  Million ($3,000,000.00) Dollars.

                          iv.     General Terms and Conditions. All of the terms
                                  and conditions for the sale of the Property 
                                  pursuant to the Put Option shall be set forth
                                  in an Agreement of Purchase and Sale which
                                  shall be substantially in the form of the 
                                  attached Exhibit C (the "Purchase Agreement").

                          v.      Notwithstanding anything herein, Lessor shall
                                  not be entitled to exercise its Put Option if
                                  the Property is damaged or destroyed by fire
                                  or any other peril until the Property
                                  (excluding the improvements made by Lessee to
                                  the Property) has been fully restored to the
                                  condition existing prior to the destructive
                                  event.

                 b)       Lessee's Option to Purchase.  Lessor hereby grants to
                          Lessee an option to purchase the property (the
                          "Purchase Option"). Such Purchase Option shall be
                          exercised, if at all, on the following terms and
                          conditions:

                          i.      Time.  The Purchase option may be exercised
                                  by Lessee during the period commencing
                                  January 1, 2001 through and including
                                  February 28, 2001.

                          ii.     Method of Exercise; Written Notice.  If Lessee
                                  desires to exercise the Purchase Option, 
                                  Lessee shall give Lessor written notice of 
                                  such exercise, which notice shall beggiven as 
                                  provided in Paragraph 23 of the Lease.

                          iii.    Purchase Price.  The purchase price for the
                                  Property under the Purchase Option shall be
                                  Three Million ($3,000,000.00) Dollars.

                          iv.     Other Terms and Conditions.  All of the terms 
                                  and conditions for the sale of the Property 
                                  pursuant to the Purchase Option shall be as 
                                  set forth in the Agreement of Purchase and 
                                  Sale which shall be substantially in the form
                                  of the attached Exhibit C (the "Purchase 
                                  Agreement").

                          v.      Exercisable by a "Permitted Assignee" of
                                  Lessee.  Any "Permitted Assignee" as defined
                                  in Paragraph 13 of the Second Addendum to
                                  Lease may exercise Lessee's Purchase Option
                                  to purchase the Property.

                 c)       Within ten (10) days after Lessor exercises its Put
                          Option or Lessee exercises its Purchase Option, both
                          parties shall execute the Purchase Agreement.
                          Notwithstanding anything in the Lease or the Purchase
                          Agreement if Lessor exercises its Put Option or
                          Lessee exercises its Purchase Option, and the
                          conditions and/or contingencies set forth in the
                          Purchase





                                      -4-
   15
                          Agreement are not satisfied as required therein,
                          Lessee shall not be obligated to purchase the
                          Property and the Purchase Agreement shall
                          automatically terminate.

                 d)       Termination of Option Rights.  Notwithstanding
                          anything to the contrary contained in Paragraph 51
                          (b) hereof or any other part of the Lease, Lessee's
                          Purchase Option shall be of no force or effect if on
                          the date of Lessee's exercise of the Purchase Option
                          there exists a material breach on the part of Lessee
                          as defined in the Lease. In the event of such a
                          material breach existing on the date Lessee exercises
                          the Purchase Option, Lessee acknowledges and agrees
                          that Lessor shall have the right to sell, lease or
                          otherwise transfer the Property to any other person
                          or entity free and clear of Lessee's Purchase Option.
                          If Lessor exercises its Put Option and Lessee
                          breaches the Purchase Agreement, this Lease shall
                          remain in effect except that Lessor's Put Option
                          shall terminate and Lessee's Purchase Option shall
                          terminate.

                 e)       Remedies for Breach of Agreement of Purchase and
                          Sale: If the parties enter into a Purchase Agreement
                          for the Property, the remedies set forth therein
                          shall be the only and exclusive remedies the parties
                          have with respect to a breach of said Purchase
                          Agreement, and a breach of said Purchase Agreement
                          shall in no way be a breach of this Lease.

         52.     LESSOR ESTOPPELS

                 a)       2393 Lessor Estoppel.  Lessor is the "Lessor" under
                          the 2393 Lease described above and hereby represents
                          and warrants to Lessee the following:

                          i.      The 2393 Lease is in full force and effect and
                                  has not been altered, amended or modified,
                                  except as specifically set forth above.

                          ii.     The date of the Lease is May 21, 1990.  The
                                  Lease constitutes the only agreement or
                                  understanding between Lessor and the 2393
                                  Tenant.

                          iii.    The "Premises" covered by the Lease consist 
                                  of approximately 5,000 square feet of space.

                          iv.     Current monthly rent under the Lease is
                                  $3,750.00.  Rent and all other charges have
                                  been paid through the period ending July 31,
                                  1996.  There are no agreements concerning free
                                  rent, partial rent, rent rebate, credit for
                                  improvements, or other rental concessions.

                          v.      The Lease requires the 2393 Tenant to pay real
                                  property taxes, utilities and insurance.

                          vi.     The Lease commenced on June 1, 1990 and shall 
                                  expire on March 31, 1998.

                          vii.    The Lease does not contain an option to renew 
                                  the Lease term.

                          viii.   The Lease does not contain any of the
                                  following: a right of first refusal or option
                                  to expand, a right of first refusal or option
                                  to purchase, or an option to terminate.  The
                                  Lessor has not given the 2393 Tenant a notice
                                  to terminate the Lease.

                          ix.     The Lessor is holding a security deposit in
                                  the amount of $3,450.00.  Lessor holds no
                                  other funds for the 2393 Tenant's account.

                          x.      The 2393 Tenant is not in default under or in
                                  breach of the Lease and is current in the
                                  payment of all taxes, utilities, insurance
                                  and other charges required to be paid by the
                                  2393 Tenant.

                          xi.     The 2393 Tenant has not asserted a claim of
                                  default or offset or defense against the
                                  payment of rent, additional rent or other
                                  charges payable by the 2393 Tenant under the
                                  Lease.  To the best of Lessor's knowledge,
                                  the 2393 Tenant is not in default under any
                                  provision of the Lease nor has any event
                                  occurred which with the passage of time or
                                  giving of notice, or both, would constitute a
                                  default on the part of the 2393 Tenant.  The
                                  2393 Tenant does not have a claim against
                                  Lessor for any prepaid rent.





                                      -5-
   16
                          xii.    As of the Commencement Date, Lessor has
                                  performed all of the obligations required to
                                  be performed by the Lessor under the 2393
                                  Lease, including all obligations regarding
                                  the delivery of possession of the 2393
                                  Premises and the payment of all broker's or
                                  finder's fees in connection therewith.

                          xiii.   The Lease entitles the 2393 Tenant to the use 
                                  of a total of 10 unreserved parking spaces.

                          xiv.    The 2393 Tenant has accepted possession of
                                  the 2393 Premises and currently is in
                                  possession of the 2393 Premises and to the
                                  bet of Lessor's knowledge has not assigned
                                  its rights under the 2393 Lease or sublet any
                                  portion of the 2393 Premises.

                          xv.     To the Lessor's knowledge there is no pending
                                  condemnation against the 2393 Premises, any
                                  lawsuits which will after the 2393 Premises,
                                  or any other claim, action, suit or
                                  proceeding at law or in equity, by or before
                                  any administrative or governmental authority
                                  affecting the 2393 Premises.

         b)      2395 Lessor Estoppel.  Lessor is the "Lessor" under the 2395
                 Lease described above and hereby represents and warrants to 
                 Lessee the following:

                          i.      The 2395 Lease is in full force and effect 
                                  and has not been altered, amended or modified.

                         ii.      The date of the Lease is October 10, 1994.
                                  The 2395 Lease constitutes the only agreement
                                  or understanding between the 2395 Tenant and
                                  Lessor.

                          iii.    The "Premises" covered by the 2395 Lease 
                                  consist of approximately 15,000 square feet of
                                   space.

                          iv.     Current monthly Base Rent under the 2395 Lease
                                  is $9,300.00.  Base Rent and all other
                                  additional rent has been paid through the
                                  period ending July 31, 1996.  The 2395 Lease
                                  provides for the monthly Base Rent to increase
                                  to $10,800.00 on the first (1st) day of
                                  December 1997 and on the first (1st) day of
                                  each succeeding month through and including
                                  the first (1st) day of November 1999.  There
                                  are no agreements concerning free rent,
                                  partial rent, rent rebate, credit for
                                  improvements, or other rental concessions.

                          v.      The 2395 Lease requires the 2395 Tenant to
                                  pay its pro rata share of Common Area
                                  Operating Expenses.  The 2395 Tenant's pro
                                  rata share is 37.5%.  The 2395 Lease also
                                  requires the 2395 Tenant to pay the increase
                                  in Real Property Taxes and insurance over the
                                  Base Year 1994.

                          vi.     The 2395 Lease commenced on  December 1, 1994
                                  and, subject to the Option to Renew described
                                  in Paragraph 7 below, shall expire on
                                  November 30, 1999.

                          vii.    The 2395 Lease contains one (1) Option to
                                  Renew the term of the 2395 Lease for one (1)
                                  term of five years subject to all of the
                                  terms, covenants and condition of the 2395
                                  Lease, except that the amount of the rent for
                                  the extended term will be agreed upon between
                                  Lessor and the 2395 Tenant.

                          viii.   The 2395 Lease does not contain any of the
                                  following: a right of first refusal or option
                                  to expand, a right of first refusal or option
                                  to purchase, or an option to terminate.  The
                                  2395 Tenant has not given Lessor a notice to
                                  terminate the 2395 Lease.

                          ix.     The Lessor is holding a security deposit in
                                  the amount of $10,800.00.  Lessor holds no
                                  other funds for the 2395 Tenant's account.

                          x.      The 2395 Tenant is not in default under or in
                                  breach of the 2395 Lease and is current in
                                  the payment of all taxes, utilities, Common
                                  Area Operating Expenses and other charges
                                  required to be paid by the 2395 Tenant.





                                      -6-
   17
                          xi.     The 2395 Tenant has no claim of default or
                                  offset or defense against the payment of Base
                                  Rent, additional rent or other charges
                                  payable by the 2395 Tenant under the Lease.
                                  To the best of Lessor's knowledge, the 2395
                                  Tenant is not in default under any provision
                                  of the 2395 Lease nor has any event occurred
                                  which with the passage of time or giving of
                                  notice, or both, would constitute a default
                                  on the part of the 2395 Tenant.  The 2395
                                  Tenant has no claim against Lessor for any
                                  prepaid rent.

                          xii.    As of the Commencement Date, Lessor has
                                  performed all of the obligations required to
                                  be performed by the Lessor under the 2395
                                  Lease, including all obligations regarding
                                  the delivery of possession of the 2395
                                  Premises and the payment of all broker's or
                                  finder's fees in connection therewith.

                          xiii.   The Lease entitles the 2395 Tenant to the use
                                  of a total of thirty (30) unreserved parking
                                  spaces.

                          xiv.    The 2395 Tenant has accepted possession of
                                  the 2395 Premises and currently is in
                                  possession of the 2395 Premises and to the
                                  best of Lessor's knowledge has not assigned
                                  its rights under the 2395 Lease or sublet any
                                  portion of the 2395 Premises.

                          xv.     To the Lessor's knowledge there is no pending
                                  condemnation against the 2395 Premises, any
                                  lawsuits which will after the 2395 Premises,
                                  or any other claim, action, suit or
                                  proceeding at law or in equity, by or before
                                  any administrative or governmental authority
                                  affecting the 2395 Premises.

         53.     LESSOR'S REPRESENTATIONS AND WARRANTIES:

                 Lessor hereby represents and warrants to Lessee the following:

                 (a)      To the best of Lessor's knowledge, Lessor's execution
                          of this Lease does not and will not conflict with,
                          violate the terms of or constitute a default under
                          any indenture, agreement, deed of trust, note or
                          other instrument which Lessor is a party or by which
                          Lessor or the Premises may be bound which will in any
                          way affect the enforceability of this Lease, or
                          Lessee's interest in the Premises;

                 (b)      The legal description of the Premises attached hereto
                          as Exhibit A includes that certain real property and
                          improvements thereon commonly known as 2391, 2393 and
                          2395 Qume Drive, San Jose, California;

                 (c)      The Lessor has good and marketable fee title to the
                          Premises and no person or entity other than Lessee
                          has an option or other right to purchase or negotiate
                          the purchase of the Premises;

                 (d)      The consents of the Tenants under the Existing
                          Leases are not required to assign the Existing Leases
                          to Lessee; and

                 (e)      As of the Commencement Date of the Lease, Fortune
                          Trade Associates, a California Limited Partnership
                          consists of only two (2) general partners, known as:
                          The Robert S. Waples Trust and R.C. Wersted Inc.





                                      -7-
   18

LESSOR:                                   LESSEE:

FORTUNE TRADE ASSOCIATES, A               NUKO INFORMATION SYSTEMS, INC.,
CALIFORNIA LIMITED PARTNERSHIP            A NEW YORK CORPORATION


By:      The Robert S. Waples Trust
    --------------------------------

By:   /s/ ROBERT S. WAPLES                By:   /s/ JOHN H. GORMAN
    --------------------------------          ---------------------------------

Printed                                   Printed
Name:    Robert S. Waples                 Name:    John H. Gorman
     -------------------------------           --------------------------------

Title:   Trustee                          Title:   CFO
      ------------------------------            -------------------------------

Date: 7/29/96                             Date:    7/29/96
     -------------------------------           --------------------------------



By:      R .C. Wersted Inc.
   ---------------------------------

By:   /s/ ROBERT C. WERSTED
   ---------------------------------

Printed
Name:    Robert C. Wersted
     -------------------------------

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

Date:  7/29/96
     -------------------------------





                                      -8-
   19

   SECOND ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET


         THIS SECOND ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE-NET ("Second Addendum") is dated for reference purposes as of July 29,
1996, and is made between FORTUNE TRADE ASSOCIATES ("Lessor") and NUKO
INFORMATION SYSTEMS, INC. ("Lessee") to be a part of that certain Standard
Industrial/Commercial Single-Tenant Lease-Net of even date herewith between
Lessor and Lessee (herein the "Lease") concerning approximately 40,000 square
feet of space situated in that single story building located at 2391-2395 Qume
Drive, San Jose, California (the "Premises").  Lessor and Lessee agree that,
notwithstanding anything to the contrary in the Lease, the Lease is hereby
modified and supplemented as follows:

         1.      COMMENCEMENT DATE:   The Lease shall commence on the date by
which all of the following have occurred:  (a) Lessor has delivered legal
possession of the Premises to Lessee and (b) utilities are ready for use in the
Premises ("Commencement Date").  If the Commencement Date has not occurred for
any reason whatsoever on or before August 15, 1996, then Lessee may terminate
this Lease by written notice to Lessor, whereupon all monies previously paid by
Lessee to Lessor shall immediately be reimbursed to Lessee.

         2.      BASE RENT PAID UPON EXECUTION:  Lessee shall only be required
to pay Lessor the sum of Twelve Thousand Dollars ($12,000) as Base Rent for the
period July 1, 1996 through July 31, 1996.  Thereafter, Lessee shall pay Lessor
the Base Rent as set forth in Paragraph 1.5 of the Lease.

         3.      ACCEPTANCE OF PREMISES:   Lessor represents and warrants as of
the Commencement Date of the Lease that the roof (including the roof membrane,
roof screens, and roof screen penetrations), the interior and exterior doors
(including grade level doors), the structural portions of the Premises, all
paved surfaces and landscaped areas of the Premises and all meters serving the
Premises will be in good operating condition, order and repair.  Lessor shall,
at its sole cost and expense, deliver the landscaped areas of the Premises to
Lessee in a clean and groomed condition free of all debris and the paved areas
of the Premises in good condition with all of the cracks and/or holes repaired
and sealed and the parking spaces re-striped.  Lessee's acceptance of the
Premises shall not be deemed a waiver of Lessee's right to have the
above-described defects in the Premises discovered within the first thirty (30)
days of the Lease repaired at Lessor's sole cost and expense (except that under
no circumstances shall Lessor be required to replace the roof structure or roof
membrane of the Building).  Lessee shall give notice to Lessor during such
period, and Lessor shall repair such defect as soon as practicable.  Lessor
also hereby assigns to Lessee all warranties with respect to the Premises which
would reduce Lessee's maintenance obligations under the Lease and shall
cooperate with Lessee to enforce all such warranties.

         4.      COMPLIANCE WITH APPLICABLE LAWS:  At the Commencement Date,
the Premises shall conform to all requirements of covenants, conditions,
restrictions and encumbrances ("CC&R's"), all underwriter's requirements, and
all Applicable Law, including any laws  relating to asbestos (excluding the
Americans With Disabilities Act of 1990) (collectively, "Applicable Law")
applicable thereto.  Lessee shall not be required to comply with or pay the
cost of complying with any CC&R's, underwriter's requirements or Applicable
Law, unless such compliance is necessitated solely by Lessee's particular use
of the Premises.

         5.      HAZARDOUS SUBSTANCES:  To the best knowledge of Lessor, (i) no
Hazardous Substance in violation of Applicable Law is present on or about the
Premises or the real property of which the Premises is a part (the "Real
Property") or the soil, surface water or groundwater thereof, (ii) no
underground storage tanks or asbestos-containing building materials are present
on the Real Property and (iii) no action, proceeding or claim is pending or
threatened regarding the Premises or the Real Property concerning any Hazardous
Substance or pursuant to any Applicable Law.  Under no circumstance shall
Lessee be liable for, and Lessor shall indemnify, defend, protect and hold
harmless Lessee, its agents, contractors, stockholders, directors, officers,
successors, representatives, and assigns from and against all losses, costs,
claims, damages (excluding consequential damages to Lessee's business),
liabilities and expenses (including reasonable attorneys' and consultants'
fees) directly or indirectly arising out of or in connection with any Hazardous
Substance present at any time on or about the Premises or the Real Property, or
the soil, air, improvements, groundwater or surface water thereof (including
the presence of any such Hazardous Substances due to or as a result of the
Tenants or their successors or assigns under the Existing Leases (as both of
said terms are defined in the First Addendum to Lease)), or the violation of
any Applicable Law relating to any such Hazardous Substance, except to the
extent that any of the foregoing actually results from or is contributed to by
the release or emission of Hazardous Substances on or about the Premises during
the Term of the Lease by Lessee, its subtenants (excluding the Tenants or their
successors or assigns (as defined in the First Addendum)) or its agents or
employees in violation of Applicable Law.   Lessor hereby consents to the use
of the Hazardous Substances presently used by the Tenants under the Existing
Leases, including without limitation those listed on Exhibit C to the 2395
Lease (as defined in the First Addendum).  If Hazardous Substances are present
on the Premises due to an act of one or both of the Tenants, Lessee shall upon
written notice from Lessor assign its rights relating to Hazardous Substances
under the Existing Leases to Lessor to enforce the rights under said Leases
against the respective Tenants only to the extent such assignment is actually
required.  Lessee shall be required to comply with any Applicable Laws
pertaining to the use, generation or storage of Hazardous Substances by Lessee
on or about the Premises during the term of this Lease.  This Paragraph 5,
Article 6 and Paragraph 50(d) of the Lease constitute the entire agreement of
Lessor and Lessee regarding Hazardous Substances and the parties hereby agree
that no other provision of the Lease shall be deemed to apply thereto.

         6.      MAINTENANCE AND REPAIRS:  Lessor shall perform and construct,
and Lessee shall have no responsibility to perform, construct or pay for, any
repair, maintenance, restoration, replacement, renewal or improvement (i)
necessitated by the acts or omissions of Lessor or its agents, employees,
invitees or contractors or (ii) to the foundation of the Premises (except to
the extent a repair or maintenance is necessitated due to the willful
misconduct of Lessee or its employees).





   20
         7.      UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS:  Lessor
hereby acknowledges that following the Commencement Date of the Lease, Lessee
intends to make substantial Alterations and Utility Installations in and to the
Premises and that Lessee is entering into this Lease on the condition that
Lessor shall not unreasonably withhold its consent to any proposed Alteration
or Utility Installation of Lessee.  If Lessor's consent is required for an
Alteration or Utility Installation and Lessor fails to notify Lessee in writing
of its reasonable disapproval within thirty (30) days following Lessee's
request for approval, then Lessor shall be deemed to have approved the proposed
Alteration or Utility Installation.   Within thirty (30) days after Lessee's
request, Lessor shall advise Lessee in writing whether it reserves the right to
require Lessee to remove any Alterations or Utility Installations from the
Premises upon termination of the Lease.  If Lessor fails to require removal
upon such request, Lessee shall not be required to remove any such Alterations
or Utility Installations from the Premises.  All Alterations, Utility
Installations, Trade Fixtures and personal property installed in the Premises
at Lessee's expense ("Lessee's Property") shall at all times remain Lessee's
property and Lessee shall be entitled to all depreciation, amortization and
other tax benefits with respect thereto.  Except for Alterations which cannot
be removed without structural injury to or materially altering the then-
existing structural integrity of the Premises, at any time Lessee may remove
Lessee's Property from the Premises, provided Lessee repairs all damage caused
by such removal.  Lessor shall have no lien or other interest whatsoever in any
item of Lessee's Property, or any portion thereof or interest therein located
in the Premises or elsewhere, and Lessor hereby waives all such liens and
interests.  Within ten (10) days following Lessee's request, Lessor shall
execute documents in a form reasonably acceptable to Lessee to evidence
Lessor's waiver of any right, title, lien or interest in Lessee's Property
located in the Premises.   Lessee shall have no obligation to separately insure
any property in the Premises, other than Lessee's Property, from fire or any
other casualty and Lessee shall be entitled to all insurance proceeds and
condemnation awards and settlements payable with respect to Lessee's Property.

         8.      WAIVER OF SUBROGATION: The parties hereto release each other
and their respective agents, employees, successors, assignees and sublessees
from all liability for injury to any person or damage to any property that is
caused by or results from a risk which is actually insured against, which is
required to be insured against under this Lease, or which would normally be
covered by the standard form of "all risk-extended coverage" casualty
insurance, without regard to the negligence or willful misconduct of the entity
so released.  Each party shall use its best efforts to cause each insurance
policy it obtains to provide that the insurer thereunder waives all right of
recovery by way of subrogation as required herein in connection with any injury
or damage covered by the policy.  If such insurance policy cannot be obtained
with such waiver of subrogation, or if such waiver of subrogation is only
available at additional cost and the party for whose benefit the waiver is not
obtained does not pay such additional cost, then the party obtaining such
insurance shall immediately notify the other party of that fact.

         9.      INDEMNITY:  Lessor shall not be released from, and shall
indemnify, defend, and hold harmless Lessee from, all losses, damages
(excluding consequential damages to Lessee's business), liabilities, judgments,
actions, claims, reasonable attorneys' and reasonable consultants' fees,
payments, costs and expenses arising from the negligence or willful misconduct
of Lessor, or its agents, employees, contractors or invitees or a breach of
Lessor's obligations or representations under the Lease.

         10.     DAMAGE OR DESTRUCTION:  Lessor shall not have the right to
terminate the Lease and shall be obligated to make all necessary repairs and
restorations to the Premises if damage to or destruction of the Premises
whether partial or total (i) is an Insured Loss, or (ii) is relatively minor
(which is defined as a repair or restoration which would cost less than five
percent (5%) of the replacement cost of the Premises).  If the Premises are
partially or totally damaged or destroyed by any peril, then Lessee shall have
the option to terminate the Lease if the Premises cannot be, or are not in
fact, fully restored (excluding punch list items) by Lessor or if Lessor elects
not to restore the Premises as may be permitted under the Lease to their prior
condition within one hundred and fifty (150) days after the damage or
destruction.  Lessee shall be entitled to an equitable abatement of Base Rent,
Real Property Taxes, and any other charges required to be paid by Lessee under
the Lease to the extent any such damage or destruction interferes with Lessee's
use of the Premises.  Lessor shall notify Lessee within fifteen (15) days
following any damage to or destruction of the Premises (or the Building if such
damage or destruction interferes with Lessee's use of the Premises) of the
length of time Lessor reasonably estimates to be necessary for repair or
restoration of the Premises.  If the Premises are totally destroyed, Lessor
shall only be required to rebuild the Premises to the extent of the insurance
proceeds received.

         11.     REAL PROPERTY TAXES:  Lessee shall not be required to pay any
portion of any tax, assessment expense, or other governmental levies (i) in
excess of the amount which would be payable if such tax, assessment expense or
levy were paid in installments over the longest possible term, (ii)
attributable to a gift, transfer or franchise tax, and (iii) which the Lessor
has a right of reimbursement from others.

         12.     ASSIGNMENT AND SUBLETTING:  Lessee may, without Lessor's prior
written consent and without any participation by Lessor in assignment and
subletting proceeds or consideration, sublet any or all of the Premises or
assign the Lease on such terms and conditions as Lessee may elect to: (i) a
subsidiary, affiliate, division or corporation controlling, controlled by or
under common control with Lessee; (ii) a successor corporation related to
Lessee by merger, consolidation, nonbankruptcy reorganization, or government
action; or (iii) a purchaser of substantially all of Lessee's assets located in
the Premises which has a net worth equal to or greater than the net worth of
the Lessee as of the Commencement Date of the Lease (the "Permitted
Assignees").  For the purpose of this Lease, any sale or transfer of Lessee's
capital stock, including without limitation, a transfer in connection with the
merger, consolidation or nonbankruptcy reorganization of Lessee and any sale
through any national market system or public exchange, shall not be deemed an
assignment, subletting, or any other transfer of the Lease or the Premises.  If
Lessor fails to respond to Lessee's request to assign or sublet the Premises
within fifteen (15) days following Lessor's receipt of Lessee's request, Lessor
shall be deemed to have consented to such assignment or sublet of the Premises.
Notwithstanding anything to the contrary contained in the Lease or this Second
Addendum: the provisions of Article 12 of the Lease shall not apply to Lessee's
assumption of the Existing Leases of the Premises from Lessor.




                                      -2-
   21
         13.     LATE CHARGE AND PERFORMANCE OF LESSEE'S OBLIGATIONS:  Lessor
shall not perform any obligations on behalf of the Lessee (a) on account of
Lessee's failure to pay money to Lessor or (b) on account of Lessee's failure
to perform any other covenant under the Lease, unless Lessee's failure to
perform such covenant continues beyond the periods set forth in Section 13.1 of
the Lease after Lessee's actual receipt of written notice thereof.

         14.     BREACH BY LESSOR:  In the event Lessor fails to perform any of
its obligations under the Lease within the time period set forth in Section
13.5 of the Lease (except in the case of an emergency), Lessee may cure any
default of Lessor at Lessor's cost and Lessor shall pay to Lessee the actual
cost of such cure upon demand.

         15.     CONDEMNATION:  Notwithstanding anything in Paragraph 14 of the
Lease, Lessee may terminate the Lease by delivery to Lessor of a written notice
as a result of any condemnation if Lessee's use of the Premises is materially
diminished thereby.   In the event the Lease is not terminated as a result of a
condemnation, Base Rent, Real Property Taxes, and other charges s hall be
abated based upon the extent to which Lessee's use of the Premises is
diminished.  In addition to the proceeds Lessee shall be entitled to under the
Lease, Lessee shall receive a portion of the condemnation proceeds based on (i)
the unamortized value, allocable to the remainder of the Lease term, of any
improvements installed at Lessee's expense, which are not removable, (ii) loss
to Lessee's goodwill as a consequence of the condemnation and (iii) Lessee's
relocation expenses to relocate to an alternative space or within the Premises.
If the net severance damages received by Lessor under the Lease are materially
insufficient to repair the damage to the Premises caused by the condemnation,
Lessor may terminate the Lease.

         16.     SUBORDINATION:  Prior to the Commencement Date of the Lease,
Lessor shall obtain from any holders of a Security Device a written agreement
in a form reasonably acceptable to Lessee providing for the recognition of
Lessee's rights and interests under the Lease in the event of a foreclosure or
termination of the holder's Security Device.

         17.     LESSOR'S ENTRY OF PREMISES:  Lessor, except in the case of an
emergency or to provide janitorial services, shall provide Lessee with
twenty-four (24) hours' written notice prior to entry of the Premises.  Such
entry by Lessor and Lessor's agents shall not impair Lessee's operations more
than reasonably necessary.  During any such entry, Lessor and Lessor's agents
shall comply with Lessee's reasonable security measures and shall, at Lessee's
election, at all times be accompanied by Lessee.

         18.     SURRENDER:  Lessee's obligations with respect to surrender of
the Premises shall be fulfilled if Lessee surrenders possession of the Premises
in the condition existing at the commencement of the Lease, excepting ordinary
wear and tear, acts of God, casualties, condemnation, Hazardous Substances
(other than those released or emitted by Lessee during the term of this Lease
in violation of applicable environmental laws), and Lessee Owned Alterations
and Utility Installations that Lessee is not required under the Lease to
remove.

         19.      PARKING:  Lessee, at no cost to Lessee, shall have the
exclusive use, subject to any parking rights reserved in the Existing Leases of
all of the parking spaces in the parking lot adjacent to or serving the
Premises.

         20.     RULES AND REGULATIONS:  Lessee shall not be required to comply
with any rule or regulation unless the same applies non-discriminatorily to
all occupants of the Premises, and does not unreasonably interfere with
Lessee's use of or access to the Premises or Lessee's parking rights.  Lessee
shall also not be required to comply with any new rule or regulation which
increases Lessee's obligations or decreases Lessee's rights under the Lease.

         21.     APPROVALS: Whenever the Lease requires an approval, consent,
designation, determination or judgment by either Lessor or Lessee, such
approval, consent, designation, determination or judgment shall be reasonable,
shall not be unreasonably withheld or delayed and, in exercising any right or
remedy hereunder, each party shall at all times act reasonably and in good
faith.

         22.     REASONABLE EXPENDITURES:   Any expenditure by a party
permitted or required under the Lease, for which such party is entitled to
demand and does demand reimbursement from the other party, shall be limited to
the fair market value of the goods and services involved, shall be reasonably
incurred, and shall be substantiated by documentary evidence available for
inspection and review by the other party or its representative during normal
business hours.

         23.     LESSOR'S AUTHORITY TO EXECUTE:  Lessor warrants and represents
to Lessee that Lessor has the full right, power and authority to enter into
this Lease and has obtained all necessary consents and approvals from its
partners, officers, board of directors or other members required under the
documents governing its affairs in order to consummate the Lease contemplated
hereby and the individual(s) who execute the Lease on behalf of Lessor are duly
authorized to do so and bind the Lessor thereby.

         24.     PURCHASE OF THE PREMISES:  If Lessee elects to purchase the
Premises, this lease shall terminate on the date of the Close of Escrow for the
Premises.  Upon the Close of Escrow and termination of this Lease, Lessor and
Lessee shall have no further obligations under the Lease, except that the
assumption and assignment of the Existing Leases, more fully described in the
First Addendum, shall survive the Close of Escrow for the Premises except that
the Lessee shall be the "Insuring Party" under the Lease as of the Close of
Escrow for events occurring after the Close of Escrow, and Paragraph 50(d)(v)
of the First Addendum shall not be effective as to any release, discharge,
emission or disposal of Hazardous Substances on or about the Premises which
occurs after the date of the Close of Escrow.

         25.     CONDITION PRECEDENT:  Prior to or on the Commencement Date of
this Lease, Lessor shall use its best efforts to obtain a completed Lessor
Estoppel Certificate ("Estoppel Certificate") from each Tenant under the
Existing Leases




                                      -3-
   22
and a Non-Disturbance, Attornment and Subordination Agreement ("Non-Disturbance
Agreement") from Home Savings of America, FSB and/or any other lender of Lessor
("Lessor's Lender"), both in the form attached hereto as Exhibit B.  If Lessor
does not deliver a fully executed and completed original Estoppel Certificate
to Lessee for each Tenant under the Existing Leases and a fully executed
original of the Non-Disturbance Agreement from Lessor's Lender to Lessee within
forty-five (45) days following the Commencement Date of this Lease, Lessee
shall have the right to terminate this Lease, in which event this Lease shall
be null and void and the parties shall have no further obligations under this
Lease or the assignment of the Existing Leases.

         26.     INITIAL TENANT IMPROVEMENTS:  Lessor acknowledges receipt of
Lessee's initial construction plans prepared by the Hagman Group, Inc.
Architectural Planning, dated July 15, 1996 ("Plans").  Lessor shall approve
or disapprove of the initial plans no later than ten (10) days after the date
of Lessor's receipt.  Lessor's approval shall not be unreasonably withheld.
The parties shall use their best efforts to resolve any disagreement over the
initial Plans no later than fifteen (15) days after Lessor's receipt of the
Plans.  If Lessor and Lessee do not agree on the Plans and the construction of
the improvements to be constructed on the Property within said period, Lessee
may terminate this Lease, in which event the parties shall have no further
obligations under this Lease.  If Lessor approves of the Plans, Lessee may
construct the improvements and alterations described in said Plans.

         27.     EFFECT OF ADDENDUM:  All terms with initial capital letters
used herein as defined terms shall have the meanings ascribed to them in the
Lease unless specifically defined herein.  In the event of any inconsistency
between this Second Addendum and the Lease, the terms of this Second Addendum
shall prevail.  As used herein and in the Lease, the term "Lease" shall mean
the Lease, the First Addendum, this Second Addendum, and all exhibits, rules
and regulations referred to in the Lease or this Second Addendum.


LESSOR:                                   LESSEE:

FORTUNE TRADE ASSOCIATES,                 NUKO INFORMATION SYSTEMS, INC., 
A CALIFORNIA LIMITED PARTNERSHIP          NEW YORK CORPORATION


By:   The Robert S. Waples Trust          
   ---------------------------------      

By:  /s/ ROBERT S. WAPLES                 By:  /s/ JOHN H. GORMAN
   ---------------------------------         ----------------------------------

Printed                                   Printed
Name:  Robert S. Waples                   Name:    John H. Gorman
     -------------------------------           --------------------------------

Title:   Trustee                          Title:   CFO
      ------------------------------            -------------------------------_

Date:   7/29/96                           Date:    7/29/96
     -------------------------------           -------------------------------



By:      R .C. Wersted Inc.               
   ---------------------------------      
  
By:  /s/ ROBERT C. WERSTED                
   ---------------------------------      
  
Printed
Name:   Robert C. Wersted
     -------------------------------

Title:   President
      ------------------------------
      
Date:  7/29/96
     -------------------------------

EX-10.9

   1
 
                                                                   EXHIBIT 10.9
 
                         NUKO INFORMATION SYSTEMS, INC.
 
                             1996 STOCK OPTION PLAN
                   (AS AMENDED AND RESTATED NOVEMBER 7, 1996)
 
     1. Purposes of the Plan.  The purposes of this Stock Plan are:
 
          - to attract and retain the best available personnel for positions of
     substantial responsibility,
 
          - to provide additional incentive to Employees and Consultants, and
 
          - to promote the success of the Company's business.
 
     All Options granted under the Plan will be Nonstatutory Stock Options.
Stock Purchase Rights may also be granted under the Plan.
 
     2. Definitions.  As used herein, the following definitions shall apply:
 
          (a) "Administrator" means the Board or any of its Committees as shall
     be administering the Plan, in accordance with Section 4 of the Plan.
 
          (b) "Applicable Laws" means the requirements relating to the
     administration of stock option plans under U. S. state corporate laws, U.S.
     federal and state securities laws, the Code, any stock exchange or
     quotation system on which the Common Stock is listed or quoted and the
     applicable laws of any foreign country or jurisdiction where Options or
     Stock Purchase Rights are, or will be, granted under the Plan.
 
          (c) "Board" means the Board of Directors of the Company.
 
          (d) "Code" means the Internal Revenue Code of 1986, as amended.
 
          (e) "Committee" means a committee of Directors appointed by the Board
     in accordance with Section 4 of the Plan.
 
          (f) "Common Stock" means the Common Stock of the Company.
 
          (g) "Company" means Nuko Information Systems, Inc., a Delaware
     corporation.
 
          (h) "Consultant" means any person, including an advisor, engaged by
     the Company or a Parent or Subsidiary to render services to such entity.
 
          (i) "Director" means a member of the Board.
 
          (j) "Disability" means total and permanent disability as defined in
     Section 22(e)(3) of the Code.
 
          (k) "Employee" means any person, including Officers and Directors,
     employed by the Company or any Parent or Subsidiary of the Company. A
     Service Provider shall not cease to be an Employee in the case of (i) any
     leave of absence approved by the Company or (ii) transfers between
     locations of the Company or between the Company, its Parent, any
     Subsidiary, or any successor. Neither service as a Director nor payment of
     a director's fee by the Company shall be sufficient to constitute
     "employment" by the Company.
 
          (l) "Exchange Act" means the Securities Exchange Act of 1934, as
     amended.
 
          (m) "Fair Market Value" means, as of any date, the value of Common
     Stock determined as follows:
 
             (i) If the Common Stock is listed on any established stock exchange
        or a national market system, including without limitation the Nasdaq
        National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
        Market, its Fair Market Value shall be the closing sales price for such
        stock (or the closing bid, if no sales were reported) as quoted on such
        exchange or system for the last
   2
 
        market trading day prior to the time of determination, as reported in
        The Wall Street Journal or such other source as the Administrator deems
        reliable;
 
             (ii) If the Common Stock is regularly quoted by a recognized
        securities dealer but selling prices are not reported, the Fair Market
        Value of a Share of Common Stock shall be the mean between the high bid
        and low asked prices for the Common Stock on the last market trading day
        prior to the day of determination, as reported in The Wall Street
        Journal or such other source as the Administrator deems reliable;
 
             (iii) In the absence of an established market for the Common Stock,
        the Fair Market Value shall be determined in good faith by the
        Administrator.
 
          (n) "Nonstatutory Stock Option" means an Option not intended to
     qualify as an incentive stock option within the meaning of Section 422 of
     the Code and the regulation promulgated thereunder.
 
          (o) "Notice of Grant" means a written or electronic notice evidencing
     certain terms and conditions of an individual Option or Stock Purchase
     Right grant. The Notice of Grant is part of the Option Agreement.
 
          (p) "Officer" means a person who is an officer of the Company within
     the meaning of Section 16 of the Exchange Act and the rules and regulations
     promulgated thereunder.
 
          (q) "Option" means a stock option granted pursuant to the Plan.
 
          (r) "Option Agreement" means an agreement between the Company and an
     Optionee evidencing the terms and conditions of an individual Option grant.
     The Option Agreement is subject to the terms and conditions of the Plan.
 
          (s) "Option Exchange Program" means a program whereby outstanding
     options are surrendered in exchange for options with a lower exercise
     price.
 
          (t) "Optioned Stock" means the Common Stock subject to an Option or
     Stock Purchase Right.
 
          (u) "Optionee" means the holder of an outstanding Option or Stock
     Purchase Right granted under the Plan.
 
          (v) "Parent" means a "parent corporation," whether now or hereafter
     existing, as defined in Section 424(e) of the Code.
 
          (w) "Plan" means this 1996 Stock Option Plan.
 
          (x) "Restricted Stock" means shares of Common Stock acquired pursuant
     to a grant of Stock Purchase Rights under Section 11 below.
 
          (y) "Restricted Stock Purchase Agreement" means a written agreement
     between the Company and the Optionee evidencing the terms and restrictions
     applying to stock purchased under a Stock Purchase Right. The Restricted
     Stock Purchase Agreement is subject to the terms and conditions of the Plan
     and the Notice of Grant.
 
          (z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
     to Rule 16b-3, as in effect when discretion is being exercised with respect
     to the Plan.
 
          (aa) "Section 16(b)" means Section 16(b) of the Exchange Act.
 
          (bb) "Service Provider" means an Employee or Consultant.
 
          (cc) "Share" means a share of the Common Stock, as adjusted in
     accordance with Section 13 of the Plan.
 
          (dd) "Stock Purchase Right" means the right to purchase Common Stock
     pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
 
                                        2
   3
 
          (ee) "Subsidiary" means a "subsidiary corporation", whether now or
     hereafter existing, as defined in Section 424(f) of the Code.
 
     3. Stock Subject to the Plan.  Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,500,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
 
     If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
 
     4. Administration of the Plan.
 
        (a) Procedure.
 
             (i) Multiple Administrative Bodies.  The Plan may be administered
        by different Committees with respect to different groups of Service
        Providers.
 
             (ii) Section 162(m).  To the extent that the Administrator
        determines it to be desirable to qualify Options granted hereunder as
        "performance-based compensation" within the meaning of Section 162(m) of
        the Code, the Plan shall be administered by a Committee of two or more
        "outside directors" within the meaning of Section 162(m) of the Code.
 
             (iii) Rule 16b-3.  To the extent desirable to qualify transactions
        hereunder as exempt under Rule 16b-3, the transactions contemplated
        hereunder shall be structured to satisfy the requirements for exemption
        under Rule 16b-3.
 
             (iv) Other Administration.  Other than as provided above, the Plan
        shall be administered by (A) the Board or (B) a Committee, which
        committee shall be constituted to satisfy Applicable Laws.
 
          (b) Powers of the Administrator.  Subject to the provisions of the
     Plan, and in the case of a Committee, subject to the specific duties
     delegated by the Board to such Committee, the Administrator shall have the
     authority, in its discretion:
 
             (i) to determine the Fair Market Value;
 
             (ii) to select the Service Providers to whom Options and Stock
        Purchase Rights may be granted hereunder;
 
             (iii) to determine the number of shares of Common Stock to be
        covered by each Option and Stock Purchase Right granted hereunder;
 
             (iv) to approve forms of agreement for use under the Plan;
 
             (v) to determine the terms and conditions, not inconsistent with
        the terms of the Plan, of any Option or Stock Purchase Right granted
        hereunder. Such terms and conditions include, but are not limited to,
        the exercise price, the time or times when Options or Stock Purchase
        Rights may be exercised (which may be based on performance criteria),
        any vesting acceleration or waiver of forfeiture restrictions, and any
        restriction or limitation regarding any Option or Stock Purchase Right
        or the shares of Common Stock relating thereto, based in each case on
        such factors as the Administrator, in its sole discretion, shall
        determine;
 
             (vi) to reduce the exercise price of any Option or Stock Purchase
        Right to the then current Fair Market Value if the Fair Market Value of
        the Common Stock covered by such Option or Stock Purchase Right shall
        have declined since the date the Option or Stock Purchase Right was
        granted;
 
                                        3
   4
 
             (vii) to institute an Option Exchange Program;
 
             (viii) to construe and interpret the terms of the Plan and awards
        granted pursuant to the Plan;
 
             (ix) to prescribe, amend and rescind rules and regulations relating
        to the Plan, including rules and regulations relating to sub-plans
        established for the purpose of qualifying for preferred tax treatment
        under foreign tax laws;
 
             (x) to modify or amend each Option or Stock Purchase Right (subject
        to Section 15(c) of the Plan), including the discretionary authority to
        extend the post-termination exercisability period of Options longer than
        is otherwise provided for in the Plan;
 
             (xi) to allow Optionees to satisfy withholding tax obligations by
        electing to have the Company withhold from the Shares to be issued upon
        exercise of an Option or Stock Purchase Right that number of Shares
        having a Fair Market Value equal to the amount required to be withheld.
        The Fair Market Value of the Shares to be withheld shall be determined
        on the date that the amount of tax to be withheld is to be determined.
        All elections by an Optionee to have Shares withheld for this purpose
        shall be made in such form and under such conditions as the
        Administrator may deem necessary or advisable;
 
             (xii) to authorize any person to execute on behalf of the Company
        any instrument required to effect the grant of an Option or Stock
        Purchase Right previously granted by the Administrator;
 
             (xiii) to make all other determinations deemed necessary or
        advisable for administering the Plan.
 
          (c) Effect of Administrator's Decision.  The Administrator's
     decisions, determinations and interpretations shall be final and binding on
     all Optionees and any other holders of Options or Stock Purchase Rights.

 
          5. Eligibility.  Nonstatutory Stock Options and Stock Purchase Rights
     may be granted to Service Providers.
 
        6. Limitations.
 
          (a) Each Option shall be designated in the Option Agreement as a
     Nonstatutory Stock Option.
 
          (b) Neither the Plan nor any Option or Stock Purchase Right shall
     confer upon an Optionee any right with respect to continuing the Optionee's
     relationship as a Service Provider with the Company, nor shall they
     interfere in any way with the Optionee's right or the Company's right to
     terminate such relationship at any time, with or without cause.
 
          (c) The following limitations shall apply to grants of Options:
 
             (i) No Service Provider shall be granted, in any fiscal year of the
        Company, Options to purchase more than 1,000,000 Shares.
 
             (ii) In connection with his or her initial service, a Service
        Provider may be granted Options to purchase up to an additional
        1,000,000 Shares which shall not count against the limit set forth in
        subsection (i) above.
 
             (iii) The foregoing limitations shall be adjusted proportionately
        in connection with any change in the Company's capitalization as
        described in Section 13.
 
             (iv) If an Option is cancelled in the same fiscal year of the
        Company in which it was granted (other than in connection with a
        transaction described in Section 13), the cancelled Option will be
        counted against the limits set forth in subsections (i) and (ii) above.
        For this purpose, if the exercise price of an Option is reduced, the
        transaction will be treated as a cancellation of the Option and the
        grant of a new Option.
 
                                        4
   5
 
     7. Term of Plan.  Subject to Section 19 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its approval
by the shareholders of the Company. It shall continue in effect for a term of
ten (10) years unless terminated earlier under Section 15 of the Plan.
 
     8. Term of Option.  The term of each Option shall be stated in the Option
Agreement.
 
     9. Option Exercise Price and Consideration.
 
          (a) Exercise Price.  The per share exercise price for the Shares to be
     issued pursuant to exercise of an Option shall be determined by the
     Administrator, subject to the following:
 
             (i) In the case of a Nonstatutory Stock Option, the per Share
        exercise price shall be determined by the Administrator. In the case of
        a Nonstatutory Stock Option intended to qualify as "performance-based
        compensation" within the meaning of Section 162(m) of the Code, the per
        Share exercise price shall be no less than 100% of the Fair Market Value
        per Share on the date of grant.
 
             (ii) Notwithstanding the foregoing, Options may be granted with a
        per Share exercise price of less than 100% of the Fair Market Value per
        Share on the date of grant pursuant to a merger or other corporate
        transaction.
 
          (b) Waiting Period and Exercise Dates.  At the time an Option is
     granted, the Administrator shall fix the period within which the Option may
     be exercised and shall determine any conditions which must be satisfied
     before the Option may be exercised.
 
          (c) Form of Consideration.  The Administrator shall determine the
     acceptable form of consideration for exercising an Option, including the
     method of payment. Such consideration may consist entirely of:
 
           (i) cash;
 
           (ii) check;
 
             (iii) promissory note;
 
             (iv) other Shares which (A) in the case of Shares acquired upon
        exercise of an option, have been owned by the Optionee for more than six
        months on the date of surrender, and (B) have a Fair Market Value on the
        date of surrender equal to the aggregate exercise price of the Shares as
        to which said Option shall be exercised;
 
             (v) consideration received by the Company under a cashless exercise
        program implemented by the Company in connection with the Plan;
 
             (vi) a reduction in the amount of any Company liability to the
        Optionee, including any liability attributable to the Optionee's
        participation in any Company-sponsored deferred compensation program or
        arrangement;
 
             (vii) any combination of the foregoing methods of payment; or
 
             (viii) such other consideration and method of payment for the
        issuance of Shares to the extent permitted by Applicable Laws.
 
     10. Exercise of Option.
 
          (a) Procedure for Exercise; Rights as a Stockholder.  Any Option
     granted hereunder shall be exercisable according to the terms of the Plan
     and at such times and under such conditions as determined by the
     Administrator and set forth in the Option Agreement. Unless the
     Administrator provides otherwise, vesting of Options granted hereunder
     shall be tolled during any unpaid leave of absence. An Option may not be
     exercised for a fraction of a Share.
 
          An Option shall be deemed exercised when the Company receives: (i)
     written or electronic notice of exercise (in accordance with the Option
     Agreement) from the person entitled to exercise the Option, and
 
                                        5
   6
 
     (ii) full payment for the Shares with respect to which the Option is
     exercised. Full payment may consist of any consideration and method of
     payment authorized by the Administrator and permitted by the Option
     Agreement and the Plan. Shares issued upon exercise of an Option shall be
     issued in the name of the Optionee or, if requested by the Optionee, in the
     name of the Optionee and his or her spouse. Until the Shares are issued (as
     evidenced by the appropriate entry on the books of the Company or of a duly
     authorized transfer agent of the Company), no right to vote or receive
     dividends or any other rights as a stockholder shall exist with respect to
     the Optioned Stock, notwithstanding the exercise of the Option. The Company
     shall issue (or cause to be issued) such Shares promptly after the Option
     is exercised. No adjustment will be made for a dividend or other right for
     which the record date is prior to the date the Shares are issued, except as
     provided in Section 13 of the Plan.
 
          Exercising an Option in any manner shall decrease the number of Shares
     thereafter available, both for purposes of the Plan and for sale under the
     Option, by the number of Shares as to which the Option is exercised.
 
          (b) Termination of Relationship as a Service Provider.  If an Optionee
     ceases to be a Service Provider, other than upon the Optionee's death or
     Disability, the Optionee may exercise his or her Option within such period
     of time as is specified in the Option Agreement to the extent that the
     Option is vested on the date of termination (but in no event later than the
     expiration of the term of such Option as set forth in the Option
     Agreement). In the absence of a specified time in the Option Agreement, the
     Option shall remain exercisable for three (3) months following the
     Optionee's termination. If, on the date of termination, the Optionee is not
     vested as to his or her entire Option, the Shares covered by the unvested
     portion of the Option shall revert to the Plan. If, after termination, the
     Optionee does not exercise his or her Option within the time specified by
     the Administrator, the Option shall terminate, and the Shares covered by
     such Option shall revert to the Plan.
 
          (c) Disability of Optionee.  If an Optionee ceases to be a Service
     Provider as a result of the Optionee's Disability, the Optionee may
     exercise his or her Option within such period of time as is specified in
     the Option Agreement to the extent the Option is vested on the date of
     termination (but in no event later than the expiration of the term of such
     Option as set forth in the Option Agreement). In the absence of a specified
     time in the Option Agreement, the Option shall remain exercisable for
     twelve (12) months following the Optionee's termination. If, on the date of
     termination, the Optionee is not vested as to his or her entire Option, the
     Shares covered by the unvested portion of the Option shall revert to the
     Plan. If, after termination, the Optionee does not exercise his or her
     Option within the time specified herein, the Option shall terminate, and
     the Shares covered by such Option shall revert to the Plan.
 
          (d) Death of Optionee.
 
             (i) While a Service Provider.  If an Optionee dies while a Service
        Provider, the Option may be exercised within such period of time as is
        specified in the Option Agreement (but in no event later than the
        expiration of the term of such Option as set forth in the Notice of
        Grant) by the Optionee's estate or by a person who acquires the right to
        exercise the Option by bequest or inheritance, but only to the extent
        that the Option would have vested had the Optionee remained a Service
        Provider for six (6) months after the date of death. In the absence of a
        specified time in the Option Agreement, the Option shall remain
        exercisable for twelve (12) months following the Optionee's termination.
        If, at the time of death, the Optionee is not vested (or is not deemed
        vested by this Section 10(d)(i)) as to his or her entire Option, the
        Shares covered by the unvested portion of the Option shall immediately
        revert to the Plan. The Option may be exercised by the executor or
        administrator of the Optionee's estate or, if none, by the person(s)
        entitled to exercise the Option under the Optionee's will or the laws of
        descent or distribution. If the Option is not so exercised within the
        time specified herein, the Option shall terminate, and the Shares
        covered by such Option shall revert to the Plan.
 
             (ii) Within Three Months of Termination as a Service Provider.  If
        an Optionee dies within three (3) months of ceasing to be a Service
        Provider, the Option may be exercised within such period of time as is
        specified in the Option Agreement (but in no event later than the
        expiration of
 
                                        6
   7
 
        the term of such Option as set forth in the Notice of Grant), by the
        Optionee's estate or by a person who acquires the right to exercise the
        Option by bequest or inheritance, but only to the extent that the Option
        is vested on the date of death. In the absence of a specified time in
        the Option Agreement, the Option shall remain exercisable for twelve
        (12) months following the Optionee's termination. If, at the time of
        death, the Optionee is not vested as to his or her entire Option, the
        Shares covered by the unvested portion of the Option shall immediately
        revert to the Plan. The Option may be exercised by the executor or
        administrator of the Optionee's estate or, if none, by the person(s)
        entitled to exercise the Option under the Optionee's will or the laws of
        descent or distribution. If the Option is not so exercised within the
        time specified herein, the Option shall terminate, and the Shares
        covered by such Option shall revert to the Plan.
 
          (e) Buyout Provisions.  The Administrator may at any time offer to buy
     out for a payment in cash or Shares, an Option previously granted based on
     such terms and conditions as the Administrator shall establish and
     communicate to the Optionee at the time that such offer is made.
 
     11. Stock Purchase Rights.
 
          (a) Rights to Purchase.  Stock Purchase Rights may be issued either
     alone, in addition to, or in tandem with other awards granted under the
     Plan and/or cash awards made outside of the Plan. After the Administrator
     determines that it will offer Stock Purchase Rights under the Plan, it
     shall advise the offeree in writing or electronically, by means of a Notice
     of Grant, of the terms, conditions and restrictions related to the offer,
     including the number of Shares that the offeree shall be entitled to
     purchase, the price to be paid, and the time within which the offeree must
     accept such offer. The offer shall be accepted by execution of a Restricted
     Stock Purchase Agreement in the form determined by the Administrator.
 
          (b) Repurchase Option.  Unless the Administrator determines otherwise,
     the Restricted Stock Purchase Agreement shall grant the Company a
     repurchase option exercisable upon the voluntary or involuntary termination
     of the purchaser's service with the Company for any reason (including death
     or Disability). The purchase price for Shares repurchased pursuant to the
     Restricted Stock purchase agreement shall be the original price paid by the
     purchaser and may be paid by cancellation of any indebtedness of the
     purchaser to the Company. The repurchase option shall lapse at a rate
     determined by the Administrator.
 
          (c) Other Provisions.  The Restricted Stock Purchase Agreement shall
     contain such other terms, provisions and conditions not inconsistent with
     the Plan as may be determined by the Administrator in its sole discretion.
 
          (d) Rights as a Stockholder.  Once the Stock Purchase Right is
     exercised, the purchaser shall have the rights equivalent to those of a
     stockholder, and shall be a stockholder when his or her purchase is entered
     upon the records of the duly authorized transfer agent of the Company. No
     adjustment will be made for a dividend or other right for which the record
     date is prior to the date the Stock Purchase Right is exercised, except as
     provided in Section 13 of the Plan.
 
     12. Non-Transferability of Options and Stock Purchase Rights.  Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
 
     13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
 
          (a) Changes in Capitalization.  Subject to any required action by the
     stockholders of the Company, the number of shares of Common Stock covered
     by each outstanding Option and Stock Purchase Right, and the number of
     shares of Common Stock which have been authorized for issuance under the
     Plan but as to which no Options or Stock Purchase Rights have yet been
     granted or which have
 
                                        7
   8
 
     been returned to the Plan upon cancellation or expiration of an Option or
     Stock Purchase Right, as well as the price per share of Common Stock
     covered by each such outstanding Option or Stock Purchase Right, shall be
     proportionately adjusted for any increase or decrease in the number of
     issued shares of Common Stock resulting from a stock split, reverse stock
     split, stock dividend, combination or reclassification of the Common Stock,
     or any other increase or decrease in the number of issued shares of Common
     Stock effected without receipt of consideration by the Company; provided,
     however, that conversion of any convertible securities of the Company shall
     not be deemed to have been "effected without receipt of consideration."
     Such adjustment shall be made by the Board, whose determination in that
     respect shall be final, binding and conclusive. Except as expressly
     provided herein, no issuance by the Company of shares of stock of any
     class, or securities convertible into shares of stock of any class, shall
     affect, and no adjustment by reason thereof shall be made with respect to,
     the number or price of shares of Common Stock subject to an Option or Stock
     Purchase Right.
 
          (b) Dissolution or Liquidation.  In the event of the proposed
     dissolution or liquidation of the Company, the Administrator shall notify
     each Optionee as soon as practicable prior to the effective date of such
     proposed transaction. The Administrator in its discretion may provide for
     an Optionee to have the right to exercise his or her Option until ten (10)
     days prior to such transaction as to all of the Optioned Stock covered
     thereby, including Shares as to which the Option would not otherwise be
     exercisable. In addition, the Administrator may provide that any Company
     repurchase option applicable to any Shares purchased upon exercise of an
     Option or Stock Purchase Right shall lapse as to all such Shares, provided
     the proposed dissolution or liquidation takes place at the time and in the
     manner contemplated. To the extent it has not been previously exercised, an
     Option or Stock Purchase Right will terminate immediately prior to the
     consummation of such proposed action.
 
          (c) Merger or Asset Sale.  In the event of a merger of the Company
     with or into another corporation, or the sale of substantially all of the
     assets of the Company, each outstanding Option and Stock Purchase Right
     shall be assumed or an equivalent option or right substituted by the
     successor corporation or a Parent or Subsidiary of the successor
     corporation. In the event that the successor corporation refuses to assume
     or substitute for the Option or Stock Purchase Right, the Optionee shall
     fully vest in and have the right to exercise the Option or Stock Purchase
     Right as to all of the Optioned Stock, including Shares as to which it
     would not otherwise be vested or exercisable. If an Option or Stock
     Purchase Right becomes fully vested and exercisable in lieu of assumption
     or substitution in the event of a merger or sale of assets, the
     Administrator shall notify the Optionee in writing or electronically that
     the Option or Stock Purchase Right shall be fully vested and exercisable
     for a period of fifteen (15) days from the date of such notice, and the
     Option or Stock Purchase Right shall terminate upon the expiration of such
     period. For the purposes of this paragraph, the Option or Stock Purchase
     Right shall be considered assumed if, following the merger or sale of
     assets, the option or right confers the right to purchase or receive, for
     each Share of Optioned Stock subject to the Option or Stock Purchase Right
     immediately prior to the merger or sale of assets, the consideration
     (whether stock, cash, or other securities or property) received in the
     merger or sale of assets by holders of Common Stock for each Share held on
     the effective date of the transaction (and if holders were offered a choice
     of consideration, the type of consideration chosen by the holders of a
     majority of the outstanding Shares); provided, however, that if such
     consideration received in the merger or sale of assets is not solely common
     stock of the successor corporation or its Parent, the Administrator may,
     with the consent of the successor corporation, provide for the
     consideration to be received upon the exercise of the Option or Stock
     Purchase Right, for each Share of Optioned Stock subject to the Option or
     Stock Purchase Right, to be solely common stock of the successor
     corporation or its Parent equal in fair market value to the per share
     consideration received by holders of Common Stock in the merger or sale of
     assets.
 
     14. Date of Grant.  The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
 
                                        8
   9
 
     15. Amendment and Termination of the Plan.
 
          (a) Amendment and Termination.  The Board may at any time amend,
     alter, suspend or terminate the Plan.
 
          (b) Stockholder Approval.  The Company shall obtain stockholder
     approval of any Plan amendment to the extent necessary and desirable to
     comply with Applicable Laws.
 
          (c) Effect of Amendment or Termination.  No amendment, alteration,
     suspension or termination of the Plan shall impair the rights of any
     Optionee, unless mutually agreed otherwise between the Optionee and the
     Administrator, which agreement must be in writing and signed by the
     Optionee and the Company. Termination of the Plan shall not affect the
     Administrator's ability to exercise the powers granted to it hereunder with
     respect to options granted under the Plan prior to the date of such
     termination.
 
     16. Conditions Upon Issuance of Shares.
 
          (a) Legal Compliance.  Shares shall not be issued pursuant to the
     exercise of an Option or Stock Purchase Right unless the exercise of such
     Option or Stock Purchase Right and the issuance and delivery of such Shares
     shall comply with Applicable Laws and shall be further subject to the
     approval of counsel for the Company with respect to such compliance.
 
          (b) Investment Representations.  As a condition to the exercise of an
     Option or Stock Purchase Right, the Company may require the person
     exercising such Option or Stock Purchase Right to represent and warrant at
     the time of any such exercise that the Shares are being purchased only for
     investment and without any present intention to sell or distribute such
     Shares if, in the opinion of counsel for the Company, such a representation
     is required.
 
     17. Inability to Obtain Authority.  The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
 
     18. Reservation of Shares.  The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
 
     19. Stockholder Approval.  Stockholder approval of the Plan shall be
obtained in the manner and to the degree required under Applicable Laws.
 
                                        9

EX-10.10

   1
 
                                                                  EXHIBIT 10.10
 
                         NUKO INFORMATION SYSTEMS, INC.
 
                        1996 DIRECTOR STOCK OPTION PLAN
                   (AS AMENDED AND RESTATED NOVEMBER 7, 1996)
 
     1. Purposes of the Plan.  The purposes of this 1996 Director Stock Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
 
     All options granted hereunder shall be nonstatutory stock options.
 
     2. Definitions.  As used herein, the following definitions shall apply:
 
          (a) "Board" means the Board of Directors of the Company.
 
          (b) "Code" means the Internal Revenue Code of 1986, as amended.
 
          (c) "Common Stock" means the Common Stock of the Company.
 
          (d) "Company" means Nuko Information Systems, Inc., a Delaware
     corporation.
 
          (e) "Director" means a member of the Board.
 
          (f) "Employee" means any person, including officers and Directors,
     employed by the Company or any Parent or Subsidiary of the Company. The
     payment of a Director's fee by the Company shall not be sufficient in and
     of itself to constitute "employment" by the Company.
 
          (g) "Exchange Act" means the Securities Exchange Act of 1934, as
     amended.
 
          (h) "Fair Market Value" means, as of any date, the value of Common
     Stock determined as follows:
 
             (i) If the Common Stock is listed on any established stock exchange
        or a national market system, including without limitation the Nasdaq
        National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
        Market, its Fair Market Value shall be the closing sales price for such
        stock (or the closing bid, if no sales were reported) as quoted on such
        exchange or system for the last market trading day prior to the time of
        determination, as reported in The Wall Street Journal or such other
        source as the Administrator deems reliable;
 
             (ii) If the Common Stock is regularly quoted by a recognized
        securities dealer but selling prices are not reported, the Fair Market
        Value of a Share of Common Stock shall be the mean between the high bid
        and low asked prices for the Common Stock on the date of determination,
        as reported in The Wall Street Journal or such other source as the Board
        deems reliable, or;
 
             (iii) In the absence of an established market for the Common Stock,
        the Fair Market Value thereof shall be determined in good faith by the
        Board.
 
          (i) "Inside Director" means a Director who is an Employee.
 
          (j) "Option" means a stock option granted pursuant to the Plan.
 
          (k) "Optioned Stock" means the Common Stock subject to an Option.
 
          (l) "Optionee" means a Director who holds an Option.
 
          (m) "Outside Director" means a Director who is not an Employee.
 
          (n) "Parent" means a "parent corporation," whether now or hereafter
     existing, as defined in Section 424(e) of the Code.
 
          (o) "Plan" means this 1996 Director Stock Option Plan.
   2
 
          (p) "Share" means a share of the Common Stock, as adjusted in
     accordance with Section 10 of the Plan.
 
          (q) "Subsidiary" means a "subsidiary corporation," whether now or
     hereafter existing, as defined in Section 424(f) of the Internal Revenue
     Code of 1986.
 
     3. Stock Subject to the Plan.  Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares of Common Stock (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
 
     If an Option expires or becomes unexercisable without having been exercised
in full, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
 
     4. Administration and Grants of Options under the Plan.
 
          (a) Procedure for Grants.  All grants of Options to Outside Directors
     under this Plan shall be automatic and nondiscretionary and shall be made
     strictly in accordance with the following provisions:
 
             (i) No person shall have any discretion to select which Outside
        Directors shall be granted Options or to determine the number of Shares
        to be covered by Options granted to Outside Directors.
 
             (ii) Each Outside Director shall be automatically granted an Option
        to purchase 35,000 Shares on the date on which such person first becomes
        an Outside Director, whether through election by the shareholders of the
        Company or appointment by the Board to fill a vacancy; provided,
        however, that an Inside Director who ceases to be an Inside Director but
        who remains a Director shall not receive a First Option.
 
             (iii) Each Outside Director shall be automatically granted an
        Option to purchase 10,000 Shares on the day following the date of the
        Company's annual stockholder's meeting each year, provided he or she is
        then an Outside Director.
 
             (iv) Notwithstanding the provisions of subsections (ii) and (iii)
        hereof, any exercise of an Option granted before the Company has
        obtained stockholder approval of the Plan in accordance with Section 16
        hereof shall be conditioned upon obtaining such stockholder approval of
        the Plan in accordance with Section 16 hereof.
 
             (v) The terms of each Option granted hereunder shall be as follows:
 
                (A) the term of the Option shall be ten (10) years.
 
                (B) the Option shall be exercisable only while the Outside
           Director remains a Director of the Company, except as set forth in
           Sections 8 and 10 hereof.
 
                (C) the exercise price per Share shall be 100% of the Fair
           Market Value per Share on the date of grant of the Option. In the
           event that the date of grant of the Option is not a trading day, the
           exercise price per Share shall be the Fair Market Value on the next
           trading day immediately following the date of grant of the Option.
 
                (D) subject to Section 10 hereof, the Option shall be
           immediately exercisable as to 1/36 of the Shares subject thereto and
           shall become exercisable as to an additional 1/36 of the Shares
           subject thereto each month thereafter, provided that the Optionee
           continues to serve as a Director on such dates.
 
             (vi) In the event that any Option granted under the Plan would
        cause the number of Shares subject to outstanding Options plus the
        number of Shares previously purchased under Options to exceed the Pool,
        then the remaining Shares available for Option grant shall be granted
        under Options to the Outside Directors on a pro rata basis. No further
        grants shall be made until such time,
 
                                        2
   3
 
        if any, as additional Shares become available for grant under the Plan
        through action of the Board or the stockholders to increase the number
        of Shares which may be issued under the Plan or through cancellation or
        expiration of Options previously granted hereunder.
 
     5. Eligibility.  Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
 
     The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
 
     6. Term of Plan.  The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company
as described in Section 16 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 11 of the Plan.
 
     7. Form of Consideration.  The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
 
     8. Exercise of Option.
 
          (a) Procedure for Exercise; Rights as a Stockholder.  Any Option
     granted hereunder shall be exercisable at such times as are set forth in
     Section 4 hereof; provided, however, that no Options shall be exercisable
     until stockholder approval of the Plan in accordance with Section 16 hereof
     has been obtained.
 
     An Option may not be exercised for a fraction of a Share.
 
     An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
 
     Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
 
          (b) Termination of Continuous Status as a Director.  Subject to
     Section 10 hereof, in the event an Optionee's status as a Director
     terminates (other than upon the Optionee's death or total and permanent
     disability (as defined in Section 22(e)(3) of the Code)), the Optionee may
     exercise his or her Option, but only within three (3) months following the
     date of such termination, and only to the extent that the Optionee was
     entitled to exercise it on the date of such termination (but in no event
     later than the expiration of its ten (10) year term). To the extent that
     the Optionee was not entitled to exercise an Option on the date of such
     termination, and to the extent that the Optionee does not exercise such
     Option (to the extent otherwise so entitled) within the time specified
     herein, the Option shall terminate.
 
                                        3
   4
 
          (c) Disability of Optionee.  In the event Optionee's status as a
     Director terminates as a result of total and permanent disability (as
     defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
     her Option, but only within twelve (12) months following the date of such
     termination, and only to the extent that the Optionee was entitled to
     exercise it on the date of such termination (but in no event later than the
     expiration of its ten (10) year term). To the extent that the Optionee was
     not entitled to exercise an Option on the date of termination, or if he or
     she does not exercise such Option (to the extent otherwise so entitled)
     within the time specified herein, the Option shall terminate.
 
          (d) Death of Optionee.  In the event of an Optionee's death, the
     Optionee's estate or a person who acquired the right to exercise the Option
     by bequest or inheritance may exercise the Option, but only within twelve
     (12) months following the date of death, and only to the extent that the
     Optionee was entitled to exercise it on the date of death (but in no event
     later than the expiration of its ten (10) year term). To the extent that
     the Optionee was not entitled to exercise an Option on the date of death,
     and to the extent that the Optionee's estate or a person who acquired the
     right to exercise such Option does not exercise such Option (to the extent
     otherwise so entitled) within the time specified herein, the Option shall
     terminate.
 
     9. Non-Transferability of Options.  The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
 
     10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
 
          (a) Changes in Capitalization.  Subject to any required action by the
     stockholders of the Company, the number of Shares covered by each
     outstanding Option, the number of Shares which have been authorized for
     issuance under the Plan but as to which no Options have yet been granted or
     which have been returned to the Plan upon cancellation or expiration of an
     Option, as well as the price per Share covered by each such outstanding
     Option, and the number of Shares issuable pursuant to the automatic grant
     provisions of Section 4 hereof shall be proportionately adjusted for any
     increase or decrease in the number of issued Shares resulting from a stock
     split, reverse stock split, stock dividend, combination or reclassification
     of the Common Stock, or any other increase or decrease in the number of
     issued Shares effected without receipt of consideration by the Company;
     provided, however, that conversion of any convertible securities of the
     Company shall not be deemed to have been "effected without receipt of
     consideration." Except as expressly provided herein, no issuance by the
     Company of shares of stock of any class, or securities convertible into
     shares of stock of any class, shall affect, and no adjustment by reason
     thereof shall be made with respect to, the number or price of Shares
     subject to an Option.
 
          (b) Dissolution or Liquidation.  In the event of the proposed
     dissolution or liquidation of the Company, to the extent that an Option has
     not been previously exercised, it shall terminate immediately prior to the
     consummation of such proposed action.
 
          (c) Merger or Asset Sale.  In the event of a merger of the Company
     with or into another corporation or the sale of substantially all of the
     assets of the Company, outstanding Options may be assumed or equivalent
     options may be substituted by the successor corporation or a Parent or
     Subsidiary thereof (the "Successor Corporation"). If an Option is assumed
     or substituted for, the Option or equivalent option shall continue to be
     exercisable as provided in Section 4 hereof for so long as the Optionee
     serves as a Director or a director of the Successor Corporation. Following
     such assumption or substitution, if the Optionee's status as a Director or
     director of the Successor Corporation, as applicable, is terminated other
     than upon a voluntary resignation by the Optionee, the Option or option
     shall become fully exercisable, including as to Shares for which it would
     not otherwise be exercisable. Thereafter, the Option or option shall remain
     exercisable in accordance with Sections 8(c) through (d) above.
 
     If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully
 
                                        4
   5
 
exercisable for a period of thirty (30) days from the date of such notice, and
upon the expiration of such period the Option shall terminate.
 
     For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
 
     11. Amendment and Termination of the Plan.
 
          (a) Amendment and Termination. The Board may at any time amend, alter,
     suspend, or discontinue the Plan, but no amendment, alteration, suspension,
     or discontinuation shall be made which would impair the rights of any
     Optionee under any grant theretofore made, without his or her consent. In
     addition, to the extent necessary and desirable to comply with any
     applicable law, regulation or stock exchange rule, the Company shall obtain
     stockholder approval of any Plan amendment in such a manner and to such a
     degree as required.
 
          (b) Effect of Amendment or Termination. Any such amendment or
     termination of the Plan shall not affect Options already granted and such
     Options shall remain in full force and effect as if this Plan had not been
     amended or terminated.
 
     12. Time of Granting Options.  The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
 
     13. Conditions Upon Issuance of Shares.  Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
 
     As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
 
     Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
 
     14. Reservation of Shares.  The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
 
     15. Option Agreement.  Options shall be evidenced by written option
agreements in such form as the Board shall approve.
 
     16. Stockholder Approval.  Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
Such stockholder approval shall be obtained in the degree and manner required
under applicable state and federal law and any stock exchange rules.
 
                                        5

EX-10.11

   1

                                                                 EXHIBIT 10.11

                                 LOAN AGREEMENT
                                 ______________


        This Loan Agreement (the "Agreement") is entered into as of the 17 day
of October, 1996 by and between Nuko Information Systems, Inc., a New York
corporation (the "Company"), and John H. Gorman ("Employee") and Margaret E.
Gorman ("Employee's Spouse").

                                    RECITALS

        A.      Employee has accepted an offer of employment with the Company.

        B.      In accepting this offer of employment, Employee has found it
necessary to relocate his residence.

        C.      To aid Employee in such relocation, the Company and Employee
desire that the Company shall loan to Employee the total amount of Three
Hundred Thousand Dollars ($300,000) (which loan shall be forgiven on the terms
and conditions set forth in Exhibit "A") to assist Employee in purchasing a new
principal residence as set forth below under the terms and conditions of this
Agreement. 

        NOW, THEREFORE, the Company and Employee agree as follows:

                                   AGREEMENT

        1.      The Company agrees to lend Employee the amount of Three Hundred
Thousand Dollars ($300,000) (the "Loan").

        2.      Concurrently with the execution and delivery of this Agreement,
Employee and Employee's Spouse shall execute and deliver to the Company a
promissory note (the "Note") in the amount of Three Hundred Thousand Dollars
($300,000) in the form attached hereto as Exhibit "A".

        3.      Employee hereby makes the following representations and
warranties to the Company and acknowledges that the Company is relying on such
representations in making the Loan.

                A.      Employee and Employee's Spouse have good and marketable
title to the Property free and clear of all security interests and liens or
encumbrances securing monetary obligations other than a first loan (the "First
Loan") secured by a deed of trust constituting a first lien against the
Property in favor of Commonwealth United Mortgage Company, in the principal
amount of Three Hundred Twenty-Four Thousand Dollars ($324,000).

                B.      There are no actions, proceedings, claims or disputes
pending or, to Employee's or Employee's Spouse's knowledge, threatened against
or affecting Employee, Employee's Spouse, or the Property, except as shall be
disclosed to the Company in writing prior to the date of this Agreement.

                C.      Employee reasonably expects to be entitled to and will
itemize deductions each year that the loan is outstanding.

                D.      The Loan will be used only to purchase a principal
residence of Employee being acquired in connection with the commencement of
employment at a "new principal place of work" within the meaning of Section 217
of the Internal Revenue Code of 1986.
   2
        4.      Upon payment to Employee of the amount of the Loan, Employee
shall execute that certain Employee's certificate attached hereto as Exhibit
"B" and incorporated herein by this reference.

        5.      Employee understands that the Loan provided for herein is not
transferable by Employee and is conditioned on the future performance of
substantial services by Employee.

        6.      This Agreement and the exhibits attached hereto constitute the
full and entire understanding and agreement between the parties hereto with
regard to the subject hereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.

        7.      Employee understands that this Agreement does not constitute an
employment agreement or a promise by the Company to continue Employee's
employment. 

        8.      All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or five (5) days after deposit
with the United States mail, by registered or certified mail, postage prepaid,
addressed to the address set forth on the signature page hereof, or such other
address as either party may furnish to the other party.

        9.      Neither party may assign the rights and/or duties under this
Agreement to a third party without the prior written consent of the other party
to this Agreement, except that in the event that the Company is merged into
another corporation, or substantially all the outstanding stock or assets of
the Company are sold to another corporation and the surviving or acquiring
corporation agrees in writing to be bound by the rights and duties of the
Company under this Agreement, then the Company may assign its rights and duties
hereunder to such acquiring or surviving corporation.

        10.     All exhibits attached hereto are incorporated herby by
reference. 

        11.     This Agreement shall be governed in all respects by the laws of
the State of California.

        12.     In case one or more provisions herein shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, and this Agreement shall be construed as if such invalid, or
unenforceable provision had not been contained herein.

        13.     Each party hereto agrees to do such further acts and things and
to execute, acknowledge and deliver or to cause to have executed, acknowledged
and delivered such other and further instruments and documents as may
reasonably be requested by the other to carry out the purposes and intents of
this Agreement. This Agreement may be executed in counterparts and each
counterpart shall be deemed an original instrument.

        14.     Without limiting the generality of paragraph 16 below, Employee
hereby acknowledges that the Company has made no representation or warranty to
Employee concerning the income tax consequences of the loan to Employee, and
Employee shall be solely responsible for ascertaining and bearing such tax
consequences. 

        15.     THE NOTE, THIS AGREEMENT AND ALL RELATED DOCUMENTATION ARE
EXECUTED VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON THE PART OR
ON BEHALF OF THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE
OBLIGATIONS AND SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES
ACKNOWLEDGE THAT: (a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN
REPRESENTED IN THE PREPARATION, NEGOTIATION AND EXECUTION OF SUCH 
   3
DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT THEY HAVE
VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY UNDERSTAND THE TERMS AND
CONSEQUENCES OF THE NOTE, THIS AGREEMENT AND ALL RELATED DOCUMENTATION AND THE
OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING
EFFECT OF THIS AGREEMENT, THE NOTE, AND THE OTHER DOCUMENTS CONTEMPLATED BY
THIS AGREEMENT.


INITIAL:      JHG                       INITIAL:       
        ____________________                    ____________________
        John H. Gorman                          Company

INITIAL:      MEG
        ____________________
        Margaret E. Gorman

        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.

EMPLOYEE:                               COMPANY

                                        NUKO INFORMATION SYSTEMS, INC.

/s/ John H. Gorman                      By:/s/ Pratap Kesav Kondamoori
_____________________________              ________________________________


EMPLOYEE'S SPOUSE:

/s/ Margaret E. Gorman
_____________________________
Margaret E. Gorman

EX-11.1

   1

                                                                   EXHIBIT 11.1

                         NUKO Information Systems, Inc.

                         Computation of Loss Per Share



                                                           Eight Months
                                           Year Ended         Ended           Year Ended
                                          December 31,     December 31,        April 30,
                                              1996             1995              1995
                                              ----             ----              ----
                                                                   
Primary loss per share
- ----------------------

Net loss............................     ($14,733,030)     ($1,957,645)     ($1,743,862)
                                          ----------------------------------------------
Shares outstanding at beginning
 of year............................        9,128,418        5,541,473        4,749,441
                                          ----------------------------------------------
Weighted average effect of shares
 issued during year.................          580,803          255,255          423,047
                                          ----------------------------------------------
Weighted average effect of shares
 redeemed during year...............                0                0                0
                                          ----------------------------------------------
Weighted average effect of share
 subscriptions (excluded due to
 anti-dilutive effect)..............                0       (3,014,347)      (3,014,347)
                                          ----------------------------------------------
Weighted average shares outstanding
 for year...........................        9,709,221        2,782,381        2,158,141
                                          ----------------------------------------------
Primary loss per share..............           ($1.52)          ($0.70)          ($0.81)
                                          ----------------------------------------------
Fully diluted loss per share (Note A)
- -------------------------------------


Note A: This computation not made as the result is anti-dilutive due to net
loss for the year.

* Eight month fiscal year

EX-27.1

 

<ARTICLE> 5
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                       2,270,423
<SECURITIES>                                         0
<RECEIVABLES>                                6,864,479
<ALLOWANCES>                                         0
<INVENTORY>                                  4,828,632
<CURRENT-ASSETS>                            14,728,263
<PP&E>                                       4,213,912
<DEPRECIATION>                                (768,044)
<TOTAL-ASSETS>                              18,180,258
<CURRENT-LIABILITIES>                       10,654,426
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          5
<COMMON>                                        10,491
<OTHER-SE>                                   7,486,704
<TOTAL-LIABILITY-AND-EQUITY>                18,180,258
<SALES>                                     11,081,590
<TOTAL-REVENUES>                            11,081,590
<CGS>                                        9,260,470
<TOTAL-COSTS>                                9,260,470
<OTHER-EXPENSES>                            16,742,494
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              94,016
<INCOME-PRETAX>                            (14,732,230)
<INCOME-TAX>                                       800
<INCOME-CONTINUING>                        (14,732,230)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (14,732,230)
<EPS-PRIMARY>                                    (1.52) 
<EPS-DILUTED>                                    (1.52)