QAD INC, S-1/A, 1997-07-10

QAD INC
S-1/A, 1997-07-10
PREPACKAGED SOFTWARE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1997

REGISTRATION NO. 333-28441

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1/A

AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER

THE SECURITIES ACT OF 1933
---------------------

QAD INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
CALIFORNIA 7372 77-0105228
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>

6450 VIA REAL, CARPINTERIA, CALIFORNIA 93013
(805) 684-6614

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

KARL F. LOPKER
QAD INC.
6450 VIA REAL
CARPINTERIA, CALIFORNIA 93013
(805) 684-6614

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
ERIC H. SCHUNK, Esq. JOSEPH E. NIDA, Esq. JOHN T. SHERIDAN, Esq.
Milbank, Tweed, Hadley & McCloy Nida & Maloney Wilson Sonsini Goodrich & Rosati
601 South Figueroa Street, 30th Fl. Professional Corporation Professional Corporation
Los Angeles, California 90017 801 Garden Street, Suite 201 650 Page Mill Road
(213) 892-4000 Santa Barbara, California 93101 Palo Alto, California 94304-1050
(805) 568-1151 (415) 493-9300
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>
EXPLANATORY NOTE

This registration statement contains two forms of prospectuses: one to be
used in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical except for the front
and back cover pages. Each of the pages for the International Prospectus
included herein is labelled "Alternate Page."

The state of incorporation of this Registrant indicated on the initial page
of this Registration Statement differs from that described in the Prospectus and
Part II of this Registration Statement. The Registrant, which is currently a
California corporation, intends to reincorporate in Delaware prior to the
effectiveness of this Registration Statement and consummation of the Offering.
The Registrant additionally intends to effect a stock split in connection with
its reincorporation.
<PAGE>

SUBJECT TO COMPLETION, DATED JULY 10, 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
P R O S P E C T U S

5,750,000 SHARES

[LOGO]

COMMON STOCK

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

All of the shares of Common Stock offered hereby are being sold by QAD Inc.
("QAD" or the "Company"). Of the 5,750,000 shares of Common Stock offered
hereby, 4,600,000 shares are being offered for sale in the United States and
Canada by the U.S. Underwriters (as defined herein) and 1,150,000 shares are
being offered in a concurrent international offering outside the United States
and Canada by the Managers (as defined herein) (collectively, the "Offering").

Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $12.00 and $14.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "QADI."

Upon completion of the Offering, the current directors and executive
officers of the Company will beneficially own approximately 71% of the
outstanding Common Stock of the Company. See "Risk Factors--Control by Principal
Stockholders."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<CAPTION>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
Per Share $ $ $
Total (3) $ $ $
</TABLE>

(1) For information regarding indemnification of the U.S. Underwriters and the
Managers, see "Underwriting."

(2) Before deducting estimated offering expenses of $1,800,000, payable by the
Company.

(3) The Company has granted the several U.S. Underwriters and the several
Managers a 30-day option to purchase up to 862,500 additional shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting." If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively.

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

The shares of Common Stock are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
, 1997, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.

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

SMITH BARNEY INC.
COWEN & COMPANY

ROBERTSON, STEPHENS & COMPANY

, 1997
<PAGE>
[VISUAL DEPICTIONS OF USER INTERFACE FOR MFG/PRO AND QWIZARD SOFTWARE]

CAPTIONS:

1. MFG/PRO SOFTWARE PROVIDES MULTINATIONAL ORGANIZATIONS WITH AN INTERGRATED ERP
SOLUTION THAT IS BASED ON AN OPEN, CLIENT/SERVER ARCHITECTURE AND INCLUDES
MANUFACTURING, DISTRIBUTION, FINANCIAL AND SERVICE/SUPPORT MANAGEMENT
APPLICATIONS.

2. QWIZARD SOFTWARE IS A MENTOR FOR USERS OF MFG/PRO SOFTWARE WHICH PROVIDES
SELF-PACED INTERACTIVE TRAINING. QWIZARD SOFTWARE INCLUDES TOOLS TO DESIGN
AND CUSTOMIZE THE VISUAL INTERFACE OF MFG/PRO SOFTWARE TO MATCH THE USER'S
WORKFLOWS AND JOB RESPONSIBILITIES.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTING, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

2
<PAGE>
[GRAPHICAL DEPICTION OF QAD CUSTOMERS' BUSINESS MODEL]

CAPTION:

1. QAD TARGETS SPECIFIC VERTICAL MARKETS. THE BUSINESS MODEL OF QAD'S TARGET
CUSTOMERS VARIES BY SIZE AND COMPLEXITY OF THE ENTERPRISE. BUSINESS SOFTWARE
REQUIREMENTS ALSO VARY AT EACH LEVEL OF THE ORGANIZATION AS WELL AS BY
VERTICAL MARKETS.

SELECT CUSTOMER LIST

ELECTRONICS/INDUSTRIAL
ABB Flakt Oy
Alcatel Services International B.V.
Allen-Bradley Co. Inc.
Aluminum Company of America
AT&T
Courtaulds plc
Ingersoll-Rand Company
Lucent Technologies Inc.
Matsushita Electric-Industrial
Co., Ltd
NEC America, Inc.
Newbridge Networks Corporation
Philips International B.V.
RayChem Corporation
Schlumberger Technology Corp.
Silicon Graphics SA
Sun Microsystems, Inc.
Xerox Corporation
FOOD/BEVERAGE
AEP Borden Nederland B.V.
Cargill, Incorporated
Kraft Jacobs Suchard AG
Pepsi-Cola Company
Presto Foods Products
The Quaker Oats Company
Rich Products Corporation
CONSUMER GOODS
The Black & Decker
Corporation
Colgate-Palmolive Company
Gillette Company
Johnson & Johnson
Unilever N.V.
AUTOMOTIVE
Aeroquip-Vickers, Inc.
Daewoo Information
Systems Co. Ltd.
Ford Motor Corporation
Johnson Controls, Inc.
Lear Seating Corporation
R.J. Tower Corporation
Rockwell Automotive
United Technologies Automotive
Varity Kelsey-Hayes Company
MEDICAL
Alza Corporation
BOC Ohmeda Inc.
Physio-Control Corporation
Rexall Sundown, Inc.
St. Jude Medical, Inc.
Sunrise Medical Inc.
Ventritex, Inc.

<PAGE>
[GRAPHICAL DEPICTIONS OF QAD'S GLOBAL SUPPLY CHAIN MODEL, MFG/PRO-ERP
SOLUTION AND ON/Q-SUPPLY CHAIN SOLUTION]

CAPTIONS:

1. QAD BELIEVES THAT THE INCREASING COMPLEXITY AND DIVERSITY OF CUSTOMER
REQUIREMENTS LIMITS THE ABILITY OF A SINGLE-VENDOR SOLUTION TO FULLY MEET THE
ENTERPRISE-WIDE ERP SOFTWARE NEEDS OF ITS CUSTOMERS AND HAS LED TO THE
EMERGENCE OF THREE DISTINCT SEGMENTS WITHIN THE ERP SOFTWARE MARKET:
CORPORATE, PLANT AND SUPPLY CHAIN MANAGEMENT.

2. QAD HAS A NUMBER OF JOINT DEVELOPMENT AGREEMENTS WITH THIRD-PARTY SOFTWARE
DEVELOPERS WHO PROVIDE FUNCTIONALITY THAT HAS BEEN IMBEDDED INTO OR
INTEGRATED WITH MFG/PRO SOFTWARE TO DELIVER A MORE COMPLETE SOLUTION FOR ITS
TARGETED VERTICAL MARKETS.

3. THE COMPANY BELIEVES SUPPLY CHAIN OPTIMIZATION REPRESENTS ONE OF THE GREATEST
CURRENT OPPORTUNITIES FOR COMPANIES TO REDUCE COSTS AND ENHANCE CUSTOMER
RELATIONSHIPS. QAD IS DEVELOPING ON/Q SOFTWARE, A GROUP OF APPLICATIONS FOR
THIS MARKET, THAT ARE BASED ON AN OBJECT-ORIENTED TECHNOLOGY, RESULTING IN
FLEXIBLE AND CONFIGURABLE APPLICATION COMPONENTS. THE FIRST ON/Q SOFTWARE
APPLICATION UNDER DEVELOPMENT, LOGISTICS, IS EXPECTED TO BE COMMERCIALLY
AVAILABLE IN THE SECOND HALF OF 1998.
<PAGE>
PROSPECTUS SUMMARY

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. EXCEPT AS OTHERWISE SPECIFICALLY NOTED HEREIN, ALL OF THE
INFORMATION IN THIS PROSPECTUS (I) REFLECTS THE CONVERSION OF ALL OF THE
COMPANY'S OUTSTANDING SHARES OF CLASS B COMMON STOCK INTO SHARES OF COMMON
STOCK, WHICH WILL OCCUR AUTOMATICALLY UPON THE CLOSING OF THE OFFERING, (II)
ASSUMES THE REINCORPORATION OF THE COMPANY IN DELAWARE TO BE EFFECTED PRIOR TO
THE COMPLETION OF THE OFFERING, (III) REFLECTS THE 2-FOR-1 SPLIT OF ALL OF THE
COMPANY'S OUTSTANDING SHARES OF COMMON STOCK TO BE EFFECTED PRIOR TO THE
COMPLETION OF THE OFFERING AND (IV) ASSUMES THAT THE U.S. UNDERWRITERS' AND THE
MANAGERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. ALL REFERENCES TO THE COMPANY
OR QAD SHALL REFER TO QAD INC., A DELAWARE CORPORATION, AND SHALL INCLUDE ITS
SUBSIDIARIES, EXCEPT AS OTHERWISE SPECIFICALLY NOTED HEREIN.

THE COMPANY

QAD is a provider of Enterprise Resource Planning ("ERP") software for
multinational and other large manufacturing companies. The Company's software
solutions are designed to facilitate global management of resources and
information to allow manufacturers to reduce order fulfillment cycle times and
inventories, improve operating efficiencies and measure critical company
performance criteria against defined business plan objectives. The flexibility
of the Company's products also helps manufacturers adapt to growth,
organizational change, business process reengineering, supply chain management
and other challenges.

The Company's principal product, MFG/PRO software, is specifically designed
for deployment at the plant or division level of global manufacturers in five
targeted industry segments--electronics/industrial, food/beverage, consumer
packaged goods, medical and automotive. MFG/PRO software provides multinational
organizations with an integrated ERP solution that is based on an open,
client/server architecture and includes manufacturing, distribution, financial
and service/support management applications. Additionally, the Company is
currently focused on extending its presence in multi-site manufacturing by
developing a line of object-oriented, supply chain management solutions, named
On/Q software. The Company's initial On/Q software product, Logistics, is
designed to allow for consolidation of orders, contract management, shipping and
logistics management. Logistics is currently in development and is expected to
be commercially available in the second half of 1998. As of April 30, 1997, the
Company had licensed MFG/PRO software at approximately 3,200 sites to
approximately 1,880 customers in over 70 countries. The Company's customers
include Cargill, Incorporated, Colgate-Palmolive Company, Johnson Controls,
Inc., Johnson & Johnson, Lucent Technologies Inc., Philips Electronics N.V., St.
Jude Medical, Inc., Unilever N.V. and United Technologies Automotive.

The Company was founded in 1979 and was incorporated in California as
qad.inc in 1986. In February 1997, the Company's name was changed to QAD Inc.
The Company will be reincorporated in Delaware prior to completion of the
Offering. The Company's executive offices are located at 6450 Via Real,
Carpinteria, California 93013, and its telephone number is (805) 684-6614.

THE OFFERING

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<S> <C>
Common Stock offered:
U.S. Offering...................... 4,600,000 shares
International Offering............. 1,150,000 shares
Total............................ 5,750,000 shares (1)
Common Stock to be outstanding after
the Offering.......................... 28,274,234 shares (1)(2)
Use of proceeds........................ For repayment of indebtedness, to fund capital
and other investments and for working capital
and general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.......... QADI
</TABLE>

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(1) Does not include 862,500 shares of Common Stock that are subject to an
over-allotment option granted by the Company to the U.S. Underwriters and
the Managers.

(2) Excludes 1,061,000 shares of Common Stock issuable upon exercise of options
outstanding at April 30, 1997 with exercise prices ranging from $0.12 to
$13.00 per share and with a weighted average exercise price of $2.73 per
share. See Note 10 of Notes to Consolidated Financial Statements.

3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED APRIL 30,
------------------------------------------ JANUARY 31, --------------------
1992 1993 1994 1995 1997(1) 1996 1997
--------- --------- --------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue............................ $ 28,074 $ 46,543 $ 66,360 $ 89,949 $ 126,444 $ 20,116 $ 32,073
Operating income (loss)............ 3,565 6,442 4,084 (2,646) 2,322 (10,200) 317
Net income (loss).................. 1,589 3,694 2,878 (686) 1,000 (7,317) 560
Net income (loss) per
share (2)........................ $ 0.08 $ 0.18 $ 0.12 $ (0.03) $ 0.04 $ (0.33) $ 0.02
Shares used in computing income
(loss) per share................. 20,788 20,788 23,887 21,889 23,534 22,167 24,015
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, 1997
-------------------------
AS ADJUSTED
ACTUAL (3)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 1,306 $ 47,561
Working capital (deficit).............................................................. (12,216) 49,182
Total assets........................................................................... 81,193 129,448
Notes payable and current installments of long-term debt............................... 15,143 0
Long-term debt, less current installments.............................................. 4,320 0
Total stockholders' equity............................................................. 10,952 78,669
</TABLE>

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(1) Effective February 1, 1996, the Company changed its financial reporting year
end from December 31 to January 31. See Note 1 of Notes to Consolidated
Financial Statements.

(2) The basis for the determination of stock used in computing net income (loss)
per share is described in Note 1 of Notes to Consolidated Financial
Statements.

(3) Adjusted to give effect to the sale of 5,750,000 shares of Common Stock
offered by the Company in the Offering at an assumed initial public offering
price of $13.00 per share after deducting estimated underwriting discounts
and commissions and offering expenses payable by the Company and the
application of the estimated net proceeds therefrom, including the use of
approximately $19.5 million to repay amounts owed under notes payable and
long-term debt and $2.0 million to acquire an equity interest in a private
technology development company. See "Use of Proceeds" and "Capitalization."

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

"QAD," "Qwizard" and "On/Q" are trademarks and "MFG/PRO" is a registered
trademark of the Company. This Prospectus also contains trademarks and
registered trademarks of persons and companies other than QAD.

4
<PAGE>
RISK FACTORS

HISTORICAL FLUCTUATIONS IN QUARTERLY RESULTS AND POTENTIAL FUTURE SIGNIFICANT
FLUCTUATIONS

The Company's quarterly revenue, expenses and operating results have varied
significantly in the past, and the Company anticipates that such fluctuations
will continue in the future as a result of a number of factors, many of which
are outside the Company's control. The factors affecting these fluctuations
include demand for the Company's products and services, the size, timing and
structure of significant licenses by customers, market acceptance of new or
enhanced versions of the Company's software products and products that operate
with the Company's products, the publication of opinions about the Company, its
products and technology by industry analysts, the entry of new competitors and
technological advances by competitors, delays in localizing the Company's
products for new markets, delays in sales as a result of lengthy sales cycles,
changes in operating expenses, foreign currency exchange rate fluctuations,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of product enhancements or new product offerings by
the Company or its competitors, the timing of the release of new or enhanced
versions of the Company's software products and products that operate with the
Company's products, changes in the method of product distribution (including the
mix of direct and indirect channels), product life cycles, changes in the mix of
products and services licensed or sold by the Company, customer cancellation of
major planned software development programs and general economic factors.

A significant portion of the Company's revenue in any quarter may be derived
from a limited number of large, non-recurring license sales. For example,
revenue from four customers represented approximately 22% of license fees in the
quarter ended April 30, 1997. The Company expects to continue to experience from
time to time large, individual license sales which may cause significant
variations in quarterly license fees. The Company also believes that the
purchase of its products is relatively discretionary and generally involves a
significant commitment of a customer's capital resources. Therefore, a downturn
in any potential customer's business could result in order cancellations which
could have a significant adverse impact on the Company's revenue and quarterly
results. Moreover, declines in general economic conditions could precipitate
significant reductions in corporate spending for information technology, which
could result in delays or cancellations of orders for the Company's products.

The Company has also historically recognized a substantial portion of its
revenue from sales booked and shipped in the last month of a quarter. As a
result, the magnitude of quarterly fluctuations in license fees may not become
evident until late in, or at the end of, a particular quarter. If sales
forecasted from a specific customer for a particular quarter are not realized in
that quarter, the Company is unlikely to be able to generate revenue from
alternate sources in time to compensate for the shortfall. As a result, a lost
or delayed sale could have a material adverse effect on the Company's quarterly
operating results. To the extent that significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely affected.
The Company has also historically operated with little backlog because its
products are generally shipped as orders are received. As a result, revenue from
license fees in any quarter is substantially dependent on orders booked and
shipped in that quarter and on sales by the Company's distributors and other
resellers. Sales derived through indirect channels are harder to predict and may
have lower profit margins than direct sales.

5
<PAGE>
In addition, like many software companies, the Company typically realizes a
significant portion of its software license revenue in the last month of the
quarter and in the last quarter of the year. However, unlike a number of the
Company's competitors, the Company does not derive material revenue from the
provision of services in connection with its license sales. As a result, a
greater proportion of the Company's revenue tends to be less predictable and to
occur later in the quarter and in the year than the revenue of competitors who
provide such services.

The Company's expense levels are relatively fixed and are based, in
significant part, on expectations of future revenue. Consequently, if revenue
levels are below expectations, expense levels could be disproportionately high
as a percentage of total revenue, and operating results would be immediately and
adversely affected and losses could occur.

Based upon the factors described above, the Company believes that its
quarterly revenue, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its results of
operations are not necessarily meaningful and that, as a result, such
comparisons should not be relied upon as indications of future performance.
Moreover, although the Company's revenue has generally increased in recent
periods, there can be no assurance that the Company's revenue will grow in
future periods, at past rates or at all, or that the Company will be profitable
on a quarterly or annual basis. The Company has in the past experienced and may
in the future experience quarterly losses.

QAD has recently implemented changes designed to mitigate the seasonal and
quarterly fluctuations in its operating results. Such changes include the hiring
of additional financial personnel, including a new Chief Financial Officer and a
Director of Financial Planning and Analysis, the changing of the Company's
fiscal year end from December 31 to January 31 and the changing of the Company's
planning systems to incorporate quarterly performance goals and quarterly
forecasting procedures. Additionally, the Company is introducing quarterly
financial incentives into its compensation system. There can be no assurance
that such changes will alleviate the seasonal, quarterly or other fluctuations
in the Company's financial results or that such changes will have a positive
effect at all.

In future periods, the Company's operating results may be below the
expectations of stock market analysts and investors. In such event, the price of
the Common Stock could be materially adversely affected. See "--Seasonality of
Operating Results" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

RISKS ASSOCIATED WITH SALES CYCLE

Because the license of the Company's products generally involves a
significant commitment of capital (which ranges from approximately $50,000 to
several million dollars), the sales cycle associated with a customer's purchase
of the Company's products is generally lengthy (with a typical duration of four
to 15 months), varies from customer to customer and is subject to a number of
significant risks over which the Company has little or no control. These risks
include customers' budgetary constraints, timing of budget cycle, concerns about
the introduction of new products by the Company or its competitors and general
economic downturns which can result in delays or cancellations of information
systems investments. Due in part to the strategic nature of the Company's
products, potential customers are typically cautious in making product
acquisition decisions. The decision to license the Company's products generally
requires the Company to provide a significant level of education to prospective
customers regarding the uses and benefits of the Company's products, and the
Company must frequently commit substantial presales support resources. The
Company is almost completely reliant on third parties for implementation and
systems integration services, which may cause sales cycles to be lengthened or
result in the loss of sales. The uncertain outcome of the Company's sales
efforts and the length of its sales cycles could result in substantial
fluctuations in operating results. If sales forecasted from a specific customer
for a particular quarter are not realized in that quarter, then the Company is
unlikely to be able to generate revenue from alternative sources in time to
compensate for the shortfall. As a result, and due to the relatively large size
of some orders, a lost or delayed sale could have a material adverse effect on
the Company's quarterly

6
<PAGE>
operating results. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations."

SEASONALITY OF OPERATING RESULTS

The Company has generally realized lower revenue (i) in July and August, due
primarily to reduced economic activity in Europe during the summer months and
(ii) to a lesser extent, in the first two months of the calendar year, due to
the concentration by some customers of purchases in the fourth quarter of the
calendar year and their consequently lower purchasing activity during the
immediately following months. Notwithstanding the change in the Company's fiscal
year end from December 31 to January 31 and the recent changes in the Company's
planning and compensation systems, the Company anticipates that such seasonality
will continue to cause significant quarterly fluctuations in the Company's
operating results. See "--Historical Fluctuations in Quarterly Results and
Potential Future Significant Fluctuations" and "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations."

PRODUCT CONCENTRATION

The Company has historically derived substantially all of its revenue from
the licensing and maintenance of the Company's MFG/PRO software. In the fiscal
year ended January 31, 1997 and in the quarter ended April 30, 1997, such
revenue equaled approximately 94% and 93%, respectively, of the Company's total
revenue. The Company expects that such revenue will continue to represent
substantially all of the Company's revenue for the foreseeable future. The
Company's success depends on continued market acceptance of the Company's
MFG/PRO software, as well as the Company's ability to introduce new versions of
MFG/PRO software and other products to meet the evolving needs of its customers.
Although demand for MFG/PRO software has grown in recent years, management
believes that the market for ERP software is still developing and there can be
no assurance that it will continue to grow or that, even if the market does
grow, businesses will continue to adopt MFG/PRO software. The failure of the
market for ERP software to continue to grow, any reduction in demand for MFG/PRO
software as a result of increased competition in the market for ERP software,
technological change, failure by the Company to introduce new versions of
products acceptable to the marketplace or other similar factors would have a
material adverse effect on the Company's business, operating results and
financial condition. The Company has spent, and intends to continue to spend,
considerable resources educating potential customers about ERP in general and
about the features and functions of MFG/PRO software in particular. However,
there can be no assurance that such expenditures will enable MFG/PRO software to
achieve any additional degree of market penetration or a higher level of market
acceptance, nor can there be any assurance that any new ERP products being
developed by the Company will achieve the market acceptance necessary to make
such products profitable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Products."

DEPENDENCE ON PROGRESS PRODUCTS

The Company's MFG/PRO software is written in a programming language that is
proprietary to Progress Software Corporation ("Progress"). The Company has
entered into a license agreement with Progress (the "Progress Agreement") that
provides the Company and each of its subsidiaries, among other things, with the
perpetual, worldwide, royalty-free right to use the Progress programming
language to develop, market, distribute and license the Company's software
products. The Progress Agreement also provides for continued software support
from Progress through June 2002 without charge to the Company. Progress may only
terminate the Progress Agreement upon the Company's adjudication as bankrupt,
its liquidation or other similar event, or if the Company has ceased business
operations in full. The Company's success is dependent upon Progress continuing
to develop, support and enhance this programming language, its tool set and
database, as well as the continued market acceptance of Progress as a standard
database program. The Company has in the past and may in the future experience
product release delays because of delays in the release of Progress products or
product enhancements. Any such delays could have a material adverse effect on
the Company's business, operating results and financial

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condition. MFG/PRO software employs Progress programming interfaces which allow
MFG/PRO software to operate with Oracle Corporation ("Oracle") database
software. However, the Company's software programs do not run within programming
environments other than Progress and the Company's customers must acquire rights
to Progress Software in order to use MFG/PRO software. The Company's On/Q soft-
ware products, the initial application of which is currently under development
and is expected to be commercially available in the second half of 1998, are not
dependent upon Progress technology. The failure of Progress to continue its
relationship with the Company or to develop, support or enhance its programming
language in a manner competitive with enhancements of other present or future
programming languages, the increased market acceptance of programming languages
other than Progress in the Company's market or the Company's inability to adapt
its software to such other languages could have a material adverse effect on the
Company's business, operating results and financial condition.

RAPID TECHNOLOGICAL CHANGE

The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. Customer requirements for products can change
rapidly as a result of innovations or changes within the computer hardware and
software industries, the introduction of new products and technologies
(including new hardware platforms and programming languages) and the emergence,
evolution or widespread adoption of industry standards. For example, increasing
commercial use of the Internet may give rise to new customer requirements and
new industry standards. The Company's future success will depend upon its
ability to continue to enhance its current product line and to develop and
introduce new products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
In particular, the Company believes its future success will depend on its
ability to convert its products to object-oriented technology as well as its
ability to develop products that will operate across the Internet. There can be
no assurance that the Company will be successful in developing and marketing, on
a timely and cost-effective basis, product enhancements or new products that
respond to technological advances by others, or that its products will achieve
market acceptance. The Company's failure to successfully develop and market
product enhancements or new products could have a material adverse effect on the
Company's business, operating results and financial condition.

While the Company generally takes steps to avoid interruptions of sales due
to the pending availability of new products, customers may delay their
purchasing decisions in anticipation of the general availability of new or
enhanced MFG/PRO software, which could have a material adverse effect on the
Company's business, operating results and financial condition. The actual or
anticipated introduction of new products, technologies and industry standards
can also render existing products obsolete or unmarketable or result in delays
in the purchase of such products. As a result, the life cycles of the Company's
products are difficult to estimate. The Company must respond to developments
rapidly and incur substantial product development expenses. Any failure by the
Company to anticipate or respond adequately to technology developments or
customer requirements, or any significant delays in introduction of new
products, could result in a loss of revenue. Moreover, significant delays in the
general availability of such new releases, significant problems in the
installation or implementation of such new releases, or customer dissatisfaction
with such new releases, could have a material adverse effect on the Company's
business, operating results and financial condition. The Company is also
dependent upon third parties for necessary services in connection with the
installation and implementation of the Company's products and associated
post-sales training. Any errors, delays or other deficiencies in such services
due to technology changes or other factors could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business--Products" and "--Third-Party Implementation Providers."

SUPPLY CHAIN SOLUTIONS UNDER DEVELOPMENT AND UNDERLYING TECHNOLOGY

A significant element of the Company's strategy is its development of On/Q
software, a series of new products targeted to the supply chain management needs
of manufacturing companies. Over the past

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year, the Company has devoted substantial resources to developing its On/Q
software. The Company's first On/Q software product, Logistics, is currently
under development and is anticipated to be commercially available in the second
half of 1998. Although the Company has performed preliminary tests on its
Logistics software, it has not completed its development or commenced beta
testing, nor has the product been implemented in a commercial setting. There can
be no assurance that Logistics or any other of the Company's planned On/Q
software products will achieve the performance standards required for
commercialization or that such products will achieve market acceptance or be
profitable. If Logistics or the Company's other planned supply chain management
software products do not achieve such performance standards or do not achieve
market acceptance, the Company's business, operating results and financial
condition would be materially and adversely affected.

On/Q software is being designed based upon object-oriented technology.
Object-oriented applications are characterized by technology, development style
and programming languages that differ from those used in traditional software
applications, including the current version of MFG/PRO software. The Company
believes that new object-based functionality will play a key role in the
competitive manufacturing, distribution, financial, planning and service/support
management information technology strategies of customers in the Company's
targeted industry segments. The Company is also currently in the process of
converting its MFG/PRO software modules to object-oriented technology where the
Company believes such conversion will add value. There can be no assurance that
the Company will be successful in developing its new supply chain management
software or converting its MFG/PRO software to object-oriented technology on a
timely basis, if at all, or that if developed or converted such software will
achieve market acceptance. The failure to successfully incorporate
object-oriented technology in new products or convert MFG/PRO software to
object-oriented technology could have a material adverse effect on the Company's
business, operating results and financial condition.

Convergent Engineering is a new software design methodology employed by the
Company to develop future products. Convergent Engineering methodology allows
business requirements to be captured as a series of simple facts, actions and
rules, enabling software to more flexibly accommodate business practices and
processes. Although Convergent Engineering does not require the user to adopt
new business practices or principles for their own work processes, Convergent
Engineering models business management processes differently than traditional
business models. As a result, use of Company products based upon Convergent
Engineering principles will require the Company's implementation partners to be
educated in the new methodology. There can be no assurance that the Company will
gain acceptance among its implementation providers for this methodology on which
the Company's new products are based. The failure to obtain such acceptance
would have a material adverse effect on the marketability of the Company's
products under development and the Company's business, operating results and
financial condition. See "Business -- Products."

RISK OF SOFTWARE DEFECTS

As a result of the complexities inherent in client/server computing
environments and the broad functionality and performance demanded by customers
for ERP products, major new products and product enhancements can require long
development and testing periods. In addition, software programs as complex as
those offered by the Company may contain undetected errors or "bugs" when first
introduced or as new versions are released that, despite testing by the Company,
are discovered only after a product has been installed and used by customers.
While the Company has on occasion experienced delays in the scheduled
introduction of new and enhanced products, to date the Company's business has
not been materially adversely affected by delays or the release of products
containing errors. There can be no assurance, however, that errors will not be
found in future releases of the Company's software, or that the Company will not
experience material delays in releasing product improvements or new products.
The occurrence of such errors could result in significant losses to the Company
or to customers. Such occurrences could also result in reduced market acceptance
of the Company's products, which would have a material adverse effect on the
Company's business, operating results and financial condition.

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MARKET CONCENTRATION

The Company has made a strategic decision to concentrate its product
development and sales and marketing in five primary vertical industry segments:
electronics/industrial, food/beverage, consumer packaged goods, medical and
automotive. An important element of the Company's strategy is to achieve
technological and market leadership recognition for its software products in
these segments. The failure of the Company's products to achieve or maintain
substantial market acceptance for its software products in one or more of these
segments could have a material adverse effect on the Company's product and
business strategy in that segment and on the business, operating results and
financial condition of the Company. If any of the industry segments targeted by
the Company experiences a material downturn in expansion or in prospects for
future growth, such downturn would materially adversely affect the demand for
the Company's products and will materially adversely affect its business,
operating results and financial condition. See "Business--Sales and Marketing."

MANAGEMENT OF GROWTH

The Company's business has grown rapidly in the last six years, with revenue
increasing from approximately $28.0 million in the fiscal year ended December
31, 1992 to approximately $126.4 million in the fiscal year ended January 31,
1997. During the fiscal year ended December 31, 1995 and continuing through the
quarter ended April 30, 1997, the Company significantly increased its sales and
marketing, service and support and research and development staffs, resulting in
substantial growth in the number of its full-time employees (from 521 at March
31, 1995 to 700 at April 30, 1997), the scope of its operating and financial
systems and the geographic distribution of its operations and customers. This
recent rapid growth has placed, and will continue to place, a significant strain
on the Company's management and operations. The Company expects to continue to
increase staffing levels, primarily in the sales and marketing and research and
development areas, and incur additional associated costs in future periods. The
Company's future operating results will depend on the ability of its officers
and other key employees to continue to implement and improve its operational,
customer support and financial control systems, and to effectively expand, train
and manage its employee base. There can be no assurance that the Company will be
able to manage any future expansion successfully, and any inability to do so
would have a material adverse effect on the Company's business, operating
results and financial condition. The Company has undertaken a project to
significantly upgrade its financial planning and control systems, including an
upgrade of its current transaction accounting systems. The Company believes the
success of such implementation will improve its budgeting, forecasting and
financial statement reporting capabilities. However, implementation of these
systems upgrades will require significant management and other employee
attention and coordination, and there can be no assurance that the
implementation will be successful. The failure to successfully implement the
upgrades could materially adversely affect the Company's future budgeting,
forecasting and financial statement reporting capabilities.

The Company has made a strategic decision to be a global provider of its
products. To accomplish this goal, over the last two years the Company has
expanded its direct sales and support operations from 12 countries to 17
countries. In addition, during that time, the Company has significantly expanded
its distributor and partner relationships. Currently, the Company has over 40
distributors worldwide. The management of these widely dispersed international
operations has placed and will continue to place significant strain on the
Company's management and operations. The Company believes that its ability to
provide products and services on a global basis is critical to the Company's
success. However, there can be no assurance that the Company will be able to
continue to successfully manage its widespread international operations or
successfully manage future expansion of such operations, and the failure by the
Company to do so would have a material adverse effect on its business, operating
results and financial condition.

The Company days' sales outstanding have generally exceeded industry
averages. If the Company experiences rapid growth, this lengthy collection cycle
could result in a significant impairment of the Company's cash position. While
the Company has undertaken efforts to reduce the length of its collection

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cycle, the failure of the Company to successfully implement such changes or the
failure of such changes to reduce such collection cycle could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management."

DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL PERSONNEL IN ALL AREAS

The Company's future operating results depend in significant part upon the
continued service of a relatively small number of key technical and senior
management personnel, including Pamela M. Lopker, its President and founder, and
Karl F. Lopker, its Chief Executive Officer, neither of whom is bound by an
employment agreement. Pamela and Karl Lopker are married to each other and
jointly own approximately 84% of the outstanding Common Stock and will jointly
own approximately 67% of the Common Stock following consummation of the Offering
(assuming no exercise of the U.S. Underwriters' and the Managers' over-allotment
option). Although the Company maintains key-individual insurance in the amount
of $2.5 million with respect to each of Pamela and Karl Lopker and the Company
is the beneficiary of such policies, the loss of one or more of these or other
key individuals could have a material adverse effect on the Company's business,
operating results and financial condition.

The Company's future success also depends on its continuing ability to
attract and retain other highly qualified technical and managerial personnel.
For example, the Company is currently actively seeking to fill the position of
Vice President of Field Operations whose responsibilities will be to manage all
direct and indirect sales operating units, as well as the Company's territory
and alliance management unit. Competition for such personnel is intense, and the
Company has at times in the past experienced difficulty in recruiting qualified
personnel. There can be no assurance that the Company will retain its key
technical and managerial employees or that it will be successful in attracting,
assimilating and retaining other highly qualified technical and managerial
personnel in the future. The loss of any member of the Company's key technical
and senior management personnel or the inability to attract and retain
additional qualified personnel could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business--Employees" and "Management."

DEPENDENCE UPON DEVELOPMENT AND MAINTENANCE OF SALES AND MARKETING CHANNELS

The Company sells and supports its products through direct and indirect
sales organizations throughout the world. The Company has made significant
expenditures in recent years in the expansion of its sales and marketing force,
primarily outside the United States, and plans to continue to expand its sales
and marketing force. The Company's future success will depend in part upon the
productivity of its sales and marketing force and the ability of the Company to
continue to attract, integrate, train, motivate and retain new sales and
marketing personnel. Competition for sales and marketing personnel in the
software industry is intense. There can be no assurance the Company will be
successful in hiring such personnel in accordance with its plans. The Company is
currently actively seeking to fill the position of Vice President of Field
Operations, whose responsibilities will be to manage all direct and indirect
sales operating units, as well as the Company's territory and alliance
management unit. There can be no assurance that such person will be successful
in accomplishing these objectives or that the Company's recent and other planned
expenses in sales and marketing will ultimately prove to be successful or that
the incremental revenue generated will exceed the significant incremental costs
associated with these efforts. In addition, there can be no assurance that the
Company's sales and marketing organization will be able to compete successfully
against the significantly more extensive and better funded sales and marketing
operations of many of the Company's current and potential competitors. If the
Company is unable to develop and manage its sales and marketing force expansion
effectively, the Company's business, operating results and financial condition
would be materially adversely affected.

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to companies within their geographic territory but may also work in conjunction
with the Company's direct sales organization. The Company will need to maintain
and expand its relationships with its existing distributors and enter into
relationships with additional distributors in order to expand the distribution
of its products. There can be no assurance that current or future distributors
will provide the level and quality of expertise and service required to
successfully license the Company's products, that the Company will be able to
maintain effective, long-term relationships with distributors, or that selected
distributors will continue to meet the Company's sales needs. Further, there can
be no assurance that these distributors will not market software products in
competition with the Company in the future or will not otherwise reduce or
discontinue their relationships with or support of the Company and its products.
The failure by the Company to maintain successfully its existing distributor
relationships or to establish new relationships in the future would have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, if any of the Company's distributors
exclusively adopts a product other than the Company's products, or if any such
distributor materially reduces its sales efforts relating to the Company's
products or materially increases such support for competitive products, the
Company's business, operating results and financial condition could be
materially and adversely affected. See "Business--Sales and Marketing."

COMPETITION

The ERP software market is highly competitive, rapidly changing and affected
by new product introductions and other market activities of industry
participants. The Company currently competes primarily with (i) other vendors of
software focused on the specific needs of manufacturing plants and distribution
sites of multinational manufacturing companies, which include Baan Company N.V.
("Baan"), J.D. Edwards & Company ("J.D. Edwards") and Systems Software
Associates, Inc. ("SSA"), (ii) smaller independent companies that have developed
or are attempting to develop advanced planning and scheduling software which
complement or compete with ERP or manufacturing resource planning solutions,
(iii) internal development efforts by corporate information technology
departments and (iv) companies offering standardized or customized products on
mainframe and/or mid-range computer systems. The Company expects that
competition for its MFG/PRO software will increase as other large companies such
as Oracle and SAP AG ("SAP"), as well as other business application software
vendors, enter the market for plant-level ERP solutions. With the Company's
strategic entry into the supply chain management software market, the Company
can expect to meet substantial additional competition from companies presently
serving that market, such as i2 Technologies, Inc. ("i2"), Industri-Matematik
International, Inc. ("IMI") and Manugistics, Inc. ("Manugistics"), as well as
from broad based solution providers such as Baan, Oracle, PeopleSoft, Inc.
("PeopleSoft") and SAP that the Company believes are increasingly focusing on
this segment. In addition, certain competitors, such as Baan, Oracle, PeopleSoft
and SAP, have well-established relationships with present or potential customers
of the Company. The Company may also face market resistance from potential
customers with large installed legacy systems because of their reluctance to
commit the time, effort and resources necessary to convert to an open,
client/server-based software solution. Further, as the client/server market
continues to develop, companies with significantly greater resources than the
Company may attempt to increase their presence in these markets by acquiring or
forming strategic alliances with competitors of the Company. Increased
competition is likely to result in price reductions, reduced operating margins
and loss of market share, any one of which could materially adversely affect the
Company's business, operating results and financial condition. Many of the
Company's present or future competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products, than
can the Company. The Company believes that the principal factors on which it
competes in the ERP software market are functionality, ease of use and
implementation, technology, time to benefit, supplier viability, service and
cost. The Company intends to continue to acquire, develop and

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allocate its resources to focus on these targeted competitive areas, as well as
to identify additional or different areas where the Company perceives
competitive advantage. There can be no assurance that the Company will be able
to compete successfully with existing or new competitors or that competition
will not have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Competition."

RELIANCE ON AND NEED TO DEVELOP ADDITIONAL RELATIONSHIPS WITH THIRD PARTIES

The Company has established strategic relationships with a number of
consulting and systems integration organizations that it believes are important
to its worldwide sales, marketing, service and support activities and the
implementation of its products. The Company is particularly reliant on third
parties for installation and implementation of its products because the Company,
unlike a number of its competitors, does not provide these services. If the
Company is unable to train adequately a sufficient number of system integrators
or, if for any reason, any such integrators terminate their relationship with
the Company or do not have or devote the resources satisfactory to provide
necessary consulting and implementation of the Company's products, the Company's
business, operating results and financial condition could be materially and
adversely affected. The Company is aware that these third-party providers do not
provide systems integration services exclusively for the Company's products and
in many instances such firms have similar, and often more established,
relationships with the Company's principal competitors. The Company expects to
continue to rely upon such third parties, particularly installation and
implementation service providers, for marketing and sales, lead generation,
product installation and implementation, customer support services, product
localization, end-user training assistance in the sales process and after-sale
training and support. These relationships also assist the Company in keeping
pace with the technological and marketing developments of major software
vendors, and, in certain instances, provide it with technical assistance for its
product development efforts. Organizations providing such consulting and systems
integration and implementation services in connection with the Company's
products include Arthur Andersen & Co. LLP, Deloitte & Touche LLP, Ernst & Young
LLP, Integrated Systems & Services, LLC and Strategic Information Group
International, Inc. in the United States, BDM Largotim US, Inc., CSBI S.A.,
Origin Technology in Business Nederland B.V. and Sligos S.A. in Europe and Iris
Ifec Co., Ltd and STCS Systems Pte Ltd in Asia. In most cases distributors will
also deliver consulting and systems integration services. The Company will need
to expand its relationships with these parties and enter into relationships with
additional third parties in order to expand the distribution of its products.
There can be no assurance that these and other third parties will provide the
level and quality of service required to meet the needs of the Company's
customers, that the Company will be able to maintain an effective, long-term
relationship with such third parties, or that such third parties will continue
to meet the needs of the Company's customers. Further, there can be no assurance
that these third-party implementation providers, many of which have
significantly greater financial, technical, personnel and marketing resources
than the Company, will not market software products in competition with the
Company in the future or will not otherwise reduce or discontinue their
relationships with or support of the Company and its products. The failure by
the Company to maintain its existing relationships or to establish new
relationships in the future, or the failure of such third parties to meet the
needs of the Company's customers, would have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
if such third parties exclusively adopt a product or technology other than the
Company's products or technology, or if such third parties materially reduce
their support of the Company's products and technology or materially increase
such support for competitive products or technology, the Company's business,
operating results and financial condition will be materially and adversely
affected.

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Company's installation and implementation partners do not receive fees for the
sale of the Company's software products, they generally are permitted to set
their own rates for such services and the Company typically does not collect a
royalty or percentage fee from such partners on services performed. The Company
also enters into similar agreements with its distribution partners that grant
such partners the non-exclusive right, within a specified territory, to market,
license, deliver and support the Company's products. In exchange for such
distributors' services, the Company grants a discount to the distributor for the
license of its software products. The Company also relies on third parties for
the development or inter-operation of key components of its software so that
users of the Company's software will obtain the functionality demanded. Such
research and product alliances include software developed to be sold in
conjunction with the Company's software products, technology developed to be
included in or encapsulated within the Company's software products and numerous
third-party software programs that generally are not sold with the Company's
software but inter-operate directly with the Company's software through
application program interfaces. The Company generally enters into joint
development agreements with its third-party software development partners that
govern ownership of the technology collectively developed. Each of the Company's
partner agreements and third-party development agreements contain strict
confidentiality and non-disclosure provisions for the service provider, end user
and third-party developer and the Company's third-party development agreements
contain restrictions on the use of the Company's technology outside of the
development process. The failure of the Company to establish or maintain
successful relationships with such third-party software providers or such
third-party installation, implementation and development partners or the failure
of such third-party software providers to develop and support their software
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Sales and Marketing,"
"--Third-Party Implementation Providers" and "--Proprietary Rights and
Licensing."

INTELLECTUAL PROPERTY RIGHTS; USE OF LICENSED TECHNOLOGY

The Company's success is dependent upon its proprietary technology and other
intellectual property. The Company relies primarily on a combination of the
protections provided by applicable copyright, trademark and trade secret laws,
as well as on confidentiality procedures and licensing arrangements, to
establish and protect its rights in its software. The Company enters into
license agreements with each of its customers. Each of the Company's license
agreements provides for the non-exclusive license of the Company's MFG/PRO
software. Such licenses generally are perpetual (unless terminated by either
party upon 30 days written notice) and contain strict confidentiality and
non-disclosure provisions, a limited warranty covering MFG/PRO software and
indemnification for the customer from any infringement action related to MFG/PRO
software. The pricing policy under each license is based on a standard price
list and may vary based on the number of end-users, number of sites, number of
modules, number of languages, the country in which the license is granted and
level of ongoing support, training and services to be provided by the Company.
The Company has no patents or pending patent applications. In order to
facilitate the customization required by most of the Company's customers, the
Company generally licenses its MFG/PRO software to end users in both object code
(machine-readable) and source code (human-readable) format. While this practice
facilitates customization, making software available in source code also makes
it easier for third parties to copy or modify the Company's software for
non-permitted purposes. One of the Company's distributors has developed
modifications to the Company's software which it owns jointly with the Company.
The Company has entered into a reciprocal license with this distributor who
markets the product enhancements in conjunction with MFG/PRO software. This or
other distributors or other persons may continue to independently develop a
modified version of the Company's software. The Company seeks to protect its
software, documentation and other written materials under the legal provisions
relating to trade secret, copyright and contract law. The Company's license
agreements generally allow the use of MFG/PRO software solely by the customer
for internal purposes without the right to sublicense or transfer MFG/PRO
software to third parties. The Company believes that the foregoing measures
afford only limited protection. Despite the Company's efforts, it may be
possible for

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third parties to copy certain portions of the Company's products or reverse
engineer or obtain and use information that the Company regards as proprietary.
In addition, the laws of certain countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
Accordingly, there can be no assurance that the Company will be able to protect
its proprietary software against unauthorized third-party copying or use, which
could adversely affect the Company's competitive position. Policing unauthorized
use of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exist, software
piracy can be expected to be a problem. Furthermore, there can be no assurance
that the Company's competitors will not independently develop technology similar
to that of the Company.

The Company has in the past been subject to claims of intellectual property
infringement and may increasingly be subject to such claims as the number of
products and competitors in the Company's targeted vertical markets grows and
the functionality of products in other industry segments overlaps. Although the
Company is not aware that any of its products infringes upon the proprietary
rights of third parties, there can be no assurance that third parties will not
claim infringement by the Company with respect to current or future products.
Any such claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. The Company may also initiate claims
or litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Litigation to determine the validity of any claims could result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel from productive tasks, whether or not such
litigation were determined in favor of the Company.

The Company has in the past and may in the future resell certain software
which it licenses from third parties. In addition, the Company has in the past
and may in the future jointly develop software in which the Company will have
co-ownership or cross-licensing rights. There can be no assurance that these
third-party software arrangements and licenses will continue to be available to
the Company on terms that provide the Company with the third-party software it
requires to provide adequate functionality in its products, on terms that
adequately protect the Company's proprietary rights or on terms that are
commercially favorable to the Company. The loss of or inability to maintain or
obtain any of these software licenses, including as a result of third-party
infringement claims, could result in delays or reductions in product shipments
until equivalent software, if any, could be identified, licensed and integrated,
which could materially and adversely affect the Company's business, operating
results and financial condition. See "Business--Products" and "--Research and
Development."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company derived approximately 45%, 44%, 42% and 46% of its total revenue
from sales outside the United States in the years ended December 31, 1994 and
1995 and January 31, 1997 and in the quarter ended April 30, 1997, respectively.
Of the Company's approximately 3,200 licensed sites in over 70 countries as of
April 30, 1997, over 70% are outside the United States. The Company's
engineering and research and development operations are located in the United
States and its sales and support operations are located in the United States and
in 16 other countries. The Company also has over 40 distributors and numerous
partnerships and alliances worldwide. The geographic distance between these
locations has in the past led, and could in the future lead, to logistical and
communications difficulties. There can be no assurance that the geographic, time
zone, language and cultural differences between the Company's international
personnel and operations will not result in problems that materially adversely
affect the Company's business, operating results and financial condition.

15
<PAGE>
The Company expects to commit additional time and resources to expanding its
worldwide sales and marketing activities, localizing its products for selected
markets and developing local sales and support channels. There can be no
assurance that such efforts will be successful. Failure to sustain or increase
international revenue could have a material adverse effect on the Company's
business, operating results and financial condition. The Company may also
experience an operating loss in one or more regions of the world for one or more
periods. The Company's ability to manage such operational fluctuations and to
maintain adequate long-term strategies in the face of such developments will be
critical to the Company's continued growth and profitability. International
operations are subject to a number of risks, including the costs of localizing
products for different countries, longer accounts receivable collection periods
and greater difficulty in accounts receivable collections in certain geographic
regions, unexpected changes in regulatory requirements, dependence on
distributors and technology standards, import and export restrictions and
tariffs, difficulties and costs of staffing and managing international
operations, potentially adverse tax consequences, political instability, the
burdens of complying with multiple, potentially conflicting laws and the impact
of business cycles and economic instability. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations" and
"Business--Sales and Marketing."

EXPOSURE TO CURRENCY FLUCTUATIONS

To date, the Company's revenue from international operations has primarily
been denominated in United States dollars. The Company prices its products in
United States dollars and over 90% of the Company's sales in the years ended
December 31, 1995 and January 31, 1997 and in the quarter ended April 30, 1997
were denominated in United States dollars, with the remainder in ten different
currencies. The Company expects that a growing percentage of its business will
be conducted in currencies other than the United States dollar. The Company also
incurs a significant portion of its expenses in currencies other than the United
States dollar, including a substantial portion of its general and administrative
expenses. As a result, fluctuations in the values of the respective currencies
relative to the other currencies in which the Company generates revenue could
materially adversely affect its business, operating results and financial
condition. While the Company may in the future change its pricing practices, an
increase in the value of the United States dollar relative to foreign currencies
could make the Company's products more expensive and, therefore, less
competitive in other markets. Fluctuations in currencies relative to the United
States dollar will affect period-to-period comparisons of the Company's reported
results of operations. In the fiscal year ended January 31, 1997, the Company
realized $407,000 in foreign currency transaction gains, compared to losses of
$477,000 and $343,000 in the fiscal years ended December 31, 1995 and 1994,
respectively. Due to the constantly changing currency exposures and the
volatility of currency exchange rates, there can be no assurance that the
Company will not experience currency losses in the future, nor can the Company
predict the effect of exchange rate fluctuations upon future operating results.
The Company does not currently undertake hedging transactions and has limited
resources to cover its currency exposure. The Company may choose to hedge a
portion of its currency exposure in the future as it deems appropriate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

CONTROL BY PRINCIPAL STOCKHOLDERS

Upon completion of the Offering, Pamela and Karl Lopker will jointly
beneficially own 67% of the Company's outstanding Common Stock (65% if the U.S.
Underwriters' and the Managers' over-allotment option is exercised in full).
Current directors and executive officers as a group will own approximately 71%
of the Common Stock following consummation of the Offering (assuming no exercise
of the U.S. Underwriters' and the Managers' over-allotment option).
Consequently, the directors and executive officers, and the Lopkers in
particular, will be able to control the outcome of all matters submitted for
stockholder action, including the election of members to the Company's Board of
Directors and the approval of significant change in control transactions, and
will effectively control the management and

16
<PAGE>
affairs of the Company, which may have the effect of delaying or preventing a
change in control of the Company. Although the Company anticipates increasing
the number of members on its Board of Directors from three to five members
within 90 days of the consummation of the Offering, the Lopkers will nonetheless
constitute two of the directors and will therefore have significant influence in
directing the actions of the Board of Directors. See "Management" and "Principal
Stockholders."

PRODUCT LIABILITY

While the Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective under the laws of certain jurisdictions. Although the
Company has not experienced any product liability claims to date, there can be
no assurance that the Company will not be subject to such claims in the future.
The Company has product liability insurance, but the Company currently does not
have errors and omissions coverage, and there can be no assurance that such
insurance will be available to the Company on commercially reasonable terms or
at all. A successful product liability or errors or omissions claim brought
against the Company could have a material adverse effect on the Company's
business, operating results and financial condition. Moreover, defending such a
suit, regardless of its merits, could entail substantial expense and require the
time and attention of key management personnel, either of which could have a
material adverse effect on the Company's business, operating results and
financial condition.

NO PRIOR MARKET FOR THE COMMON STOCK; VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained after the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price of the Common Stock will be determined
by negotiations among the Company and the representatives of the U.S.
Underwriters and the Managers, and may not be representative of the price that
will prevail in the open market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.

The market price of the Common Stock after the Offering may be significantly
affected by factors such as quarterly fluctuations in the Company's results of
operations, demand for the Company's products and services, the size, timing and
structure of significant licenses by customers, market acceptance of new or
enhanced versions of the company's software products and products that operate
with the Company's products, the publication of opinions about the Company, its
products and technology by industry analysts, the entry of new competitors and
technological advances by competitors, delays in localizing the Company's
products for new markets, delays in sales as a result of lengthy sales cycles,
changes in operating expenses, foreign currency exchange rate fluctuations,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of product enhancements or new product offerings by
the Company or its competitors, the timing of the release of new or enhanced
versions of the Company's software products and products that operate with the
Company's products, changes in the method of product distribution (including the
mix of direct and indirect channels), product life cycles, changes in the mix of
products and services licensed or sold by the Company, customer cancellation of
major planned software development programs, general economic factors and other
factors, many of which are beyond the Company's control. In future quarters the
Company's operating results may be below expectations of public market analysts
and investors. In such event, or in the event that adverse conditions prevail or
are perceived to prevail generally or with respect to the Company's business,
the price of the Company's Common Stock would likely be immediately materially
adversely affected. In addition, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
technology companies and that often has been unrelated or disproportionate to
the operating performance of such companies. These broad market fluctuations, as
well as general economic, political

17
<PAGE>
and market conditions, such as recessions or international currency
fluctuations, may adversely affect the market price of the Common Stock.

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation (the "Certificate of
Incorporation"), and Bylaws (the "Bylaws"), contain certain provisions that may
have the effect of discouraging, delaying or preventing a change in control of
the Company or unsolicited acquisition proposals that a stockholder might
consider favorable, including provisions which authorize the issuance of "blank
check" preferred stock, provide for a Board of Directors with staggered
three-year terms, require super-majority voting to effect certain amendments to
the Certificate of Incorporation and Bylaws, limit the persons who may call
special meetings of stockholders, and establish advance notice requirements for
stockholder nominations for election to the Board of Directors or for
stockholder proposals of business to be considered at stockholders meetings.
Certain provisions of Delaware law may also have the effect of discouraging,
delaying or preventing a change in control of the Company or unsolicited
acquisition proposals. See "Description of Capital Stock--Certain Anti-Takeover,
Limited Liability and Indemnification Provisions."

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF THE
COMMON STOCK

Sales of a substantial number of shares of Common Stock after the Offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the Offering, the Company will have outstanding 28,274,234 shares
of Common Stock (29,136,734 shares if the U.S. Underwriters' and the Managers'
over-allotment option is exercised in full), assuming no exercise of options
outstanding as of April 30, 1997. Of these shares, the 5,750,000 shares offered
hereby (6,612,500 shares if the U.S. Underwriters' and the Managers'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Act"), unless held by "affiliates" of the Company as that term is defined
in Rule 144 under the Act ("Rule 144"). The remaining 22,524,234 shares of
Common Stock outstanding upon completion of the Offering are "restricted
securities" as that term is defined in Rule 144.

The directors, executive officers and certain other stockholders of the
Company holding an aggregate of 20,416,172 outstanding shares of Common Stock
and options to purchase 967,000 shares of Common Stock, have agreed pursuant to
Lock-Up Agreements that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for Common Stock, or grant any options or warrants to purchase Common Stock,
except in certain circumstances. The representatives of the Underwriters have
informed the Company that the Underwriters have no current intention to release
shares from the Lock-Up Agreements prior to expiration of the 180-day term of
such agreements. Any request for release would be evaluated by the
representatives of the Underwriters, and the decision whether or not to permit
early release of stock would be made dependent upon the facts and circumstances
existing at the time of the request. Beginning upon expiration of the Lock-Up
Agreements, such shares will be eligible for sale pursuant to Rule 144 or Rule
701 under the Act ("Rule 701") subject to the provisions of such rules and
continued vesting. The remaining 2,108,062 outstanding shares of Common Stock
and options to purchase 94,000 shares of Common Stock are not subject to Lock-Up
Agreements and will become eligible for sale upon completion of the Offering,
subject to the provisions of Rule 144, Rule 701 and continued vesting.
Approximately 714,596 shares of Common Stock and 35,000 shares of Common Stock
subject to exercisable options will be eligible for immediate sale in the public
market as of the date of this Prospectus (the "Effective Date"), none of which
shares will be subject to volume and certain other restriction under Rule 144.
An additional 1,357,480 outstanding shares of Common Stock will be eligible for
sale in the public market 90 days after the Effective Date, of which 1,194,254
outstanding shares will not be subject to volume and certain other

18
<PAGE>

restrictions under Rules 144 and 701. Approximately 20,274,202 shares of Common
Stock and 813,666 shares of Common Stock subject to exercisable options will
become eligible for sale in the public market 180 days after the Effective Date
upon expiration of the Lock-Up Agreements, subject to volume and certain other
restrictions of Rule 144. See "Shares Eligible for Future Sale."

NO SPECIFIC PLAN FOR PROCEEDS OF THE OFFERING

The Company has no current specific plans for a significant amount of the
net proceeds of the Offering. The principal purposes of the Offering are to
provide increased visibility of the Company in a marketplace where many of its
competitors are publicly held companies, to create a public market for the
Common Stock, to increase the Company's equity capital, to facilitate future
access by the Company to public equity market, to repay indebtedness and to fund
capital and other investments as well as potential investments and acquisitions.
The Company's management will have the discretion to allocate the proceeds of
the Offering to uses that the Company's stockholders may not deem desirable. See
"Use of Proceeds."

NO DIVIDENDS

The Company has not paid any cash dividends on its shares of capital stock
to date. The Company's bank credit agreement also presently prohibits the
payment of dividends on the Company's Common Stock. The Company currently
anticipates that it will retain any future earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."

BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS

The Offering will provide substantial benefits to current equity
stockholders of the Company. Consummation of the Offering is expected to create
a public market for the Common Stock held by the Company's current stockholders,
including directors and executive officers of the Company. Current stockholders
(including the Company's directors and executive officers) and the Company's
directors and executive officers paid an aggregate of approximately $6.6 million
and $162,000, respectively, for an aggregate of approximately 22,524,234 shares
and 19,972,846 shares, respectively, of Common Stock. The Offering will result
in gross unrealized gain to such stockholders and directors and executive
officers in the aggregate of approximately $282 million and $259 million,
respectively, at an assumed public offering price of $13.00 per share.

IMMEDIATE SUBSTANTIAL DILUTION

The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding Common Stock. As a result,
investors purchasing Common Stock in the Offering will incur immediate
substantial dilution in net tangible book value of $10.22 per share. In
addition, the Company has issued options to acquire Common Stock at prices
significantly below the initial public offering price. To the extent such
outstanding options are exercised, there will be further dilution. See
"Dilution" and "Shares Eligible for Future Sale."

19
<PAGE>
USE OF PROCEEDS

Based on an assumed initial public offering price of $13.00 per share, the
Company will receive net proceeds in the amount of approximately $67.7 million
from the sale of shares of Common Stock to be sold by the Company pursuant to
the Offering (approximately $78.1 million if the U.S. Underwriters' and the
Managers' over-allotment option is exercised in full), after deducting the
underwriting discount and estimated offering expenses payable by the Company.

The principal purposes of the Offering are to provide increased visibility
of the Company in a marketplace where many of its competitors are publicly held
companies, to create a public market for the Common Stock, to increase the
Company's equity capital, to facilitate future access by the Company to public
equity markets and to repay indebtedness and fund potential investments and
acquisitions.

The Company currently intends to use the net proceeds of the Offering to
repay all of its borrowings outstanding under the Company's revolving credit
agreement (which totaled approximately $16.0 million at April 30, 1997) and all
of its other indebtedness (which totaled approximately $3.5 million at April 30,
1997), to fund approximately $10.0 million in capital expenditures, to fund $2.0
million in connection with the Company's option to acquire a significant equity
interest in a private technology development company and in which the Company
has an existing equity investment, and for working capital and general corporate
purposes. The Company may also apply a portion of the net proceeds of the
Offering to construct facilities and to acquire or invest in other businesses,
products and technologies that are complementary to those of the Company.
Although, except as described above, the Company has not identified any specific
businesses, products or technologies that it may acquire or invest in, nor are
there any current agreements or negotiations with respect to any such
transactions, the Company from time to time evaluates such opportunities.
Pending such uses, the net proceeds will be invested in government securities
and other short-term, investment-grade, interest-bearing instruments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock and currently intends to retain any future earnings to fund the growth of
the Company's business. The payment of any future dividends will be determined
by the Board of Directors in light of conditions then existing, including the
Company's results of operations, financial condition, cash requirements,
restrictions in financing agreements, business conditions and other factors.

The Company is restricted by the terms of its outstanding debt and financing
agreements from paying cash dividends on its Common Stock, and may in the future
enter into loan or other agreements that restrict the payment of cash dividends
on the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and Note 4
of the Notes to Consolidated Financial Statements.

20
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of April
30, 1997 and such capitalization as adjusted to give effect to the sale by the
Company of 5,750,000 shares of Common Stock in the Offering at an assumed
initial public offering price of $13.00 per share (after deducting estimated
underwriting discounts and commissions and offering expenses) and the
application of net proceeds of the Offering to the Company.

<TABLE>
<CAPTION>
APRIL 30, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Notes payable and current installments of long-term debt (1).......... $ 15,143 $ --
Long-term debt, less current installments (1)......................... 4,320 --
--------- -----------
Total debt........................................................ 19,463 --
--------- -----------

Stockholders' equity:
Preferred Stock, no par value, actual; par value $0.001 per share,
as adjusted; 5,000,000 shares authorized, none issued and
outstanding....................................................... -- --
Common Stock, no par value, actual; par value $0.001 per share, as
adjusted; 150,000,000 shares authorized; 22,524,234 shares issued
and outstanding, actual; and 28,274,234 shares issued and
outstanding, as adjusted (2)...................................... 6,554 28
Additional paid-in capital.......................................... -- 74,243
Retained earnings................................................... 8,099 8,099
Receivable from stockholders........................................ (642) (642)
Unearned compensation--restricted stock............................. (2,255) (2,255)
Cumulative foreign currency translation adjustment.................. (804) (804)
--------- -----------
Total stockholders' equity........................................ 10,952 78,669
--------- -----------
Total capitalization............................................ $ 30,415 $ 78,669
--------- -----------
--------- -----------
</TABLE>

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

(1) See Note 4 of Notes to Consolidated Financial Statements.

(2) Excludes 1,061,000 shares of Common Stock issuable upon exercise of options
outstanding as of April 30, 1997 with exercise prices ranging from $0.12 to
$13.00 per share and with a weighted average exercise price of $2.73 per
share. In May 1997, the Company adopted the QAD Inc. 1997 Stock Incentive
Program pursuant to which 4,000,000 shares of Common Stock are reserved for
issuance thereunder. See "Management--Executive Compensation," "Description
of Capital Stock" and Note 10 of Notes to Consolidated Financial Statements.

21
<PAGE>
DILUTION

The net tangible book value of the Company at April 30, 1997 was $11.0
million, or $0.49 per share of Common Stock. Net tangible book value represents
the amount of total tangible assets of the Company (total assets less goodwill,
trademarks and copyrights and other intangible assets) reduced by the amount of
its total liabilities. After giving effect to the Company's sale of 5,750,000
shares of Common Stock in the Offering at an assumed initial public offering
price of $13.00 per share (assuming no exercise of the Underwriters' and
Managers' over-allotment option and after deducting the underwriting discount
and estimated offering expenses payable by the Company), the Company's pro forma
net tangible book value at April 30, 1997 would have been $78.7 million, or
$2.78 per share of Common Stock. This represents an immediate increase in net
tangible book value of $2.29 per share to the Company's existing stockholders
and an immediate dilution in net tangible book value of $10.22 per share to new
investors purchasing shares of Common Stock in the Offering. The following table
illustrates the per share dilution in net tangible book value to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 13.00
Net tangible book value per share at April 30, 1997................ $ 0.49
Increase in net tangible book value per share attributable to new
investors.......................................................... 2.29
---------
Pro forma net tangible book value per share after the Offering....... 2.78
---------
Dilution per share to new investors.................................. $ 10.22
---------
---------
</TABLE>

The following table sets forth on an as adjusted basis as of April 30, 1997,
the differences in the number of shares of stock purchased, the consideration
paid and the average price per share paid to the Company by the existing
stockholders and by investors purchasing shares of Common Stock in the Offering
at an assumed initial public offering price of $13.00 per share (assuming no
exercise of the U.S. Underwriters' and Managers' over-allotment option and
before deducting the underwriting discount and estimated offering expenses):

<TABLE>
<CAPTION>
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 22,524,234 80% $ 6,554,000 8% $ 0.29
New investors........................................ 5,750,000 20 74,750,000 92 13.00
------------- --- ------------- ---
Total............................................ 28,274,234 100% $ 81,304,000 100%
------------- --- ------------- ---
------------- --- ------------- ---
</TABLE>

The preceding table assumes no exercise of any stock options outstanding as
of April 30, 1997. As of April 30, 1997, there were options outstanding to
purchase a total of 1,061,000 shares of Common Stock with exercise prices
ranging from $0.12 to $13.00 per share and with a weighted average exercise
price of $2.73 per share. If all options outstanding as of April 30, 1997 had
been exercised as of such date, the dilution per share to new investors in the
Offering would be $10.12. In May 1997, the Company adopted the QAD Inc. 1997
Stock Incentive Program pursuant to which 4,000,000 shares of Common Stock were
reserved for issuance thereunder. As of the date of this Prospectus, no stock
options had been granted or shares issued under the Program. To the extent that
options are granted and subsequently exercised or shares are issued under the
Program, new investors may experience further dilution. See Note 10 of Notes to
Consolidated Financial Statements.

22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the Notes thereto and the
other financial information included elsewhere in this Prospectus. The statement
of income data for the fiscal years ended December 31, 1994 and 1995 and January
31, 1997 and the balance sheet data at January 31, 1996 and 1997 are derived
from the Consolidated Financial Statements included elsewhere in this Prospectus
which have been audited by KPMG Peat Marwick LLP, independent auditors. The
statement of income data for the fiscal years ended December 31, 1992 and 1993
and the balance sheet data at December 31, 1992, 1993, 1994 and 1995 are derived
from financial statements not included herein which have been audited by KPMG
Peat Marwick LLP, independent auditors. The selected financial data for the
three months ended April 30, 1996 and 1997 are unaudited but have been prepared
on the same basis as the audited financial statements and, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
such periods. The results of operations for the three months ended April 30,
1997 are not necessarily indicative of results to be expected for the year or
for any future period.

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
QUARTER ENDED
DECEMBER 31, APRIL 30,
---------------------------------- JANUARY 31, -----------------
1992 1993 1994 1995 1997 1996 1997
------- ------- ------- ------- ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
License fees.............................................. $15,408 $27,525 $48,665 $63,756 $85,753 $ 11,070 $19,149
Maintenance and other..................................... 12,666 19,018 17,695 26,193 40,691 9,046 12,924
------- ------- ------- ------- ----------- -------- -------
Total revenues.......................................... 28,074 46,543 66,360 89,949 126,444 20,116 32,073

Cost and expenses:
Cost of revenues.......................................... 6,643 11,125 18,944 23,599 29,158 6,863 8,462
Sales and marketing....................................... 10,043 15,526 21,552 38,341 53,258 13,728 13,566
Research and development.................................. 2,344 4,025 10,618 17,037 25,623 5,921 6,171
General and administrative................................ 5,479 9,425 11,162 13,618 16,083 3,804 3,557
------- ------- ------- ------- ----------- -------- -------
Total cost and expenses................................. 24,509 40,101 62,276 92,595 124,122 30,316 31,756
------- ------- ------- ------- ----------- -------- -------
Operating income (loss)..................................... 3,565 6,442 4,084 (2,646) 2,322 (10,200) 317

Other (income) expense:
Interest income........................................... (21) (9) (34) (38) (52) -- (48)
Interest expense.......................................... 111 232 462 825 1,657 429 435
Other..................................................... 786 886 (99) 48 (797) (146) (803)
------- ------- ------- ------- ----------- -------- -------
Total other (income) expense............................ 876 1,109 329 835 808 283 (416)
------- ------- ------- ------- ----------- -------- -------
Income (loss) before income taxes........................... 2,689 5,333 3,755 (3,481) 1,514 (10,483) 733
Income tax expense (benefit)................................ 1,100 1,860 877 (2,795) 514 (3,166) 173
------- ------- ------- ------- ----------- -------- -------
Income before cumulative effect of
change in accounting principle............................. 1,589 3,473 2,878 (686) 1,000 (7,317) 560
Cumulative effect of change in accounting principle......... -- 221 -- -- -- -- --
------- ------- ------- ------- ----------- -------- -------
Net income (loss)........................................... $ 1,589 $ 3,694 $ 2,878 $ (686) $ 1,000 $ (7,317) $ 560
------- ------- ------- ------- ----------- -------- -------
------- ------- ------- ------- ----------- -------- -------
Net income (loss) per share (1)............................. $ 0.08 $ 0.18 $ 0.12 $ (0.03) $ 0.04 $ (0.33) $ 0.02
Shares used in computing net income (loss) per share (1).... 20,788 20,788 23,887 21,889 23,534 22,167 24,015
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------- ----------------- APRIL 30,
1992 1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 390 $ 1,413 $ 1,706 $ 1,519 $ 1,463 $ 301 $ 1,306
Working capital (deficit)................................... 2,229 5,015 2,271 (2,814) (5,850) (6,609) (12,216)
Total assets................................................ 14,022 26,489 44,361 68,466 65,107 77,250 81,193
Notes payable and current installments of long-term debt.... 1,588 2,630 4,767 9,610 11,694 8,465 15,143
Long-term debt, less current installments................... 571 1,380 4,677 7,341 7,097 5,036 4,320
Total stockholders' equity.................................. 3,527 7,098 11,993 11,732 9,023 10,804 10,952
</TABLE>

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

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income (loss) per share.

23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THIS SECTION AS WELL AS THOSE UNDER THE
CAPTION "RISK FACTORS" APPEARING ELSEWHERE IN THIS PROSPECTUS.

INTRODUCTION

The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere in
this Prospectus. Effective February 1, 1996, the Company changed its financial
reporting year end from December 31 to January 31. The Company's fiscal years
ending on or prior to December 31, 1995 ended December 31. All references to
"fiscal 1996" refer to the 12-month period ended January 31, 1997.

OVERVIEW

Founded in 1979, the Company is a provider of ERP software for multinational
and other large manufacturing companies. In 1986, the Company commercially
released its open, client/server based ERP application, MFG/PRO software. Since
that time, the Company has introduced several new generations of its MFG/PRO
software, and has significantly expanded its operations. As of April 30, 1997,
the Company had 700 employees, over 20 direct sales and support offices and 40
distributors worldwide, and approximately 1,880 customers in over 70 countries.
Total revenues have grown rapidly in recent years, increasing from $28.1 million
in 1992 to $126.4 million in fiscal 1996.

The Company derives its revenue from license fees, maintenance contracts and
other products and services. License fees are primarily derived from the
licensing of the Company's MFG/PRO software. License fees also include fees
received by the Company for licenses of third-party software sold in conjunction
with MFG/PRO software. Maintenance and other revenue consists primarily of
maintenance contracts and, to a lesser extent, revenue from consulting, training
and other services. Maintenance contract revenue typically represents 15% of the
software license list price (net of any distributor discounts) and is recognized
ratably over the life of the contract, which is typically 12 months. The Company
has made a strategic decision to rely increasingly on its network of third-party
distribution and implementation alliances to provide hardware, consulting and
implementation services. As a result, the Company's revenue related to license
fees and maintenance contracts as a percentage of total revenues has increased
from 72% in fiscal 1992 to 94% in fiscal 1996.

License fees for the Company's products generally range from $50,000 to
several million dollars, depending on the configuration of the products, the
number of sites and the number of users. No single customer has accounted for
greater than 10% of the Company's total revenues in any of the Company's last
three fiscal years. However, it is not uncommon for QAD to conclude a
multi-million dollar contract with a single customer, and the Company expects
revenue from large individual licenses to increase as a percentage of total
revenues.

The sales cycle for the Company's products is typically four to 15 months.
Like many enterprise software companies, the Company has experienced in the past
and expects to continue to experience seasonal fluctuations in its operating
results. The Company has generally realized lower total revenues (i) in July and
August, due primarily to reduced economic activity in Europe during that period
and (ii) to a lesser extent, in the first two months of the calendar year, due
to a concentration of customers which purchase products in the fourth calendar
quarter, and their resulting lower purchasing activity during the immediately
following months. In addition, like many enterprise software companies, the
Company also typically realizes a significant portion of its software license
revenue in the last month of each quarter.

24
<PAGE>
However, unlike a number of the Company's competitors, the Company does not
derive material revenue from the provision of implementation services in
connection with its license sales. As a result, the Company's revenue tends to
be less predictable. Furthermore, as a private company, QAD has historically
focused its efforts primarily on achieving annual financial results, with a
significant percentage of the Company's sales force compensation based on the
achievement of annual revenue goals. The Company believes that such practice has
also contributed to the weighting of total revenues to the fourth calendar
quarter.

QAD has recently implemented changes designed to mitigate the seasonal and
quarterly fluctuations in its operating results. Such changes include the hiring
of additional financial personnel who are experienced in quarterly budgeting,
including a new Chief Financial Officer and a Director of Financial Planning and
Analysis, the changing of the Company's fiscal year end from December 31 to
January 31 and the changing of the Company's planning systems to incorporate
quarterly performance goals and quarterly forecasting procedures. Additionally,
the Company is introducing quarterly financial incentives into its compensation
system. There can be no assurance that such changes will alleviate the seasonal,
quarterly or other fluctuations in the Company's financial results or that such
changes will have a positive effect at all.

During the year ended December 31, 1995, through the quarter ended April 30,
1997, the Company significantly increased its sales and marketing, service and
support and research and development staffs. These increases resulted in
substantial growth in the number of its full-time employees (from 521 at March
31, 1995, to 700 at April 30, 1997), the scope of its financial and operating
systems and the geographic distribution of its direct sales and support
operations (from 12 to 17 countries). These investments were incurred in
connection with the Company's strategy to establish and maintain a leadership
position as a global supplier of ERP solutions at the plant level as well as to
enter new markets such as supply chain management software. QAD believes that
such investments were essential in the development of the Company's products and
operations. Such commitment of resources has had, and may continue to have, a
significant impact on the Company's financial results, including annual and
quarterly profitability.

License fees revenue is recognized upon shipment of the software, provided
there are no vendor obligations to be fulfilled and collectibility is probable
within a 12-month period from date of shipment. Typically, the Company's
software licenses do not include significant vendor obligations. Maintenance
revenue for ongoing customer support and product updates is recognized ratably
over the term of the maintenance period, which is typically 12 months. Other
revenue is derived mainly from training, consulting and manual sales. Training
and consulting revenue is recognized as the services are performed.

The Company records revenue primarily in United States dollars. However, the
Company has historically recorded local expenses in local currency. The
Company's reporting currency is the United States dollar. Foreign currency
transaction and translation gains and losses are recorded in accordance with
Statement of Financial Accounting Standards No. 52. In fiscal 1996, the Company
realized $407,000 in foreign currency transaction gains, compared to losses of
$477,000 and $343,000 in fiscal 1995 and 1994, respectively. The Company has not
previously undertaken hedging transactions to cover its currency exposure, but
may implement programs to mitigate foreign currency exposure risk in the future
as management deems appropriate. See "Risk Factors--Risks Associated With
International Operations" and "--Exposure To Currency Fluctuations."

25
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected on the Company's
Consolidated Statements of Income:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
QUARTER ENDED
DECEMBER 31, JANUARY 31, APRIL 30,
------------------------ --------------- ------------------------
1994 1995 1997 1996 1997
----- ----- --------------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
License fees............................................... 73% 71% 68% 55% 60%
Maintenance and other...................................... 27 29 32 45 40
--- --- --- --- ---
Total revenues........................................... 100% 100% 100% 100% 100%
--- --- --- --- ---
--- --- --- --- ---

Cost and expenses:
Cost of revenues........................................... 29 26 23 34 27
Sales and marketing........................................ 32 43 42 68 42
Research and development................................... 16 19 20 30 19
General and administrative................................. 17 15 13 19 11
--- --- --- --- ---
Total cost and expenses.................................. 94 103 98 151 99
--- --- --- --- ---

Operating income (loss)...................................... 6 (3) 2 (51) 1

Other (income) expense:
Interest income............................................ (0) (0) (0) -- 0
Interest expense........................................... 1 1 1 2 1
Other...................................................... (0) 0 (0) (1) (3)
--- --- --- --- ---
Total other (income) expense............................. 1 1 1 1 (2)
--- --- --- --- ---
Income (loss) before income taxes............................ 5 (4) 1 (52) 3
Income tax expense (benefit)................................. 1 (3) 0 (16) 1
--- --- --- --- ---
Net income (loss)............................................ 4% (1)% 1% (36)% 2%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>

INTERIM RESULTS FOR THE QUARTERS ENDED APRIL 30, 1997 AND 1996

TOTAL REVENUES. Total revenues for the three months ended April 30, 1997
increased 59% to $32.1 million from $20.1 million in the same period in 1996.
For the three months ended April 30, 1997, license fees as a percentage of total
revenues increased to 60% as compared to 55% in the same period in 1996. The
increase in total revenues was primarily due to growing acceptance of the
Company's MFG/PRO software, continued market penetration into its targeted
vertical markets and the Company's expansion into new geographical markets. The
increase in license fees and the decline in maintenance and other revenue as a
percentage of total revenues resulted primarily from increased license fee sales
in the first quarter of 1997 as compared to the same period in 1996.

COST OF REVENUES. Cost of revenues consists primarily of charges incurred
from reselling third-party databases (and their associated maintenance
contracts) which are required to run MFG/PRO software, support costs associated
with MFG/PRO software maintenance contracts and the costs associated with the
reproduction and delivery of the Company's software. During the three months
ended April 30, 1997, cost of revenues increased 23% to $8.5 million from $6.9
million in the same period in 1996. For the three months ended April 30, 1997,
cost of revenues as a percentage of total revenues decreased to 27% from 34%
during the same period in 1996. The increase in dollar amount was primarily the
result of costs associated with the growth in revenues of reselling third-party
databases. The decrease in cost of revenues as a percentage of total revenues
was primarily due to increased sales of MFG/PRO software licenses where the
purchase of third-party tools and databases were deferred or where the licensee
obtained licenses of third-party tools and databases directly from the
third-party vendor.

26
<PAGE>

SALES AND MARKETING. Sales and marketing expense consists primarily of
salaries and associated fringe benefits, travel and entertainment expenses and
promotional and advertising costs. During the three months ended April 30, 1997,
sales and marketing expense decreased 1% to $13.6 million from $13.7 million in
the same period in 1996. For the three months ended April 30, 1997, sales and
marketing expense as a percentage of total revenues decreased to 42% from 68%
during the same period in 1996. The first quarter of 1996 included substantial
expenses related to the Company's annual user conference, which did not occur
during the same period in 1997. The decrease in sales and marketing expense as a
percentage of total revenues was primarily due to the nonrecurring marketing
infrastructure expenses that were made in the first quarter of fiscal 1996, the
adjustment of sales and marketing expense made in the three months ended April
30, 1997 to better match anticipated revenue and the expenses related to the
Company's annual user conference in the first quarter of fiscal 1996.

RESEARCH AND DEVELOPMENT Research and development expense consists
primarily of salaries and associated fringe benefits, related overhead expenses
and amounts paid to consultants and third party developers to supplement the
product development efforts of the Company's in-house staff. During the three
months ended April 30, 1997, research and development expense increased 4% to
$6.2 million from $5.9 million in the same period in 1996. In the first quarter
of 1997, research and development expense as a percentage of total revenues
decreased from 30% to 19% from the same period in 1996. The increase in research
and development expense was primarily due to ongoing product enhancements. The
decrease in research and development expense as a percentage of total revenues
was primarily the result of a reduction in the utilization of third-party
software developers. Such reduction in the use of third-party developers was
accomplished through increased internal staffing within the research and
development department.

In accordance with Statement of Financial Accounting Standards No. 86, the
Company expenses software development costs as they are incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a result
the Company has not capitalized any material amount of software development
costs.

GENERAL AND ADMINISTRATIVE. During the three months ended April 30, 1997,
general and administrative expense decreased 6% to $3.6 million from $3.8
million in the same period in 1996. During the three months ended April 30,
1997, general and administrative expense as a percentage of total revenues
decreased to 11% from 19% during the same period in 1996. The decreases in
general and administrative expense in both dollar amount and as a percentage of
total revenues were primarily the result of the adjustment of general and
administrative expense to better match anticipated revenue. The Company
anticipates increases in general and administrative expense in the future.

TOTAL OTHER (INCOME) EXPENSE. Total other (income) expense is composed
primarily of interest expense, interest income and foreign exchange gains and
losses as well as other miscellaneous income and expense. During the three
months ended April 30, 1997, other (income) expense increased to $(416,000) from
$283,000 in the same period in 1996. This increase was primarily the result of
increased foreign currency transaction gains and miscellaneous rental income.

FISCAL YEARS 1996, 1995 AND 1994

TOTAL REVENUES. Total revenues increased 41% to $126.4 million in fiscal
1996 from $89.9 million in fiscal 1995, and increased 36% in fiscal 1995 from
$66.4 million in fiscal 1994. License fees as a percentage of total revenues
decreased to 68% in fiscal 1996 from 71% in fiscal 1995 and 73% in fiscal 1994.
The dollar increases in total revenues were primarily due to growing acceptance
of the Company's MFG/PRO software, continued market penetration into its
targeted vertical markets and the Company's expansion into new geographical
markets. The decreases in license fees and increases in maintenance and other
revenue as a percentage of total revenues were primarily a result of increased
maintenance renewals.

COST OF REVENUES. Cost of revenues increased 24% to $29.2 million in fiscal
1996 from $23.6 million in fiscal 1995, and increased 25% in fiscal 1995 from
$18.9 million in fiscal 1994. Cost of revenues as a

27
<PAGE>

percentage of total revenues decreased to 23% in fiscal 1996 from 26% in fiscal
1995 and 29% in fiscal 1994. The increase in dollar amount was primarily the
result of costs associated with the year over year growth in revenues of
reselling third-party databases. The decrease in cost of revenues as a
percentage of total revenues was primarily due to increased sales of MFG/PRO
software licenses where the purchase of third-party tools and databases were
deferred or where the licensee obtained licenses of third-party tools and
databases directly from the third-party vendor.

SALES AND MARKETING. Sales and marketing expense increased 39% to $53.3
million in fiscal 1996 from $38.3 million in fiscal 1995, and increased 78% in
fiscal 1995 from $21.5 million in fiscal 1994. Sales and marketing expense as a
percentage of total revenues decreased to 42% in fiscal 1996 from 43% in fiscal
1995 and 32% in fiscal 1994. The dollar increases as well as the increase as a
percentage of total revenues were primarily due to the expansion of the
Company's global sales force, opening and supporting global sales offices and
increasing marketing expense to promote the Company's name and products. The
expansion was initiated in fiscal 1995 and continued into fiscal 1996.

RESEARCH AND DEVELOPMENT. Research and development expense increased 50% to
$25.6 million in fiscal 1996 from $17.0 million in fiscal 1995, and increased
60% in fiscal 1995 from $10.6 million in fiscal 1994. Research and development
expense as a percentage of total revenues increased to 20% in fiscal 1996 from
19% in fiscal 1995 and 16% in fiscal 1994. The increases in research and
development expense both in dollar amount and as a percentage of total revenues
were primarily due to ongoing enhancements to MFG/PRO software, including the
ongoing migration of MFG/PRO software to object-oriented technology. In
addition, the increases were due to increased staffing of, and associated
support for, product engineers in connection with efforts to develop On/Q, the
Company's new supply chain management software which the Company expects to be
commercially available in the second half of fiscal 1998, and Qwizard, a
computer-based interactive training tool which became commercially available in
May 1997.

GENERAL AND ADMINISTRATIVE. General and administrative expense increased
18% to $16.1 million in fiscal 1996 from $13.6 million in fiscal 1995, and
increased 22% in fiscal 1995 from $11.2 million in fiscal 1994. General and
administrative expense as a percentage of total revenues decreased to 13% in
fiscal 1996 from 15% in fiscal 1995 and 17% in fiscal 1994. The dollar increases
in general and administrative expense were primarily the result of costs
associated with the expansion of the Company's administrative infrastructure to
support increases in the Company's total revenues. In addition, the Company
recognized compensation expense of $648,000 and $2.4 million in fiscal 1996 and
fiscal 1995, respectively, in connection with the repurchase of stock held by
employees upon their departure from the Company. The Company does not intend to
make such repurchases following completion of the Offering. The decrease in
general and administrative expense as a percentage of total revenues resulted
from total revenues growing faster than general and administrative expense. See
Note 10 of Notes to Consolidated Financial Statements.

TOTAL OTHER (INCOME) EXPENSE. Total other (income) expense decreased 3% to
$808,000 in fiscal 1996 from $835,000 in fiscal 1995, and increased 154% in
fiscal 1995 from $329,000 in fiscal 1994. The decrease in fiscal 1996 was
primarily the result of foreign currency transaction gains and miscellaneous
rental income offset by increased interest expense. The increase in fiscal 1995
was the result of increased interest expense.

INCOME TAX EXPENSE (BENEFIT). The Company recorded income tax expense
(benefit) of $514,000, $(2.8) million and $877,000 in fiscal 1996, 1995 and
1994, respectively. The Company's effective income tax rates were 34% and 23 %
in fiscal 1996 and 1994, respectively. The Company's effective income tax rate
historically has benefitted from the United States research and development tax
credit and tax benefits generated from export sales made from the United States.
The tax benefit recorded in 1995 relates primarily to loss carrybacks and
carryforwards associated with the Company's entry into new foreign taxing
jurisdictions and anticipated future taxable income to be earned in such
jurisdictions. The Company has available tax benefits associated with net
operating loss carryforwards of foreign subsidiaries aggregating $5.1 million at
January 31, 1997. See Note 6 of the Notes to Consolidated Financial Statements.

28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following table sets forth a summary of the Company's unaudited
quarterly results for the nine quarters ended April 30, 1997, together with the
percentage of total revenues represented by such results. This information has
been derived from the Company's unaudited quarterly consolidated financial
statements. In management's opinion, these quarterly results have been prepared
on a basis consistent with the audited Consolidated Financial Statements and the
Notes thereto contained elsewhere herein, and include all adjustments
(constituting only normal recurring adjustments), which the Company considers
necessary for a fair presentation of the information. The operating results for
any certain quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1995 1995 1996 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
License fees............................ $ 9,025 $ 19,181 $ 12,306 $ 21,271 $ 11,070 $ 23,151
Maintenance and other................... 5,519 6,026 7,393 8,298 9,046 10,404
----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................ 14,544 25,207 19,699 29,569 20,116 33,555

Cost and expenses:
Cost of revenues........................ 5,145 6,021 6,066 6,779 6,863 7,177
Sales and marketing..................... 7,764 9,827 9,702 12,596 13,728 12,430
Research and development................ 3,906 3,847 4,593 5,338 5,921 5,438
General and administrative.............. 2,448 2,957 2,495 5,753 3,804 3,047
----------- ----------- ----------- ----------- ----------- -----------

Total cost and expenses............... 19,263 22,652 22,856 30,466 30,316 28,092
----------- ----------- ----------- ----------- ----------- -----------

Operating income (loss)................... (4,719) 2,555 (3,157) (897) (10,200) 5,463

Other (income) expense:
Interest income......................... (14) (18) 6 (8) -- (8)
Interest expense........................ 158 263 149 339 429 479
Other................................... (333) 126 (107) 262 (146) (75)
----------- ----------- ----------- ----------- ----------- -----------
Total other (income) expense.......... (189) 371 48 593 283 396
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes......... (4,530) 2,184 (3,205) (1,490) (10,483) 5,067
Income tax expense (benefit).............. (2,496) 1,203 (1,766) (821) (3,166) 1,554
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)......................... $ (2,034) $ 981 $ (1,439) $ (669) $ (7,317) $ 3,513
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenue:
License fees............................ 62% 76% 62% 72% 55% 69%
Maintenance and other................... 38 24 38 28 45 31
----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................ 100% 100% 100% 100% 100% 100%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------

Cost and expenses:
Cost of revenues........................ 35 24 31 23 34 22
Sales and marketing..................... 53 39 49 43 68 37
Research and development................ 27 15 23 18 30 16
General and administrative.............. 17 12 13 19 19 9
----------- ----------- ----------- ----------- ----------- -----------
Total cost and expenses............... 132 90 116 103 151 84

Operating income (loss)................... (32) 10 (16) (3) (51) 16

Other (income) expense:
Interest income......................... (0) (0) 0 (0) -- (0)
Interest expense........................ 1 1 1 1 2 1
Other................................... (2) 0 (1) 1 (1) (0)
----------- ----------- ----------- ----------- ----------- -----------
Total other (income) expense.......... (1) 1 0 2 1 1
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes......... (31) 9 (16) (5) (52) 15
Income tax expense (benefit).............. (17) 5 (9) (3) (16) 5
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)......................... (14)% 4% (7)% (2)% (36)% 10%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------

OCT. 31, JAN. 31, APRIL 30,
1996 1997 1997
----------- ----------- -----------

<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
License fees............................ $ 13,915 $ 37,617 $ 19,149
Maintenance and other................... 9,891 11,350 12,924
----------- ----------- -----------
Total revenues........................ 23,806 48,967 32,073
Cost and expenses:
Cost of revenues........................ 6,341 8,777 8,462
Sales and marketing..................... 11,210 15,890 13,566
Research and development................ 6,096 8,168 6,171
General and administrative.............. 3,784 5,448 3,557
----------- ----------- -----------
Total cost and expenses............... 27,431 38,283 31,756
----------- ----------- -----------
Operating income (loss)................... (3,625) 10,684 317
Other (income) expense:
Interest income......................... (21) (23) (48)
Interest expense........................ 396 353 435
Other................................... 25 (601) (803)
----------- ----------- -----------
Total other (income) expense.......... 400 (271) (416)
----------- ----------- -----------
Income (loss) before income taxes......... (4,025) 10,955 733
Income tax expense (benefit).............. (1,235) 3,361 173
----------- ----------- -----------
Net income (loss)......................... $ (2,790) $ 7,594 $ 560
----------- ----------- -----------
----------- ----------- -----------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenue:
License fees............................ 58% 77% 60%
Maintenance and other................... 42 23 40
----------- ----------- -----------
Total revenues........................ 100% 100% 100%
----------- ----------- -----------
----------- ----------- -----------
Cost and expenses:
Cost of revenues........................ 27 18 27
Sales and marketing..................... 47 32 42
Research and development................ 25 17 19
General and administrative.............. 16 11 11
----------- ----------- -----------
Total cost and expenses............... 115 78 99
Operating income (loss)................... (15) 22 1
Other (income) expense:
Interest income......................... (0) (0) (0)
Interest expense........................ 2 1 1
Other................................... 0 (1) (3)
----------- ----------- -----------
Total other (income) expense.......... 2 0 (2)
----------- ----------- -----------
Income (loss) before income taxes......... (17) 22 3
Income tax expense (benefit).............. (5) 7 1
----------- ----------- -----------
Net income (loss)......................... (12)% 15% 2%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

29
<PAGE>
The Company's quarterly revenue, expenses and operating results have varied
significantly in the past, and the Company anticipates that such fluctuations
will continue in the future as a result of a number of factors, many of which
are outside the Company's control. The factors affecting these fluctuations
include demand for the Company's products and services, the size, timing and
structure of significant licenses by customers, market acceptance of new or
enhanced versions of the Company's software products and products that operate
with the Company's products, the publication of opinions about the Company, its
products and technology by industry analysts, the entry of new competitors and
technological advances by competitors, delays in localizing the Company's
products for new markets, delays in sales as a result of lengthy sales cycles,
changes in operating expenses, foreign currency exchange rate fluctuations,
changes in pricing policies by the Company or its competitors, customer order
deferrals in anticipation of product enhancements or new product offerings by
the Company or its competitors, the timing of the release of new or enhanced
versions of the Company's software products and products that operate with the
Company's products, changes in the method of product distribution (including the
mix of direct and indirect channels), product life cycles, changes in the mix of
products and services licensed or sold by the Company, customer cancellation of
major planned software development programs and general economic factors.

The Company has generally realized lower revenue (i) in July and August, due
primarily to reduced economic activity in Europe in the summer months; and (ii)
to a lesser extent, in the first two months of the calendar year, due to the
concentration by some customers of purchases in the fourth quarter of the
calendar year, and their consequently lower purchasing activity during the
immediately following months. In addition, like many software companies, the
Company typically realizes a significant portion of its software license revenue
in the last month of the quarter and in the last quarter of the year. However,
unlike a number of the Company's competitors, the Company does not derive
material revenue from the provision of services in connection with its license
sales. As a result, a greater proportion of the Company's revenue tends to be
less predictable and to occur later in the quarter and in the year than the
revenue of competitors who provide such services.

30
<PAGE>
The Company's expense levels are relatively fixed and are based, in
significant part, on expectations of future revenue. Consequently, if revenue
levels are below expectations, expense levels could be disproportionately high
as a percentage of total revenue, and operating results would be immediately and
adversely affected and losses could occur.

QAD has recently implemented changes designed to mitigate the seasonal and
quarterly fluctuations in its operating results. Such changes include the hiring
of additional financial personnel including a new Chief Financial Officer and a
Director of Financial Planning and Analysis, the changing of the Company's
fiscal year end from December 31 to January 31 and the changing of the Company's
planning systems to incorporate quarterly performance goals and quarterly
forecasting procedures. Additionally, the Company is introducing quarterly
financial incentives into its compensation system. There can be no assurance
that such changes will alleviate the seasonal, quarterly or other fluctuations
in the Company's financial results or that such changes will have a positive
effect at all. See "Risk Factors--Seasonality of Operating Results."

TOTAL REVENUES. Total revenues increased in each of the five quarters ended
April 30, 1997 as compared to the corresponding quarters in the prior year.
License fees as a percentage of total revenues have fluctuated between 55% and
77% for the nine quarters ended April 30, 1997. The dollar increases in total
revenues were primarily due to growing market acceptance of the Company's
MFG/PRO software and continued market penetration into its targeted vertical
markets as well as expansion into new geographic markets. The fluctuations in
license fees as a percentage of total revenues were primarily a result of
significant variations in license fees from quarter to quarter, although
maintenance and other revenue has generally increased from quarter to quarter.
There can be no assurance that revenue will continue to grow in future periods
at historical rates or at all, or that the Company will remain profitable.

COST OF REVENUES. Cost of revenues generally increased in dollar amount for
the nine quarters ended April 30, 1997. Cost of revenues as a percentage of
total revenues fluctuated between 18% and 35% for the nine quarters ended April
30, 1997. The dollar increases in cost of revenues were primarily due to the
costs associated with increased sales of the Company's MFG/PRO software. The
fluctuations in cost of revenues as a percentage of total revenues were
primarily a result of fluctuations in sales of MFG/PRO software licenses and
where the purchase of third-party databases and associated maintenance contracts
were deferred or obtained directly from the vendor.

SALES AND MARKETING. Sales and marketing expense generally increased for
the nine quarters ended April 30, 1997. Sales and marketing expense fluctuated
between 32% and 68% of total revenues for the nine quarters ended April 30,
1997. Sales and marketing expense generally increased in dollar amount during
the nine quarters ended April 30, 1997 primarily as a result of expansion of the
Company's sales and marketing group to better promote and sell MFG/PRO software.
Historically, sales and marketing expense generally has been highest in dollar
amount in the fourth quarter as certain costs such as travel and entertainment
and commissions are incurred in connection with increased sales efforts and
closing of sales at year end. In the quarter ended July 31, 1996, the Company
adjusted sales and marketing costs to better match expense to anticipated
revenue. Fluctuations in sales and marketing expense as a percentage of total
revenues were primarily due to quarterly fluctuations in the Company's license
fees. The Company expects to increase sales and marketing staffing levels and to
incur associated costs in future periods.

31
<PAGE>

RESEARCH AND DEVELOPMENT. Research and development expense generally
increased in dollar amount for the nine quarters ended April 30, 1997. Research
and development expense fluctuated between 15% and 30% of total revenues for the
nine quarters ended April 30, 1997. The increases in dollar amount for research
and development expense have resulted primarily from increased staffing of, and
associated support for, product engineers in connection with efforts to develop
On/Q, the Company's new supply chain management software which the Company
expects to be commercially available in the second half of fiscal 1998, and
Qwizard, a computer-based interactive training tool which became commercially
available in May 1997. The increase in dollar amount in the quarter ended
January 31, 1997 was primarily due to expenses associated with the release of
the most recent version of MFG/PRO software, including a substantial increase in
the use of third-party developers in connection therewith. The Company's
research and development expense has been budgeted according to annual revenue
expectations as well as the Company's development schedule for new products and
updates to MFG/PRO software. As a result, research and development expense as a
percentage of total revenues has varied significantly during the nine quarters
ended April 30, 1997 due to fluctuations in total revenues.

GENERAL AND ADMINISTRATIVE. General and administrative expense has
fluctuated between 9% and 19% of total revenues for the nine quarters ended
April 30, 1997. The variations in general and administrative expense as a
percentage of total revenues were primarily due to variations in the quarter to
quarter total revenues and the fixed nature of certain components of the
Company's general and administrative expense. General and administrative expense
increased from $2.4 million in the quarter ended April 30, 1995 to $5.8 million
in the quarter ended January 31, 1996, primarily as a result of expansion of the
Company's administrative and information technology infrastructure in
conjunction with the expansion of the Company's operations. In addition, in the
quarters ended January 31, 1997 and 1996 general and administrative expense
increased due to compensation expense of $648,000 and $2.4 million,
respectively, in connection with the repurchase of stock held by employees upon
their departure from the Company. The Company does not intend to make such
repurchases following completion of the Offering. See Note 10 of "Notes to
Consolidated Financial Statements." In the quarter ended July 31, 1996, the
Company adjusted costs, including restructuring compensation, to better match
expenses to anticipated revenue. In the quarter ended January 31, 1997, certain
sales targets were met and general and administrative expense increased, largely
due to the restructuring of the compensation plan.

TOTAL OTHER (INCOME) EXPENSE. Total other (income) expense fluctuated in
dollar amount for the nine quarters ended April 30, 1997. Total other (income)
expense fluctuated between (2)% and 2% of total revenues for the nine quarters
ended April 30, 1997. The quarterly fluctuations in the dollar amount of total
other (income) expense were primarily related to varied amounts of debt
borrowings and the related interest expense. In addition, in each of the
quarters ended January 31, 1997 and April 30, 1997, the Company experienced
foreign currency transaction gains and miscellaneous rental income.

FISCAL YEAR TRANSITION PERIOD

As a result of the change in the Company's fiscal year end in 1996, the
Company is disclosing interim financial results for the one-month period ended
January 31, 1996. Total revenues, total cost and expenses, total other (income)
expense and net income (loss) were $3.5 million, $7.3 million, $65,000 and
$(2.9) million, respectively, for the one-month period. During that month, the
Company experienced normal monthly operational costs including planned increases
in headcount for the coming year. The net loss for this period reflects these
planned increases in conjunction with seasonally low revenue in the month of
January.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations and met its
capital expenditure requirements through cash flows from operations and short-
and long-term borrowings. At April 30, 1997, the Company had $1.3 million of
cash. Cash flows provided by (used in) operating activities were $(2.1)

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million, $6.7 million, $4.3 million and $4.3 million in the three months ended
April 30, 1997, and fiscal 1996, 1995 and 1994, respectively. Cash used in
investing activities was primarily related to the purchase of computer
equipment, office furniture and real estate and aggregated $2.4 million, $3.4
million, $9.5 million and $9.8 million in the three months ended April 30, 1997,
and fiscal 1996, 1995 and 1994, respectively. Cash flows from financing
activities in the three months ended April 30, 1997, and fiscal 1996, 1995 and
1994 were primarily related to net proceeds from (used in) borrowings and
proceeds from the sale of stock to employees and totaled $5.5 million, $(4.5)
million, $5.0 million and $5.8 million, respectively. At April 30, 1997, the
Company did not have any material commitments for capital expenditures.

At April 30, 1997, the Company had a working capital deficit of $12.2
million. Accounts receivable, net of allowance for doubtful accounts, decreased
to $43.8 million at April 30, 1997 from $46.7 million at January 31, 1997. The
Company's accounts receivable days' sales outstanding ("DSO"), calculated on a
quarterly basis (for quarters ending on April 30, July 31, October 31, and
January 31), has ranged from 134 days to 66 days over the last three years and
has demonstrated seasonal fluctuations. During each of those years, DSO peaked
in the quarter ended April 30 and (except for fiscal 1995) improved
significantly during the middle two quarters. The Company believes that the
days' sales outstanding are higher than desired and the Company is focusing on
its credit and collection processes to improve cash flows and working capital.
These efforts include a recruiting effort for a new credit and collections
manager, along with a complete review of credit policies and collection
procedures. If the Company is unsuccessful in reducing the day's sales
outstanding through such efforts, continued high days' sales outstanding could
impair the Company's cash position. Total deferred revenue increased to $30.2
million at April 30, 1997 from $29.1 million at January 31, 1997 primarily as a
result of increased billings of maintenance agreements.

The Company has a revolving credit agreement which expires on July 31, 1998,
subject to automatic successive one-year extensions if not terminated by the
Company or the lender 90 days prior to the expiration date. The maximum
available amount of borrowings under the revolving credit agreement is equal to
the lesser of $20 million or the sum of a percentage of the Company's accounts
receivable, $4 million of which may be used only for loans secured by real
estate owned by the Company. The total amount of available borrowings under the
revolving credit agreement at April 30, 1997 was approximately $20 million.
Borrowings under the revolving credit agreement bear interest, calculated
monthly, at an annual rate equal to the highest LIBOR rate in effect during the
month plus 4.875% but in no event less than 8%. Minimum monthly interest charges
are $20,000 (resulting in a rate of 10.565% at April 30, 1997). At April 30,
1997, the Company had approximately $14.7 million of borrowings outstanding
under the revolving credit agreement. The Company's revolving credit agreement
is collateralized by a security interest in substantially all of the Company's
assets. At April 30, 1997, the Company also had outstanding borrowings of $4.8
million under additional term loan agreements and capital leases with other
various credit institutions, which included approximately $3.1 million with
maturities of one year or less, at interest rates of approximately 9.79% per
annum. These term loans and capitalized leases are secured primarily by property
and equipment. Amounts outstanding under these additional credit agreements are
scheduled to be paid in monthly installments over varying maturities through
July 2002. Borrowings under the credit facility during the past 12 months were
used for general corporate purposes. The Company intends to repay all the
outstanding balances under the revolving credit agreement, the term loan
agreements and capital leases with the proceeds of the Offering, although it
intends to retain its revolving credit facility for future use. The revolving
credit agreement also limits the Company's ability to incur additional
indebtedness outside the ordinary course of business without the prior written
consent of the lender. The revolving credit agreement includes a number of other
restrictions, including the following: (i) restrictions on granting liens or
security interest in its assets, (ii) restrictions on any sale of assets of the
Company, other than in the ordinary course of its business, or any merger,
consolidation or change of control of the Company, (iii) restrictions on lending
or advancing funds to any person or entity except to employees in good-faith
arms' length transactions in the ordinary course of business and (iv)
restrictions on paying or declaring dividends on the Company's stock. The
Company is actively negotiating with a different lender to obtain improved
credit arrangements.

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The Company believes that the net proceeds from the Offering, the available
borrowings under its revolving credit agreement and cash generated by
operations, will satisfy the Company's working capital requirements for at least
the next 12 months.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Standards Board issued SFAS No. 128,
EARNINGS PER SHARE. SFAS No. 128 specifies new standards designed to improve the
earnings per share ("EPS") information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements and increasing the comparability of EPS data on an international
basis. Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision and (c) revising the
contingent share provision and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not determined the
impact of the implementation of SFAS No. 128.

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BUSINESS

The Company is a provider of Enterprise Resource Planning ("ERP") software
for multinational and other large manufacturing companies. The Company's
software solutions are designed to facilitate global management of resources and
information to allow manufacturers to reduce order fulfillment cycle times and
inventories, improve operating efficiencies and measure critical company
performance criteria against defined business plan objectives. The flexibility
of the Company's products also helps manufacturers adapt to growth,
organizational change, business process reengineering, supply chain management
and other challenges.

The Company's principal product, MFG/PRO software, is specifically designed
for deployment at the plant or division level of global manufacturers in five
targeted industry segments: electronics/industrial, food/beverage, consumer
packaged goods, medical and automotive. MFG/PRO software provides multinational
organizations with an integrated ERP solution that is based on an open,
client/server architecture and includes manufacturing, distribution, financial
and service/support management applications. Additionally, the Company is
currently focused on extending its presence in multi-site manufacturing by
developing a line of object-oriented, supply chain management solutions, named
On/Q software. The Company's initial On/Q software product, Logistics, is
designed to allow for consolidation of orders, contract management, shipping and
logistics management. Logistics is currently in development and is expected to
be commercially available in the second half of 1998. As of April 30, 1997, the
Company had licensed MFG/PRO software at approximately 3,200 sites to
approximately 1,880 customers in over 70 countries. The Company's customers
include Cargill, Incorporated, Colgate-Palmolive Company, Johnson Controls,
Inc., Johnson & Johnson, Lucent Technologies, Inc., Philips Electronics N.V.,
St. Jude Medical, Inc., Unilever N.V. and United Technologies Automotive.

INDUSTRY BACKGROUND

In recent years, businesses have been subject to increasing global
competition, resulting in pressure to lower production costs, improve product
performance and quality, increase responsiveness to customers and shorten
product development and delivery cycles. In addition, globalization has greatly
increased the scope and complexity of multinational manufacturing organizations.
Through business process reengineering, many organizations have begun to
reengineer their critical business processes and restructure their organizations
to accommodate and exploit rapid changes in the business environment. As part of
this process, businesses are seeking ERP software solutions which will enable
them to better manage resources across the enterprise and facilitate the
integration of sales management, component procurement, inventory management,
manufacturing control, project management, distribution, transportation, finance
and other functions on a global basis. While historically many companies have
developed their ERP software internally, companies are increasingly deploying
open, client/server-based ERP applications developed by third parties which
reduce internal software development costs and enable increased flexibility and
inter-operability across a broad range of hardware and software platforms. The
Gartner Group has estimated that the global ERP software market totaled more
than $4.4 billion in 1996 and will grow to an estimated $10.0 billion by the
year 2000.

While current ERP software enables the integration and management of
critical data within enterprises, organizations increasingly are recognizing the
need to deploy new software systems that manage the global supply chain by
enhancing the flow of information to and from customers, suppliers and other
business partners outside the enterprise. More recently, the availability and
use of the Internet has created a demand for software which will operate across
the Internet to enhance business-to-business electronic commerce.

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The Company believes that the increasing complexity and diversity of
customer requirements limits the ability of any single-vendor solution to fully
meet the enterprise-wide needs of its customers and has led to the emergence of
three distinct segments within the ERP software market: (i) corporate; (ii)
plant; and (iii) supply chain management.

CORPORATE ERP solutions are primarily focused on the consolidated data
management, financial and human resource needs of large Fortune 1000
companies. Leading vendors of corporate level solutions include Oracle,
PeopleSoft and SAP. While corporate ERP systems offer robust
functionality, the Company believes that the very broad scope,
significant cost and limited flexibility of many of these systems limit
their effectiveness in addressing the needs of individual plants or
divisions. In addition, this limited flexibility makes these systems
difficult to deploy throughout the enterprise.

PLANT ERP solutions are primarily focused on the specific needs of
manufacturing plants and distribution sites of global companies, such as
manufacturing planning, production control and distribution. Leading
vendors of plant ERP solutions include the Company, Baan, J.D. Edwards
and SSA. Given the diverse and constantly changing needs of manufacturing
and distribution sites, ERP users demand highly flexible,
industry-specific plant ERP solutions that can be deployed rapidly and
cost-effectively across multiple sites on a global basis.

SUPPLY CHAIN MANAGEMENT solutions are designed to link a company more
closely with customers, suppliers and other business partners in order to
optimize manufacturing and distribution processes, reduce costs and
enhance customer satisfaction. Supply chain management functions include
logistics and order management, advanced planning and scheduling, global
purchasing, and sales and support management. Leading vendors in the
supply chain management market include i2, IMI and Manugistics, as well
as certain corporate level ERP software vendors. The Company believes
that supply chain optimization represents one of the greatest current
opportunities for companies to reduce costs and enhance customer
relationships.

MARKET OPPORTUNITY

While ERP solutions have provided significant benefits to companies by
centralizing and integrating the management of enterprise-wide data, the Company
believes that customer requirements for industry-specific functionality,
flexibility and ease of implementation pose significant challenges for many ERP
vendors. As a result, the Company believes that there is a large and rapidly
growing market demand for industry-specific software solutions that meet
customers' needs for plant-level deployments and global supply chain management.

The Company believes that the adoption of open, client/server-based ERP
solutions at the plant level will accelerate as potential customers transition
from proprietary, legacy systems in coming years. In addition, the Company
believes that supply chain management represents a compelling market
opportunity. To be successful in meeting customer requirements in these market
segments, the Company believes ERP software vendors must:

- Offer localized, multi-language, multi-currency functionality to support
global deployments;

- Offer industry-specific product functionality and expertise in key
vertical markets;

- Provide global service and support, either directly or through third
parties;

- Offer ease of implementation and rapid time to benefit;

- Provide flexibility to meet the diverse needs and business practices of
global, multi-site manufacturing implementations;

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- Inter-operate and co-exist with corporate-level ERP solutions and
industry-leading supply chain management solutions;

- Address supply chain management challenges by offering technology which
integrates and optimizes interactions between companies and their
customers, suppliers and other business partners; and

- Develop and utilize advanced technologies to deliver superior product
functionality.

THE QAD SOLUTION

The Company is a leading provider of ERP software for multinational and
other large manufacturing companies. The Company's principal product, MFG/PRO
software, is a modular software program designed specifically to address the
plant-level needs of multinational manufacturers for flexible, inter-operable
and rapidly deployable ERP software solutions. Additionally, the Company is
currently focused on extending its presence in multi-site manufacturing by
developing a line of supply chain management solutions designed to serve the
needs of multinational manufacturing companies. The Company meets customer
requirements in its vertical markets by delivering the following:

GLOBAL SOLUTIONS FOR MULTINATIONAL MANUFACTURERS. The Company focuses on
the plant-level ERP and supply chain management requirements of global
manufacturers. The Company's MFG/PRO software incorporates multi-currency
capabilities, is available in 24 languages and is tailored to local financial
practices and requirements in many of its major markets. The Company's customers
have deployed MFG/PRO software in over 70 countries. In November 1995, the
Gartner Group stated that in terms of being able to provide service and support
around the globe, QAD has demonstrated the best performance of the leading
companies in an open systems environment, particularly in the European market.

EXPERTISE AND FUNCTIONALITY FOR KEY VERTICAL MARKETS. The Company targets
and has achieved leadership positions in the electronics/industrial,
food/beverage, consumer packaged goods, medical and automotive industries. The
Company believes that its substantial expertise in these markets, together with
its strategy of developing software modules that address specific industry
needs, provides the Company with a competitive advantage. For example, the
Company's MFG/PRO software includes features which facilitate United States Food
and Drug Administration ("FDA") compliance and validation for the medical
industry, advanced pricing and promotion management for the consumer packaged
goods industry, and customer/ supplier scheduling via electronic data
interchange for the automotive industry.

GLOBAL SERVICE AND SUPPORT. The Company believes that a high level of
global service and support is a critical component of its ERP solution for
multinational manufacturers. The Company offers product service and support
directly through its sales and support offices in 17 countries and indirectly
through its global network of systems integration partners and distributors
located in over 40 countries. The Company's systems integrator and distributor
network also offers consultancy services for the implementation of its software
solutions.

EASE OF IMPLEMENTATION. The modular product design of MFG/PRO software,
together with the Company's focus and expertise in its key vertical markets,
enables rapid product implementation, often within six months at a particular
site. Product modules are designed to address the specific needs of customers in
the Company's targeted markets, limiting the need for extensive customization
upon implementation. In addition, customers are able to purchase only those
modules with functionality appropriate for their needs, limiting time-consuming
implementation and training for unneeded features.

OPEN, CLIENT/SERVER-BASED SOLUTIONS. The Company's products are based on an
open, client/server computing architecture. The Company believes that this
architecture enables superior flexibility and inter-operability and addresses
the desire of customers to migrate critical business software to an open
platform.

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MFG/PRO software operates in Windows NT and major UNIX environments on more than
25 hardware platforms and is compatible with Oracle and Progress databases.

THE QAD STRATEGY

The Company's objectives are to expand its leadership position in
plant-level solutions and become a leading provider of supply chain management
software solutions to multinational manufacturers. The key elements of the
Company's strategy for achieving these objectives include the following:

MAINTAIN AND LEVERAGE LEADERSHIP IN PLANT-LEVEL MANUFACTURING. The Company
believes its
MFG/PRO software is the leading open systems ERP solution for plant-level
deployments worldwide. As of April 30, 1997, the Company had licensed MFG/PRO
software at approximately 3,200 sites to approximately 1,880 customers in over
70 countries. The Company's strategy is to continue to aggressively pursue
plant-level opportunities in its targeted markets to enhance its leadership
position. The Company believes that the success of its MFG/PRO software provides
a strong existing customer base from which to license additional modules and
additional users. In addition, the Company intends to leverage its installed
base of MFG/PRO software customers in order to accelerate the adoption of On/Q
software, the Company's new supply chain management solution.

FOCUS ON GLOBAL SUPPLY CHAIN MANAGEMENT SOLUTIONS. The Company believes
that supply chain optimization represents one of the greatest current
opportunities for companies to reduce costs and enhance customer relationships.
The Company is developing a group of new applications, known as On/Q software,
for this market. The initial product, Logistics, is being developed specifically
to meet demand-side requirements of multinational manufacturing companies,
including complex high-volume order processing, import/export management,
multiple-route segmentation and logistics, distribution point optimization, lead
and sales order management, contract management and liquidation. In addition,
the Company intends to develop additional applications, including procurement
and planning, and to provide seamless inter-operability with other industry
leading supply chain management solutions for scheduling. The Company believes
that these new products, coupled with its strength in plant-level ERP solutions
and the Company's products' demonstrated ability to inter-operate with other
corporate applications, positions the Company to succeed in the emerging supply
chain management marketplace.

LEVERAGE ALLIANCES. The Company leverages the expertise of distribution,
implementation and technology partners to meet the diverse needs of its
customers. The Company augments its direct sales organization with a global
network of over 40 distributors and numerous implementation providers. The
Company plans to leverage its network of distributors and implementation
providers to further penetrate its vertical markets. For implementation of its
software, the Company relies almost exclusively on third-party providers,
allowing the Company to maintain its focus on developing, marketing and
distributing its software. In addition, the Company has entered into a number of
joint development agreements with third-party software developers who provide
functionality that has been embedded into or integrated with
MFG/PRO software to deliver a more complete solution for its targeted vertical
markets.

MAINTAIN TECHNOLOGY LEADERSHIP. The Company was one of the first providers
of open, client/server-based ERP software and is committed to maintaining its
technology leadership. The Company's technology strategy is focused on migrating
its products to a component object architecture in order to enable customers to
improve inter-operability with existing software applications and to deploy and
integrate new "best of breed" software applications across the enterprise. The
Company believes inter-operability will become an important requirement of
software applications as organizations seek fully integrated ERP solutions. In
addition, the Company believes this object architecture will enable it to
provide enhanced functionality in its new On/Q software, which is currently
under development.

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CAPITALIZE ON YEAR 2000 COMPLIANCE. Many companies are facing significant
business problems due to the failure of their existing ERP systems to
appropriately recognize years after 1999. The Company believes that this problem
will accelerate the migration to open, client/server-based ERP solutions that
are configured to handle this transition. The Company's products have been year
2000 capable since their inception. The Company believes that it is well
positioned to leverage its MFG/PRO software and its On/Q software to be a part
of customers' year 2000 solutions.

PRODUCTS

The Company targets its MFG/PRO software to manufacturing companies within
the electronics/ industrial, food/beverage, consumer packaged goods, medical and
automotive industries. In addition, the Company is developing On/Q software, a
group of applications targeted to the supply chain management needs in these
industry segments. The first of these applications, Logistics, is currently
under development and is expected to be commercially available in the second
half of 1998.

The Company's principal product, MFG/PRO software, provides multinational
organizations with an integrated ERP solution that includes manufacturing,
distribution, financial and service/support management applications within an
open systems environment. MFG/PRO software is composed of an extensive set of
modules designed to address the needs of customers in the Company's vertical
markets. The Company's software supports multiple currencies and global tax
management and is tailored to financial practices and requirements in many of
its major geographic markets. MFG/PRO software supports 24 languages, including
most European languages, Japanese, Chinese, Korean and Russian. MFG/PRO software
operates in both host and distributed, client/server computing environments and
supports single or multiple sites, as well as multiple production and
operational processes. These capabilities enable multinational manufacturers to
manage multiple hybrid production methods within a single organization or a
single production site, and also provide the flexibility to adapt to additional
sites and processes as an organization's business evolves. Licensing fees for
the Company's MFG/PRO software generally range from $50,000 to several million
dollars, depending on the configuration of the software, the number of sites and
the number of users. Annual maintenance fees for such software generally
approximate 15% of the list price of the software.

The modular design of MFG/PRO software enables the Company's customers to
select the modules necessary to meet their specific operational needs. For
example, in the automotive industry, MFG/PRO software's Repetitive Manufacturing
module, coupled with the Customer Schedules and Supplier Schedules modules,
provides high-volume businesses with streamlined manufacturing capabilities. The
Product Change Control module allows electronics/industrial companies to meet
challenges presented by rapidly changing products and short product life-cycles
through sophisticated engineering change management. In the industrial and
consumer packaged goods industries, MFG/PRO software supports mixed-mode and
discrete manufacturing with powerful planning and execution management modules.
In the food/beverage industry, the Advanced Pricing Manager module tracks
product promotion life cycles from concept through analysis. In the medical
industry, MFG/PRO software has the tools to allow for accurate FDA compliance
reporting and validation.

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MFG/PRO software currently includes the following modules:

Accounts Payable
Accounts Receivable
Advanced Pricing Manager
Capacity Requirements Planning
Cash Management
Client/Server
Compliance (for FDA)
Configurator
Configurator Product Modeler
Configured Products
Cost Management
Customer Schedules
Data Warehousing
Decision Support
Distribution Requirements
Planning
Electronic Data Interchange
Enterprise Operations Planning
Fixed Assets
Forecasting
Formula/Process
General Ledger
Inventory Control
Master Scheduling
Materials Requirements
Planning
Multiple Currency
Physical Inventory
Product Change Control
Product Line Planning
Product Structures
Purchasing
Quality Management
Repetitive Manufacturing
Resource Planning
Results Files
Routings/Work Centers
Sales Analysis
Sales Orders/Invoices
Sales Quotations
Service/Repair Orders
Service/Support Management
Shop Floor Control
Supplier Schedules
Validation (for FDA)
Work Orders

The Company has a number of business alliances to enhance the functionality
of MFG/PRO software. The Company has entered into a number of joint development
agreements with third-party software developers who provide functionality that
has been embedded into or integrated with MFG/PRO software to deliver more
complete solutions for its targeted vertical markets.

To further enhance the rapid deployment and ease of use of MFG/PRO software,
the Company introduced Qwizard software in March 1997. Qwizard software is a
mentor for users of MFG/PRO software which provides self-paced interactive
training. In addition, Qwizard software includes tools to design and customize
the visual interface of MFG/PRO software to match the users' workflows and job
responsibilities.

PRODUCTS UNDER DEVELOPMENT

The Company's planned suite of supply chain management solutions, On/Q
software, is designed to inter-operate with MFG/PRO software and other ERP and
supply chain software solutions. The initial
On/Q software product under development, Logistics, is designed to allow for
consolidation of orders, contract management, shipping and logistics management.
The Company anticipates that Logistics will be commercially available in the
second half of 1998. Logistics is specifically designed to meet demand-side
requirements of global multinationals, including complex high-volume order
processing, import/export management, multiple-route segmentation and logistics,
distribution point optimization, lead and sales order management, contract
management and liquidation. The Logistics application is targeted to address
supply chain issues associated with global manufacturing operations, and is
designed to allow orders to be taken from any customer, placed with any number
of plants as capacity and product mix change, and filled from the most
cost-efficient available distribution center, while consolidating or
distributing invoices to any combination of sold-to-, ship-to- and
bill-to-customers. Logistics is also designed to provide cost-efficient
consolidation and to provide multi-lingual and multi-currency capabilities. The
Company plans to follow Logistics with additional On/Q software products. There
can be no assurance, however, that any of the Company's supply chain management
solutions will be successfully developed in accordance with planned schedules or
at all, or that if successfully developed, such software will achieve market
acceptance. See "Risk Factors--Supply Chain Solutions Under Development and
Underlying Technology."

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TECHNOLOGY

MFG/PRO software has been developed with a commercially available, fourth
generation language and tool set marketed by Progress that addresses relational
databases provided by Oracle and Progress. See "Risk Factors--Dependence on
Progress Products." MFG/PRO software is being migrated to an object-oriented
framework which the Company believes will enable customers to improve
inter-operability with existing software applications and to deploy and
integrate new "best of breed" software applications across the enterprise. The
Company also believes object-orientation will enable the Company to provide
enhanced functionality in its new On/Q software under development. While the
Company's MFG/PRO software is dependent upon Progress technology, the Company's
new On/Q software under development is not dependent on Progress technology. The
Company is currently in the process of converting its MFG/PRO software modules
to object-oriented technology where the Company believes such conversion will
add value. The software operates in Windows NT and major UNIX environments on
more than 25 hardware platforms. MFG/PRO software supports distributed and
mirrored databases, local and wide area networks, character-based and graphical
user interfaces.

The Company is also embracing object-oriented technology as a next
generation technology to address the complex supply chain management
requirements of companies and to improve business processes. The Company
believes that new object-based functionality will play a key role in the
competitive manufacturing, distribution, financial, planning and service/support
management strategies of customers in the Company's targeted industry segments.
Object-oriented technology allows for the creation of systems which are scalable
and flexible and which are capable of accommodating changes in business
requirements and technology infrastructure.

The Company's deployment of object-oriented technology consists of three
main elements: component objects; Convergent Engineering methodology; and an
open interface server.

COMPONENT OBJECTS are simple building blocks of small, discrete pieces of
functionality that can be configured to create complete applications and
enable developers to rapidly create and modify systems to provide the
desired set of functionality for specific vertical markets or individual
customers. The Company has defined three types of component objects:
business object frameworks; common business objects and application objects.

CONVERGENT ENGINEERING methodology is a new software design methodology
employed by the Company to develop future products. Convergent Engineering
methodology allows business requirements to be captured as a series of
simple facts, actions and rules, enabling software to more flexibly
accommodate current business practices and processes.

INTER/LINQ, the open interface server developed by the Company, uses
commercially available messaging tools along with the Company's proprietary
data mapping applications. This product is used to provide inter-operability
with other software applications, even among multiple revision levels of the
same or different products.

There can be no assurance that the Company will be successful in converting
its MFG/PRO software to object-oriented technology or developing its new supply
chain management software to incorporate object-oriented technology on a timely
basis, if at all, or that if converted or developed such software will achieve
necessary market acceptance. See "Risk Factors--Supply Chain Solutions Under
Development and Underlying Technology."

RESEARCH AND DEVELOPMENT

The Company originally introduced its client/server-based MFG/PRO software
in 1986 and has subsequently released a number of product enhancements. The
Company's research and development staff, augmented by third-party development
resources, is focused on continuing updates and enhancements to its MFG/PRO
software, as well as the conversion of MFG/PRO software to object-oriented

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technology. The Company also maintains a separate advanced technology
development organization to research longer term software solutions. This
organization is specifically focused on developing the Company's On/Q software
supply chain management solutions, the first of which will be Logistics. In
April 1997, the Company also invested in a private company focused on developing
the Convergent Engineering methodology to participate in research and
development efforts of that company. The Company has an option to acquire an
additional interest in such company, following which the Company would own a 33%
equity interest. See "Use of Proceeds" and Note 11 to Notes to Consolidated
Financial Statements.

The Company believes that Internet capability for its products will be
important to the future success of its products. Accordingly, the Company is
developing Web-enabled versions of its products through in-house and third-party
development. The Company's Logistics product is also being designed to include
Web enablement. There can be no assurance that the Company will be successful in
developing any new products or enhancements, that the Company will not
experience difficulties that could delay or prevent successful development,
introduction or sales of these products or that its new products will adequately
meet the requirements of the marketplace and achieve market acceptance.

Research and development expense increased significantly in recent years as
the Company has continued to focus on development of new and enhanced products.
Research and development expense, which does not include costs of product
support and customization, increased to $25.6 million for the fiscal year ended
January 31, 1997, from $17.0 million and $10.6 million for the fiscal years
ended December 31, 1995 and 1994, respectively. Research and development expense
for the quarter ended April 30, 1997 was $6.2 million. At April 30, 1997 the
Company had 164 personnel in its research and development department. See "Risk
Factors--Rapid Technological Change," "--Supply Chain Solutions Under
Development and Underlying Technology" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

SALES AND MARKETING

The Company sells and supports its products through direct and indirect
sales organizations throughout the world. The Company's direct sales
organization consists of approximately 170 personnel located at its corporate
headquarters in Carpinteria, California, its regional headquarters in Mt.
Laurel, New Jersey, Hoofddorp, The Netherlands, Hong Kong, China and Sydney,
Australia, and over 20 other direct sales offices worldwide. The Company's sales
team is organized around its five targeted vertical markets, enabling the
Company to address the specialized needs of its customers.

The Company's indirect sales channel consists of over 40 distributors
worldwide. The Company does not grant exclusive rights to any of its
distributors. The Company's distributors primarily sell independently to
companies within their geographic territory but may also work in conjunction
with the Company's direct sales organization. In addition, the Company leverages
its relationships with implementation providers, hardware vendors and other
third parties to identify sales opportunities on a global basis.

The Company's sales and marketing strategy is to develop demand for its
products by creating visibility for the Company and awareness of its principal
product, MFG/PRO software. The Company participates in major computer and
vertical market industry trade shows and sponsors regional and worldwide user
conferences and regional alliance conferences. The Company also advertises in
leading business and targeted industry publications.

The Company's future success will depend in part upon the productivity of
its sales and marketing force and the ability of the Company to continue to
attract, integrate, train, motivate and retain new sales and marketing
personnel. Competition for sales and marketing personnel in the Company's
industry is intense. There can be no assurance the Company will be successful in
hiring such personnel in accordance with its plans. In addition, the failure by
the Company to maintain successfully its distributor relationships or to
establish new relationships in the future would have a material adverse effect
on the Company's

42
<PAGE>
business, results of operations and financial condition. See "Risk
Factors--Dependence Upon Development and Maintenance of Sales and Marketing
Channels."

THIRD-PARTY IMPLEMENTATION PROVIDERS

The Company has made the strategic decision to utilize almost exclusively
third parties to provide implementation and customization services to the
Company's customers. The Company has chosen this strategy to allow the Company
to maintain its focus on developing, marketing and distributing its software and
to enhance the effectiveness, expertise and commitment of third parties who
provide services on behalf of the Company. The Company also uses these third
parties for sales lead generation. Implementation and system integration
services are provided by a network of consultants and system integrators,
including Arthur Andersen & Co. LLP, Deloitte & Touche LLP, Ernst & Young LLP,
Integrated Systems & Services, LLC and Strategic Information Group
International, Inc. in the United States, BDM Largotim US, Inc., CSBI S.A.,
Origin Technology in Business Nederland B.V. and Sligos S.A. in Europe and Iris
Ifec Co., Ltd and STCS Systems Pte Ltd in Asia. In most cases, the Company's
distributors also deliver consulting and integration services. All third-party
providers are required to be certified in the applications and methodologies of
the Company's products.

The Company typically enters into separate agreements with each of its
installation and implementation partners that provide such partners with the
non-exclusive right to promote and market the Company's products, and to provide
training, installation, implementation and other services for the Company's
products, within a defined territory for a specified period of time (generally
two years). Although the Company's installation and implementation partners do
not receive fees for the sale of the Company's software products, they generally
are permitted to set their own rates for such services and the Company typically
does not collect a royalty or percentage fee from such partners on services
performed. The Company also enters into similar agreements with its distributor
partners that grant such partners the non-exclusive right, within a specified
territory, to market, license, deliver and support the Company's products. In
exchange for such distributors' services, the Company receives a negotiated
royalty fee for the license of its software products. The Company also relies on
third parties for the development or inter-operation of key components of its
software so that users of the Company's software will obtain the functionality
demanded. Such research and product alliances include software developed to be
sold in conjunction with the Company's software products, technology developed
to be included in or encapsulated within the Company's software products and
numerous third-party software programs that generally are not sold with the
Company's software but inter-operate directly with the Company's software
through application program interfaces. The Company generally enters into joint
development agreements with its third-party software development partners that
govern ownership of the technology collectively developed. Each of the Company's
partner agreements and third-party development agreements contain strict
confidentiality and non-disclosure provisions for the service provider, end user
and third-party developer and the Company's third-party development agreements
contain restrictions on the use of the Company's technology outside of the
development process. The failure of the Company to establish or maintain
successful relationships with such third-party software providers or such
third-party installation, implementation and development partners or to failure
of such third-party software providers to develop and support their software
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Reliance on and Need to
Develop Additional Relationships with Third Parties."

43
<PAGE>
CUSTOMERS

The Company targets the industrial/electronics, food/beverage, consumer
packaged goods, medical and automotive sectors worldwide. As of April 30, 1997,
the Company had licensed MFG/PRO software at approximately 3,200 sites to
approximately 1,880 customers in over 70 countries. No one customer accounted
for more than 10% of total revenue during any of the Company's last three fiscal
years or during the quarter ended April 30, 1997. The following are among
companies and/or subsidiaries of such companies in each of the Company's target
vertical markets that have each generated more than $400,000 in software license
and maintenance revenue over the last three fiscal years:

ELECTRONICS/INDUSTRIAL
ABB Flakt Oy
Alcatel Services
International B.V.
Allen-Bradley Co. Inc. Aluminum Company of America
AT&T
Courtaulds plc
Ingersoll-Rand Company
Lucent Technologies Inc.
Matsushita Electric-Industrial
Co., Ltd
NEC America, Inc.
Newbridge Networks
Corporation
Philips International B.V.
RayChem Corporation
Schlumberger Technology Corp.
Silicon Graphics SA
Sun Microsystems, Inc.
Xerox Corporation
FOOD/BEVERAGE
AEP Borden Nederland B.V.
Cargill, Incorporated
Kraft Jacobs Suchard AG
Pepsi-Cola Company
Presto Foods Products
The Quaker Oats Company
Rich Products Corporation
CONSUMER PACKAGED GOODS
The Black & Decker
Corporation
Colgate-Palmolive Company
Gillette Company
Johnson & Johnson
Unilever N.V.
AUTOMOTIVE
Aeroquip-Vickers, Inc.
Daewoo Information
Systems Co. Ltd.
Ford Motor Corporation
Johnson Controls, Inc.
Lear Seating Corporation
R.J. Tower Corporation
Rockwell Automotive
United Technologies Automotive
Varity Kelsey-Hayes Company

MEDICAL
Alza Corporation
BOC Ohmeda Inc.
Physio-Control Corporation
Rexall Sundown, Inc.
St. Jude Medical, Inc.
Sunrise Medical Inc.
Ventritex, Inc.

CUSTOMER SERVICE AND SUPPORT

The Company believes that providing a high level of customer service and
support is essential to customer satisfaction and the Company's long-term
success. The Company's service and support organization is based primarily in
centers located in Mt. Laurel, New Jersey, Hoofddorp, The Netherlands, Hong
Kong, China and Sydney, Australia. Global support is also provided through the
Company's extensive network of alliance partners. This global presence helps the
Company support customers and partners in different regions and time zones
worldwide.

The Company also provides its customers with access to information and
customer support services via the World Wide Web. The Company's Internet-enabled
services facilitate the exchange of information seven days per week, 24 hours a
day and provide customers with access to QAD support databases. These databases
contain a wide variety of product information, customer support functionality,
answers to frequently asked questions, and a search-enabled online knowledge
base. In addition, ongoing training of support personnel, internal and external
consultants and the Company's alliance partners helps to ensure that customers
are up to date on the latest technologies and product enhancements offered by
the Company.

The Company offers, for a fee, a comprehensive education and training
program to its customers' information and technology staff and end-users, as
well as its implementation providers. Classes are

44
<PAGE>
offered through in-house facilities at Company offices in various locations, as
well as on-site training services at customer locations. The Company has also
assisted implementation providers and customers in developing their own in-house
support centers.

COMPETITION

The ERP software market is highly competitive, rapidly changing and affected
by new product introductions and other market activities of industry
participants. The Company competes in the ERP software market primarily on the
basis of functionality, ease of use and implementation, technology, time to
benefit, supplier viability, service and cost. The Company currently competes
primarily with (i) other vendors of software focused on the specific needs of
manufacturing plants and distribution sites of multinational manufacturing
companies, which include Baan, J.D. Edwards and SSA, (ii) smaller independent
companies that have developed or are attempting to develop advanced planning and
scheduling software which complement or compete with ERP or manufacturing
resource planning solutions, (iii) internal development efforts by corporate
information technology departments and (iv) companies offering standardized or
customized products on mainframe and/or mid-range computer systems. The Company
expects that competition for its MFG/PRO software will increase as other large
companies such as Oracle and SAP, as well as other business application software
vendors, enter the market for plant-level ERP solutions. With the Company's
strategic entry into the supply chain management software market, the Company
can expect to meet substantial additional competition from companies presently
serving that market, such as i2, IMI and Manugistics, as well as from broad
based solution providers such as Baan, Oracle, PeopleSoft and SAP that the
Company believes are increasingly focusing on this segment. In addition, certain
competitors, such as Baan, Oracle, PeopleSoft and SAP, have well established
relationships with present or potential customers of the Company. The Company
may also face market resistance from the large installed base of legacy systems
because of the reluctance of these potential customers to commit the time,
effort and resources necessary to convert to an open, client/server-based
software solution. Further, as the client/server market continues to develop,
companies with significantly greater resources than the Company may attempt to
increase their presence in these markets by acquiring or forming strategic
alliances with competitors of the Company. Increased competition is likely to
result in price reductions, reduced operating margins and loss of market share,
any one of which could materially adversely affect the Company's business,
results of operations and financial condition. Many of the Company's present or
future competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and to changes
in customer requirements, or to devote greater resources to the development,
promotion and sale of their products, than can the Company. There can be no
assurance that the Company will be able to compete successfully with existing or
new competitors or that competition will not have a material adverse effect on
the Company's business, operating results and financial condition.

PROPRIETARY RIGHTS AND LICENSING

45
<PAGE>

provided by the Company. Payment terms are generally 30 days from the date of
shipment. The Company has no patents or pending patent applications. In order to
facilitate the customization required by most of the Company's customers, the
Company generally licenses its MFG/PRO software to end users in both object code
(machine-readable) and source code (human-readable) format. While this practice
facilitates customization, making software available in source code also makes
it easier for third parties to copy or modify the Company's software for
non-permitted purposes. One of the Company's distributors has developed
modifications to the Company's software which it owns jointly with the Company.
The Company has entered into a reciprocal license with this distributor who
markets the product enhancements in conjunction with MFG/PRO software. This or
other distributors or other persons may continue to independently develop a
modified version of the Company's software. The Company seeks to protect its
software, documentation and other written materials under the legal provisions
relating to trade secret, copyright and contract law. The Company's license
agreements generally allow the use of MFG/PRO software solely by the customer
for internal purposes without the right to sublicense or transfer the MFG/PRO
software to third parties. The Company believes that the foregoing measures
afford only limited protection. Despite the Company's efforts, it may be
possible for third parties to copy certain portions of the Company's products or
reverse engineer or obtain and use information that the Company regards as
proprietary. In addition, the laws of certain countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Accordingly, there can be no assurance that the Company will be able to
protect its proprietary software against unauthorized third-party copying or
use, which could adversely affect the Company's competitive position. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exist, software piracy can be expected to be a problem. Furthermore, there can
be no assurance that the Company's competitors will not independently develop
technology similar to that of the Company.

The Company has in the past and may in the future resell certain software
which it licenses from third parties. In addition, the Company has in the past
and may in the future jointly develop software in which the Company will have
co-ownership or cross-licensing rights. There can be no assurance that these
third-party software arrangements and licenses will continue to be available to
the Company on terms that provide the Company with the third-party software it
requires to provide adequate functionality in its products, on terms that
adequately protect the Company's proprietary rights or on terms that are
commercially favorable to the Company. The loss of or inability to maintain or
obtain any of these software licenses, including a loss as a result of a
third-party infringement claim, could result in delays or reductions in product
shipments until equivalent software, if any, could be identified, licensed and
integrated, which could materially and adversely affect the Company's business,
operating results and financial condition. See "--Products" and "--Research and
Development."

46
<PAGE>
EMPLOYEES

As of April 30, 1997, the Company had 700 full-time employees of which 164
were in research and development, 128 were in customer and product support, 220
were in sales and marketing, and 188 were in general and administration and
other. In addition, the Company contracted with approximately 100 temporary
employees. None of the Company's workers is represented by collective bargaining
agreements with the exception of certain of the employees of the Company's
Netherlands subsidiary who are represented by statutory Works Councils as
required under the laws of The Netherlands. The Company believes that its
employee relations are good. The Company's success depends to a significant
extent upon a limited number of key employees and other members of senior
management of the Company. There can be no assurance that the Company will be
successful in attracting and retaining such personnel, and the failure to
attract and retain such personnel could have a material adverse effect on the
Company's business. See "Risk Factors--Dependence Upon Key Personnel; Need to
Hire Additional Personnel in All Areas."

PROPERTIES

The Company leases facilities to support its operations in several locations
throughout the world. The corporate headquarters are located in Carpinteria,
California in approximately 95,000 square feet of leased space in two facilities
subject to five leases. The leases expire on dates ranging from December 1997 to
December 2001. The Company owns approximately 28 acres and 54,000 square feet of
office space in a neighboring location which also supports portions of its
operations. The Company also owns a 34-acre parcel located in Carpinteria,
California at which it is considering developing additional facilities. Regional
headquarters are located in Mount Laurel, New Jersey, Hoofddorp, The
Netherlands, Hong Kong, China and Sydney, Australia in space covering
approximately 57,000, 16,000, 4,500 and 13,000 square feet and subject to leases
expiring in 2001, 2000, 1998 and 2000, respectively. Satellite offices are
located in the Americas, Europe, Asia and Australia in space covering
approximately 35,000, 15,000, 12,000 and 7,400 square feet and subject to leases
expiring in 2000, 2000, 1999 and 1998, respectively. All of the Company's leases
have been negotiated with independent third parties on an arms length basis, and
the Company believes they are on commercially reasonable terms. Total rent
expense for the year ended January 31, 1997 was $5.9 million. The global
presence of the Company is supported by offices located in the United States,
Canada, Mexico, Brazil, The Netherlands, United Kingdom, France, Germany,
Sweden, Italy, Poland, Australia, Singapore, Japan, Korea, India and China (Hong
Kong and Shanghai). Although the Company has from time to time sought and will
in the future seek new or expanded facilities for existing or additional
regional offices, the Company expects that its current domestic and
international facilities will be sufficient to meet its needs for at least the
next 12 months. See Notes 2 and 8 of Notes to Consolidated Financial Statements.

47
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors, executive
officers and other key employees of the Company as of April 30, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------------------- --- --------------------------------------------------
<S> <C> <C>

DIRECTORS AND EXECUTIVE OFFICERS

Pamela M. Lopker....................................... 42 Chairman of the Board and President
Karl F. Lopker......................................... 46 Director, Chief Executive Officer and
Secretary
Evan M. Bishop......................................... 42 Director
Margaret A. Biddison................................... 48 Vice President, Global Marketing
Vince P. Niedzielski................................... 44 Vice President, Development
Dennis R. Raney........................................ 54 Senior Vice President, Finance and
Administration and Chief Financial Officer

KEY EMPLOYEES

John M. Doordan........................................ 49 Vice President, Sales--Business Development
Charles R. Eggerding................................... 41 Vice President, Sales--Automotive
William F. McMenamin................................... 43 Vice President, Sales--Electronics/Industrial
Johannes G. Spruit..................................... 50 Vice President, Sales--Alliances
Gregory M. Turner...................................... 45 Vice President, Sales--Consumer Products
</TABLE>

PAMELA M. LOPKER founded the Company in 1979 and has been its Chairman of
the Board and President since inception. Prior to founding the Company, Ms.
Lopker served as Senior Systems Analyst for Comtek Research from 1977 to 1979.
Ms. Lopker is certified in Production and Inventory Management by the American
Production and Inventory Control Society. Ms. Lopker earned a Bachelor of Arts
degree in Mathematics from the University of California at Santa Barbara.

KARL F. LOPKER has served as Director, Chief Executive Officer and Secretary
since joining the Company in 1981. Mr. Lopker was founder and President of
Deckers Outdoor Corporation from 1973 to 1981, where he currently serves as a
Director. Mr. Lopker is certified in Production and Inventory Management at the
Fellow level by the American Production and Inventory Control Society. Mr.
Lopker studied Electrical Engineering and Computer Science at the University of
California at Santa Barbara. Mr. Lopker and Pamela Lopker are married.

EVAN M. BISHOP has served the Company as a Director since joining QAD in
1981. Mr. Bishop currently also holds the position of Functional
Architect/Manufacturing. Mr. Bishop is certified in Production and Inventory
Management by the American Production and Inventory Control Society. Mr. Bishop
holds a Bachelor of Science degree in Mathematics and Economics from the
University of California at Santa Barbara.

MARGARET A. BIDDISON has served as Vice President, Global Marketing since
joining the Company in 1994. Prior to joining the Company, Ms. Biddison served
from 1993 to 1994 as Vice President, Professional Services at Fourth Shift
Corporation and, from 1983 to 1993, served in numerous capacities for Western
Data Systems. Ms. Biddison holds a Bachelor of Arts degree in Anthropology from
the University of California at Santa Cruz.

VINCE P. NIEDZIELSKI has served as Vice President, Development since joining
the Company in April 1996. Prior to joining the Company, Mr. Niedzielski served
as Vice President, Production and

48
<PAGE>
Development at Candle Corporation from 1984 to 1996. Mr. Niedzielski holds a
Bachelor of Science
degree in Mathematics from the University of Scranton.

DENNIS R. RANEY joined the Company in February 1997 as Senior Vice
President, Finance and Administration and Chief Financial Officer. Prior to
joining the Company, Mr. Raney served as the Chief Financial Officer of
California Microwave, Inc. from 1996 to 1997, and from 1995 to 1996, Mr. Raney
served as Chief Financial Officer of General Magic, Inc. Prior to joining
General Magic, Inc., Mr. Raney served as Chief Financial Officer of Bristol
Meyers Squibb's pharmaceutical division from 1993 to 1995. Mr. Raney also held
various positions with Hewlett-Packard Company from 1970 to 1993. Mr. Raney
holds a Masters of Business Administration from the University of Chicago and a
Bachelor of Science degree in Chemical Engineering from the South Dakota School
of Mines and Technology.

JOHN M. DOORDAN was appointed Vice President, Sales--Business Development in
1996. Since joining the Company in 1986, Mr. Doordan has held various executive
sales and management positions in the Company including Asia-Pacific Regional
Manager and Emerging Markets Manager as well as continuous responsibility for
multinational sales management. Mr. Doordan is certified in Production and
Inventory Management by the American Production and Inventory Control Society.
Mr. Doordan earned a Bachelor of Science degree in Industrial Management from
the Massachusetts Institute of Technology, Sloan School of Management.

CHARLES R. EGGERDING was appointed Vice President, Sales--Automotive in
1995. Since joining the Company in 1991, Mr. Eggerding has held various sales
and marketing positions. Since 1994, Mr. Eggerding has been responsible for the
global Automotive group. Mr. Eggerding is certified in Production and Inventory
Management by the American Production and Inventory Control Society. Mr.
Eggerding holds a Bachelor of Arts degree in Business/Political Science from
University of Michigan.

WILLIAM F. MCMENAMIN has served as Vice President,
Sales--Electronics/Industrial since joining the Company in January 1997. Prior
to that time, Mr. McMenamin worked as an independent consultant from 1996 to
1997. From 1995 to 1996, Mr. McMenamin served as Senior Vice President, Field
Operations at Programart Corporation and, from 1994 to 1995, he founded and
served as President and CEO of Qualix Pty. Ltd. From 1989 to 1994, Mr. McMenamin
served as Vice President, Sales and Operations--Americas and Asia Pacific Region
for Candle Corporation.

JOHANNES G. SPRUIT was appointed Vice President, Sales--Alliances in 1996.
Since joining the Company in 1990, Mr. Spruit has held various executive sales
and management positions in the Company, including Global Distributor Manager
and European Regional Manager.

GREGORY M. TURNER was appointed Vice President, Sales--Consumer Products in
1996. Since joining the Company in 1990, Mr. Turner has held various sales and
marketing responsibilities in business development of the Asia/Pacific region.
Mr. Turner holds a Bachelor of Science degree in Engineering from Sydney
University of Technology.

BOARD OF DIRECTORS

The Board of Directors is currently composed of three members. Within 90
days of the completion of the Offering, the Company anticipates expanding the
Board of Directors to five members and appointing two outside directors who will
serve on the Compensation Committee and the Audit Committee. Prior to the
Offering, the Company has not had a Compensation Committee or an Audit
Committee. Currently, each director holds office until the next annual meeting
of the stockholders or until his or her successor is duly elected and qualified.
Commencing with the first annual meeting of stockholders at which QAD has at
least 800 stockholders, the Company's Certificate of Incorporation provides that
the Board of Directors will be divided into three classes, with each class
serving staggered, three-year terms.

Prior to the Offering, directors of the Company have not received
compensation for their services in such capacity. The Company anticipates that,
following the Offering, directors who are employees of the

49
<PAGE>
Company will not be paid any fees or additional compensation (other than expense
reimbursement) for service as members of the Board of Directors or any committee
thereof. The Company will enter into arrangements with respect to fees and other
compensation (including expense reimbursement) for directors who are not
employees of the Company at the time they are selected to serve on the Board. In
addition, directors who are not employees of the Company may annually receive
automatic grants of non-qualified stock options under the Company's 1997 Stock
Incentive Program. See "--Employee Compensation Programs--1997 Stock Incentive
Program." The Company maintains directors' and officers' liability insurance and
its Bylaws provide for indemnification of directors and officers to the fullest
extent permitted by Delaware law. The Company has entered into indemnification
agreements with all of its directors. In addition, the Certificate of
Incorporation limits the personal liability of directors of the Company to the
Company or its stockholders for breaches of the directors' fiduciary duties to
the fullest extent currently permitted by Delaware law. See "Description of
Capital Stock--Certain Anti-Takeover, Limited Liability and Indemnification
Provisions."

COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended January 31, 1997, the Company had no
compensation committee or other committee of the Board of Directors performing
similar functions. Decisions concerning compensation of executive officers were
made during such year by the Board of Directors. No interlocking relationship
exists between the Company's Board of Directors and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
other most highly compensated executive officers of the Company (collectively,
the "Named Officers") whose aggregate cash compensation exceeded $100,000 for
services rendered in all capacities to the Company during the fiscal year ended
January 31, 1997.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) -------------
RESTRICTED
----------------------- STOCK
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) AWARD(S) ($)
- --------------------------------------------------------------------------- ---------- ----------- -------------
<S> <C> <C> <C>
Pamela M. Lopker, Chairman of the Board and President...................... $ 170,236 $ 83,902 $ --
Karl F. Lopker, Chief Executive Officer.................................... 166,561 127,143 --
Margaret A. Biddison, Vice President, Global Marketing..................... 136,660 31,116 952,500(2)
Vince P. Niedzielski, Vice President, Development.......................... 205,857 -- 190,500(2)
</TABLE>

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

(1) No executive officer named in the table above received perquisites or other
personal benefits, securities or property in an amount in excess of the
lesser of $50,000 or 10% of such officer's cash compensation, nor did all
Named Officers together receive such other compensation in excess of the
lesser of $50,000 times the number of such Named Officers or 10% of such
officers' aggregate cash compensation.

(2) The restricted stock granted to Ms. Biddison and Mr. Niedzielski vests
ratably over a five-year period, with the first shares vesting in January
1998.

No stock appreciation rights or stock options were granted to any of the
Named Officers during the fiscal year ended January 31, 1997. No such rights or
options were held by the Named Officers at January 31, 1997.

50
<PAGE>
EMPLOYEE COMPENSATION PROGRAMS

1994 STOCK PLAN

In 1993, the Board of Directors adopted and the stockholders approved the
1994 Stock Ownership Program (the "1994 Stock Plan"). The 1994 Stock Plan is
composed of two stock plans: the 1994 Stock Purchase Plan and the 1994 Stock
Award Plan. The Company authorized and reserved for issuance an aggregate of
4,800,000 shares of its Common Stock under the 1994 Stock Plan.

Employees of the Company are entitled to purchase stock under the 1994 Stock
Plan on a quarterly basis, either through payroll deductions designated by the
employee for a fiscal quarter or by the submission of a request to the Company
under the 1994 Stock Plan. In addition, employees were awarded stock, from time
to time, under the 1994 Stock Plan as part of the incentive portion of their
yearly compensation. All such awards were subject to ratification by the Board
of Directors. Under the 1994 Stock Plan, the Company also permitted shareholders
to sell shares of Common Stock to the Company on any of four predetermined trade
dates each year, at prevailing fair market values determined by an independent
appraisal.

As of April 30, 1997, 2,385,230 shares of the Company's outstanding Common
Stock had been issued under the 1994 Stock Plan. The 1994 Stock Plan will
terminate upon consummation of the Offering. See Note 10 to Notes to
Consolidated Financial Statements.

1997 STOCK INCENTIVE PROGRAM

In May 1997, the Board of Directors adopted and the stockholders approved
the QAD Inc. 1997 Stock Incentive Program (the "1997 Stock Program"), effective
upon consummation of the Offering. Under the 1997 Stock Program, the Board of
Directors, or its designated administrators, has the flexibility to determine
the type and amount of awards to be granted to eligible participants.

PURPOSE, STRUCTURE, AWARDS AND ELIGIBILITY. The 1997 Stock Program is
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's Common Stock by individuals employed or retained
by the Company who will be responsible for the future growth of the enterprise.
The 1997 Stock Program is designed to help attract and retain superior personnel
for positions of substantial responsibility with the Company (including advisory
relationships where appropriate), and to provide individuals with an additional
incentive to contribute to the Company's success.

The 1997 Stock Program is composed of seven parts and the Program
Administrators (as defined below) may make the following types of grants under
the 1997 Stock Program, each of which will be an "Award": (i) Incentive Stock
Options ("ISOs") under the Incentive Stock Option Plan (the "Incentive Stock
Plan"); (ii) Nonqualified Stock Options ("NSOs") under the Nonqualified Stock
Option Plan (the "Nonqualified Plan"); (iii) Restricted Shares ("Restricted
Shares") under the Restricted Shares Plan (the "Restricted Plan"); (iv) rights
to purchase stock under the Employee Stock Purchase Plan (the "Purchase Plan");
(v) Stock Appreciation Rights ("SARs") under the Stock Appreciation Rights Plan
(the "SAR Plan"); (vi) grants of options under the Non-Employee Director Stock
Option Plan (the "Directors Plan"); and (vii) Other Stock Rights under the Stock
Rights Plan (the "Stock Rights Plan") which may include the issuance of units
representing the equivalent of shares of Common Stock ("Performance Shares"),
payments of compensation in the form of shares of Common Stock ("Stock
Payments") and rights to receive cash or shares of Common Stock based on the
value of dividends paid with respect to a share of Common Stock ("Dividend
Equivalent Rights"). Officers, key employees, employee directors, consultants
and other independent contractors or agents of the Company or its subsidiaries
who are responsible for or contribute to the management, growth or profitability
of the Company's business will be eligible for selection by the Program
Administrators to participate in the 1997 Stock Program, provided, however, that
ISOs may be granted under the Incentive Stock Plan only to a person who is an
employee of the Company or its subsidiaries.

51
<PAGE>
SHARES SUBJECT TO 1997 STOCK PROGRAM. The Company authorized and reserved
for issuance an aggregate of 4,000,000 shares of its Common Stock under the 1997
Stock Program. The aggregate number of shares of Common Stock which may be
granted through Awards under the 1997 Stock Program, other than Stock Payments
and the purchase of stock under the Purchase Plan, to any employee in any
calendar year may not exceed 400,000 shares. The shares of Common Stock issuable
under the 1997 Stock Program may be authorized but unissued shares, shares
issued and reacquired by the Company or shares purchased by the Company on the
open market. If any of the Awards granted under the 1997 Stock Program expire,
terminate or are forfeited for any reason before they have been exercised,
vested or issued in full, the unused shares subject to those expired, terminated
or forfeited Awards will again be available for purposes of the 1997 Stock
Program.

EFFECTIVE DATE AND DURATION. The Nonqualified Plan, the Restricted Plan,
SAR Plan the Directors Plan and the Stock Rights Plan, became effective upon
their adoption by the Board of Directors of the Company, subject to consummation
of the Offering. The Incentive Stock Plan and the Purchase Plan became effective
upon their adoption by the Board of Directors of the Company and approval of the
1997 Stock Program by a majority of the stockholders of the Company, subject to
consummation of the Offering. The 1997 Stock Program will continue in effect
until May 2007 unless sooner terminated under the general provisions of the 1997
Stock Program.

ADMINISTRATION. The 1997 Stock Program will be administered by the Board of
Directors or by a committee appointed by the Board, consisting of not less than
two directors of the Company who are "non-employee directors" (within the
meaning of SEC Rule 16b-3 promulgated pursuant to the Securities Exchange Act of
1934, as amended), so long as non-employee director administration is required
under Rule 16b-3, and who are "outside directors" (as defined in Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code")), so long as
outside directors are required by the Code. Subject to the foregoing
limitations, as applicable, the Board of Directors may from time to time remove
members from the committee, fill all vacancies on the committee, however caused,
and may select one of the members of the committee as its chairman. The members
of the Board of Directors or committee, when acting to administer the 1997 Stock
Program, are referred to as the "Program Administrators." The Program
Administrators may hold meetings at such times and places as they may determine,
will keep minutes of their meetings, and may adopt, amend and revoke rules and
procedures in accordance with the terms of the 1997 Stock Program.

STOCK OPTION GRANTS

The Company has also from time to time granted stock options to employees of
the Company. At April 30, 1997, the Company had stock options outstanding with
respect to 1,061,000 shares of Common Stock with exercise prices ranging from
$0.12 to $13.00 per share and with a weighted average exercise price of $2.73
per share. Such options generally vest over a five-year period.

52
<PAGE>
CERTAIN TRANSACTIONS

In February 1997, the Company loaned $100,000 to Dennis R. Raney in
connection with his employment by the Company. The principal of the loan accrues
interest at an annual rate of 6.38% and principal and interest are payable in
annual installments of $37,674 commencing in February 1998, with all unpaid
principal and interest due in February 2000. One-third of the loan will be
forgiven on each of the first, second and third anniversaries of the date of Mr.
Raney's initial employment with the Company. Such forgiveness schedule is
subject to Mr. Raney's continued employment with the Company. In connection with
his employment, the Company also awarded Mr. Raney 10,000 restricted shares,
granted Mr. Raney options exercisable for 100,000 shares of Common Stock at an
exercise price of $9.53 and agreed to a severence arrangement pursuant to which
Mr. Raney is entitled to receive approximately six months salary upon
involuntary termination without cause.

In 1994, the Company awarded 8,600 restricted shares to Margaret A. Biddison
under the 1994 Stock Plan. Such award had a value of $17,931 at the time of
grant. Under the 1994 Stock Plan, Ms. Biddison and Vince P. Niedzielski also
received restricted stock awards of 50,000 and 8,000 shares, respectively,
during the year ended January 31, 1997. See "Management--Executive
Compensation."

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 30, 1997 and as adjusted to
reflect the sale of Common Stock offered hereby, by (i) each person who is known
by the Company to own beneficially five percent or more of the Company's Common
Stock prior to the Offering, (ii) each of the Company's directors and Named
Officers and (iii) all current directors and executive officers as a group.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE PRIOR PERCENTAGE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) TO THE OFFERING THE OFFERING(1)(2)
- -------------------------------------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Pamela M. Lopker(3)..................................... 19,000,000 84.4% 67.2%
Karl F. Lopker(3)....................................... 19,000,000 84.4 67.2
Evan M. Bishop.......................................... 816,000 3.6 2.9
Margaret A. Biddison.................................... 128,246 * *
Vince P. Niedzielski.................................... 18,600 * *
All directors and executive
officers as a group (6 persons)....................... 19,972,846 88.7 70.6
</TABLE>

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

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or become exercisable within 60 days following April
30, 1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite such stockholder's name.

(2) Assumes no exercise of the U.S. Underwriters' and the Managers'
over-allotment option.

(3) All shares are held jointly by Pamela and Karl Lopker, except that 1,360,184
shares are held in trust for the Lopkers' minor children and 56,000 shares
are held by The Lopker Family Foundation (the "Foundation"). Pamela and Karl
Lopker act as joint trustees of the trust and officers of the Foundation.

53
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon completion of the Offering, the authorized capital stock of the Company
will consist of 150,000,000 shares of Common Stock, par value $.001 per share,
and 5,000,000 shares of Preferred Stock, par value $.001 per share. As of April
30, 1997, there were 22,524,230 shares of Common Stock outstanding held by 390
stockholders, there were four shares of Class B Common Stock outstanding held by
two stockholders (which shares will automatically convert into Common Stock upon
completion of the Offering) and no shares of Preferred Stock were outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share for the
election of directors and on all other matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive, when and
if declared by the Board of Directors, out of funds legally available therefor,
any dividends on a pro rata basis. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no pre-emptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are fully paid and non-assessable,
and the shares of Common Stock offered by the Company in the Offering will, when
issued, be fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors has the authority to issue the Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares of
stock constituting any series or the designation of such series, without further
vote or action by the Company's stockholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company and may adversely affect the voting and other rights of the holders
of Common Stock. See "Certain Anti-Takeover, Limited Liability and
Indemnification Provisions." At present, the Company has no plan to issue any
shares of Preferred Stock.

CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS

The Company's Certificate of Incorporation and Bylaws include provisions
that may have the effect of discouraging, delaying or preventing a change in
control of the Company or an unsolicited acquisition proposal that a stockholder
might consider favorable, including, but not limited to, a proposal that might
result in the payment of a premium over the market price for the stock held by
stockholders. These provisions are summarized in the following paragraphs.

CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation and Bylaws
of the Company provide that the Board of Directors shall be classified into
three classes, with each class serving staggered three-year terms upon the first
annual meeting of stockholders at which the Company has at least 800
stockholders, as determined under Section 2115 of the California Corporations
Code. The classification of the Board of Directors has the effect of generally
requiring at least two annual stockholder meetings, instead of one, to replace a
majority of the members of the Board of Directors.

SUPERMAJORITY VOTING. The Certificate of Incorporation requires the
approval of the holders of at least 66 2/3% of the voting power of the then
outstanding capital stock, voting together as a single class, to effect certain
amendments to the Certificate of Incorporation, unless such amendments are
approved by a majority of the directors of the Company not affiliated or
associated with any person, other than Pamela or Karl Lopker, holding (or which
has announced an intention to acquire) 20% or more of the voting power

54
<PAGE>
of the Company's then outstanding capital stock, voting together as a single
class. The Bylaws may be amended by either (a) a majority of the Board of
Directors or (b) the holders of a majority of the Company's voting stock,
provided that certain amendments approved by stockholders require the approval
of at least 66 2/3% of the voting power of the Company's then outstanding
capital stock, voting together as a single class, unless such amendments are
approved by a majority of the directors of the Company not affiliated or
associated with any person, other than Pamela or Karl Lopker, holding (or which
has announced an intention to acquire) 20% or more of the voting power of the
Company's then outstanding capital stock, voting as a single class.

SPECIAL MEETINGS OF STOCKHOLDERS. The Bylaws provide that special meetings
of stockholders of the Company may be called only by the Secretary of the
Company at the request of a majority of the Board of Directors, or by the
Company's Chairman of the Board, President or Chief Executive Officer.

NOTICE PROCEDURES. The Bylaws of the Company establish advance notice
procedures with regard to all stockholder proposals, including proposals
relating to the nomination of candidates for election as directors, the removal
of directors and amendments to the Certificate of Incorporation or Bylaws, to be
brought before meetings of stockholders of the Company. These procedures provide
that notice of such stockholder proposals must be timely given in writing to the
Secretary of the Company prior to the meeting. Generally, to be timely, the
notice must be received by the Secretary of the Company not less than 90 days
prior to the meeting and must contain certain other information as specified in
the Bylaws.

LIMITATION OF DIRECTOR LIABILITY. The Certificate of Incorporation limits
the personal liability of directors of the Company (in their capacity as
directors but not in their capacity as officers) to the Company or its
stockholders to the fullest extent currently permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty, except for liability
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law (the "DGCL"), which relates to unlawful
payments of dividends or unlawful stock repurchases or redemptions or (iv) for
any transaction from which the director derived an improper personal benefit.

INDEMNIFICATION AGREEMENTS. The Bylaws of the Company provide that the
directors, executive officers, employees and agents of the Company may be
indemnified against expenses (including attorneys' fees, judgments, fines and
settlements) and other amounts actually and reasonably incurred in connection
with any proceeding arising out of their status as such, to the fullest extent
permitted by the DGCL. Prior to consummation of the Offering, the Company will
enter into indemnification agreements with each of its directors and executive
officers that will provide for indemnification and expense advancement to the
fullest extent permitted under the DGCL.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to Section 203 of the DGCL ("Section 203") which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless: (i) prior to such time, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested holder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least a 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (a)
by persons who are directors and also officers and (b) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) at or subsequent to such date, the business combination is
approved by the Board of Directors and authorized at

55
<PAGE>
an annual or special meeting of the stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation
beneficially owned by the interested stockholder or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines an interested stockholder as an entity or person owning 15%
or more of the outstanding voting stock of the corporation or any affiliate or
associate of the corporation who was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the time in which it is sought to be determined whether
such person is an interested stockholder.

LISTING

The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "QADI."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Firstar Bank of
Minnesota N.A.

56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
28,274,234 shares of Common Stock (29,136,734 shares if the U.S. Underwriters'
and the Managers' over-allotment option is exercised in full), assuming no
exercise of options outstanding as of April 30, 1997. Of these shares, the
5,750,000 shares offered hereby (6,612,500 shares if the U.S. Underwriters' and
Managers' over-allotment option is exercised in full) will be freely tradeable
without restriction or further registration under the Securities Act 1933, as
amended (the "Act"), unless held by "affiliates" of the Company as that term is
defined in Rule 144 under the Act ("Rule 144"). The remaining 22,524,234 shares
of Common Stock outstanding upon completion of the Offering are "restricted
securities" as that term is defined in Rule 144.

The directors, executive officers and certain other stockholders of the
Company holding an aggregate of 20,416,172 outstanding shares of Common Stock
and options to purchase 967,000 shares of Common Stock, have agreed pursuant to
Lock-Up Agreements that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for Common Stock, or grant any options or warrants to purchase Common Stock,
except in certain circumstances. The representatives of the Underwriters have
informed the Company that the Underwriters have no current intention to release
shares from the Lock-Up Agreements prior to expiration of the 180-day term of
such agreements. Any request for release would be evaluated by the
representatives of the Underwriters, and the decision whether or not to permit
early release of stock would be made dependent upon the facts and circumstances
existing at the time of the request. Beginning upon expiration of the Lock-Up
Agreements, such shares will be eligible for sale pursuant to Rule 144 or Rule
701 under the Act ("Rule 701") subject to the provisions of such rules and
continued vesting. The remaining 2,108,062 outstanding shares of Common Stock
and options to purchase 94,000 shares of Common Stock are not subject to Lock-Up
Agreements and will become eligible for sale upon completion of the Offering,
subject to the provisions of Rule 144, Rule 701 and continued vesting.
Approximately 714,596 shares of Common Stock and 35,000 shares of Common Stock
subject to exercisable options will be eligible for immediate sale in the public
market as of the date of this Prospectus (the "Effective Date"), none of which
shares will be subject to volume and certain other restriction under Rule 144.
An additional 1,358,330 outstanding shares of Common Stock will be eligible for
sale in the public market 90 days after the Effective Date, of which 1,195,104
outstanding shares will not be subject to volume and certain other restrictions
under Rules 144 and 701. Approximately 20,274,202 shares of Common Stock will
become eligible for sale in the public market 180 days after the Effective Date
upon expiration of the Lock-Up Agreements, subject to volume and certain other
restrictions of Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose stock is aggregated) who has beneficially owned stock for at least one
year (including the holding period of any prior owner except an affiliate from
whom such stock was purchased) is entitled to sell in "broker's transactions" or
to market makers, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares of stock that does not exceed the
greater of (a) one percent of the number of shares of Common Stock then
outstanding (approximately 283,000 shares immediately after the Offering, or
approximately 291,000 shares if the U.S. Underwriters' and the Managers'
over-allotment option is exercised in full), or (b) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about the
Company. Persons other than affiliates who have beneficially owned such stock
for at least two years are not subject to the notice, manner of sale, volume or
public information requirements and may sell such shares immediately following
the Offering. Under Rule 701, persons who purchase stock upon exercise of
options granted prior to the effective date of the Offering or who purchased
stock from the Company pursuant to a written compensatory benefit plan or
contract are entitled to sell such stock 90 days after the effective date of the
Offering in reliance on Rule 144 without having to comply with the holding
period requirements of Rule 144 and, in the case of

57
<PAGE>
persons who are not affiliates of the Company, without having to comply with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.

Approximately 30 days after the date of this Prospectus, the Company intends
to file registration statements on Form S-8 covering approximately 667,650
restricted and control shares outstanding and subject to outstanding options
issued under employee benefit plans that are not eligible for resale under Rule
144 or Rule 701 and the shares of Common Stock that have been reserved for
issuance under the 1997 Stock Program, thus permitting the resale of such stock
in the public market without restriction under the Act, subject, however, to
Lock-Up Agreements with respect to such stock.

Prior to the Offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.

58
<PAGE>
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS

This is a general discussion of certain U.S. federal income and estate tax
consequences of the purchase, ownership and disposition of Common Stock by a
"Non-U.S. Holder." A "Non-U.S. Holder" is a person or entity that, for U.S.
federal income tax purposes, is a nonresident alien individual, a foreign
corporation, a foreign partnership, or a nonresident fiduciary of a foreign
estate or trust as such terms are defined in the Internal Revenue Code of 1986,
as amended (the "Code").

This discussion is based on the Code, and administrative interpretations as
of the date hereof, all of which may be changed either retroactively or
prospectively. This discussion does not address all aspects of U.S. federal
income and estate taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances (including the direct or indirect ownership of
more than five percent of the outstanding Common Stock) and does not address any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdiction.

Treasury Regulations were recently proposed that would, if adopted in their
present form, revise in certain respects the rules applicable to Non-U.S.
Holders of Common Stock (the "Proposed Regulations"). The Proposed Regulations
are generally to be effective with respect to payments made after December 31,
1997. It is not certain whether, or in what form, the Proposed Regulations will
be adopted as final regulations.

The following summary does not constitute, and should not be considered as,
legal or tax advice to prospective investors. Prospective holders should consult
their tax advisers about the particular tax consequences to them of holding and
disposing of Common Stock.

DIVIDENDS

Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining applicability of withholding tax, including at a reduced rate
under a tax treaty, the Company ordinarily will presume that dividends paid to
an address in a foreign country are paid to a resident of such country absent
actual knowledge that such presumption is not warranted. However, under the
Proposed Regulations which have not yet been put into effect, to claim the
benefits of a tax treaty, an Non-U.S. Holder of Common Stock would be required
to file certain forms.

Dividends paid to a holder with an address within the United States
generally will not be subject to withholding tax, unless the Company has actual
knowledge that the holder is a Non-U.S. Holder. Absent such actual knowledge,
dividends paid to a holder with a U.S. address may be subject to 31% backup
withholding if the holder is not an exempt recipient as defined in Section
6042(b)(2) of the Code (which includes corporations) and fails to provide a
correct tax identification number and other information to the Company.

Upon the filing of an Internal Revenue Service Form 4224 with the Company,
there is no withholding tax on dividends that are effectively connected with the
Non-U.S. Holder's conduct of a trade or business within the United States.
Instead, the effectively connected dividends are subject to regular U.S. income
tax in the same manner as if the Non-U.S. Holder were a resident. Effectively
connected dividends received by a non-U.S. corporation may be subject to an
additional "branch profits tax" at a rate of 30% (or such lower rate as may be
specified by an applicable treaty) of its effectively connected earnings and
profits, subject to certain adjustments.

GAIN ON DISPOSITION

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale of other disposition of Common Stock
unless (i) the gain is effectively connected with a

59
<PAGE>
trade or business of such holder in the United States or (ii) in the case of
certain Non-U.S. Holders who are nonresident alien individuals and hold Common
Stock as a capital assets, such individuals are present in the United States for
183 or more days in the taxable year of the disposition.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

If the proceeds of a disposition of Common Stock are paid over by or through
a U.S. office of a broker, the payment is subject to information reporting and
to 31% backup withholding unless the disposing holder certifies as to his name,
address, and non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the United States through a
non-U.S. office of a non-U.S. broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a payment of disposition
proceeds outside the United States if (A) the payment is made through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of it gross income for certain periods
from the conduct of a trade or business in the United States or (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes and (B)
the broker fails to maintain documentary evidence that the holder is a Non-U.S.
Holder and that certain conditions are met, or that the holder otherwise is
entitled to an exemption.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to 31% backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the U.S. Internal Revenue Service may make its
reports available to tax authorities in the recipient's country of residence.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of or has made
certain lifetime transfers of an interest in Common Stock will be required to
include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.

60
<PAGE>
UNDERWRITING

Under the terms and subject to the conditions contained in the U.S.
Underwriting Agreement, each of the underwriters of the U.S. Offering named
below (the "U.S. Underwriters"), for whom Smith Barney Inc., Cowen & Company and
Robertson, Stephens & Company LLC are acting as the representatives (the
"Representatives"), has severally agreed to purchase and the Company has agreed
to sell to each of the U.S. Underwriters, the number of shares of Common Stock
set forth opposite the name of such U.S. Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc...........................................................................
Cowen & Company............................................................................
Robertson, Stephens & Company LLC..........................................................
----------
Total.................................................................................... 4,600,000
----------
----------
</TABLE>

Under the terms and subject to the conditions contained in the International
Underwriting Agreement, each of the managers of the concurrent International
Offering named below (the "Managers"), for whom Smith Barney Inc., Cowen &
Company and Robertson, Stephens & Company LLC are acting as lead managers (the
"Lead Managers"), has severally agreed to purchase, and the Company has agreed
to sell to each Manager, the number of shares of Common Stock set forth opposite
the name of such Manager below:

<TABLE>
<CAPTION>
NUMBER OF
MANAGERS SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc...........................................................................
Cowen & Company............................................................................
Robertson, Stephens & Company LLC..........................................................
----------
Total.................................................................................... 1,150,000
----------
----------
</TABLE>

Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and the
several Managers to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain conditions. The U.S. Underwriters and the Managers are obligated
to take and pay for all shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.

The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares offered hereby directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part of such shares offered hereby to certain dealers at a price
which represents a concession not in excess of $ per share under the public
offering price. The U.S. Underwriters and the Managers may allow, and such
dealers may reallow, a concession not in excess of $ per share to other U.S.
Underwriters or Managers, respectively, or to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed by the Underwriters. The Representatives and the Lead Managers have
advised the Company that the U.S. Underwriters and the Managers do not intend to
confirm any shares to accounts over which they exercise discretionary control.

The Company has granted to the Underwriters an option, exercisable at any
time and from time to time during a 30-day period from the date of this
Prospectus, to purchase up to an aggregate 862,500 additional shares of Common
Stock at the public offering price set forth on the cover page of this
Prospectus minus the underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, in connection with the offering of the shares of

61
<PAGE>
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares of Common Stock offered by the Underwriters
hereby.

The Company, the U.S. Underwriters and the Managers have agreed to indemnify
each other against certain liabilities, including liabilities under the Act.

Each of the directors and executive officers of the Company, and certain
other stockholders of the Company as designated by Smith Barney Inc. have agreed
that, for a period of 180 days from the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer, sell, contract to
sell, or otherwise dispose of, any Common Stock or any securities convertible
into, or exercisable or exchangeable for Common Stock, or grant any options or
warrants to purchase Common Stock, except in certain circumstances.

The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the shares offered in the U.S.
Offering: (i) it is not purchasing any such shares for the account of anyone
other than a U.S. or Canadian Person (as defined below) and (ii) it has not
offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the U.S.
Offering outside the United States or Canada or to anyone other than a U.S. or
Canadian Person. In addition, each Manager has agreed that as part of the
distribution of the shares offered in the International Offering: (i) it is not
purchasing any such shares for the account of any U.S. or Canadian Person, and
(ii) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus relating
to the International Offering in the United States or Canada or to any U.S. or
Canadian Person. Each Manager has also agreed that it will offer to sell shares
only in compliance with all relevant requirements of any applicable laws.

The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S. Underwriters
and Managers, including (i) certain purchases and sales between the U.S.
Underwriters and the Managers, (ii) certain offers, sales, resales, deliveries
or distributions to or through investment advisors or other persons exercising
investment discretion, (iii) purchases, offers or sales by a U.S. Underwriter
who is also acting as a Manager or by a Manager who is also acting as a U.S.
Underwriter, and (iv) other transactions specifically approved by the
Representatives and Lead Managers. As used herein, "U.S. or Canadian Person"
means any resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
U.S. or Canadian income taxation regardless of the source of its income (other
than the foreign branch of any U.S. or Canadian Person), and includes any U.S.
or Canadian branch of a person other than a U.S. or Canadian Person.

Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada in
which such offer is made.

Each Manager has represented and agreed that (i) it has not offered or sold
and will not offer or sell in the United Kingdom, by means of any document, any
shares other than to persons whose ordinary business it is to buy or sell shares
or debentures, whether as principal or agent, or in circumstances which do not
constitute an offer to the public within the meaning of the Public Offering of
Securities Regulation 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares in, from, or otherwise involving
the United Kingdom, and (iii) it has only issued or passed on and will only
issue or pass on to any person in the United Kingdom any document received by it
in connection with the issue of the shares if that person is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom the document may otherwise
lawfully be issued or passed on.

62
<PAGE>
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of shares
of Common Stock as may be mutually agreed. The price of any shares so sold shall
be the public offering price as then in effect for Common Stock being sold by
the U.S. Underwriters and the Managers, less all or any part of the selling
concession, unless otherwise determined by mutual agreement. To the extent that
there are sales between the U.S. Underwriters and the Managers pursuant to the
Agreement Between U.S. Underwriters and Managers, the number of shares initially
available for sale by the U.S. Underwriters and by the Managers may be more or
less than the number of shares appearing on the front cover of this Prospectus.

Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the country
of purchase in addition to the offering price set forth on the cover page
hereof.

In addition, Houlihan, Lokey, Howard & Zukin ("Houlihan") will provide the
Company certain financial advisory services in connection with the Offering for
which the Company will pay Houlihan $250,000. The Company has agreed to
indemnify Houlihan against certain claims in connection with Houlihan's
provision of such services.

PRICE OF THE OFFERING

Prior to the Offering, there has been no public market for the Company's
Common Stock. The initial public offering price was negotiated between the
Company and the Representatives. Among the factors considered in determining the
initial public offering price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for growth
of the Company's revenue and earnings, the current state of the economy in the
United States and the current level of economic activity in the industry in
which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies which are comparable to the
Company.

The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "QADI." There can be no assurance that an active trading market
will develop for the Common Stock or that the Common Stock will trade in the
public market subsequent to the Offering or at or above the initial price to
public.

The Representatives have advised the Company that pursuant to Regulation M
under the Act, certain persons participating in the Offering may engage in
transactions, including stabilizing bids, syndicate covering transactions and
the imposition of penalty bids which may have the effect of stabilizing or
maintaining the market price of the Common Stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the Common Stock on behalf of the Underwriters to reduce a short
position incurred by the Underwriters in connection with the Offering. A
"penalty bid" is an arrangement permitting the Representatives to reclaim the
selling concession otherwise accruing to an Underwriter or syndicate member in
connection with the Offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction in stabilization. The Representatives have
advised the Company that such transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.

63
<PAGE>
LEGAL MATTERS

Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Milbank, Tweed, Hadley & McCloy, Los Angeles,
California, and Nida & Maloney, a Professional Corporation, Santa Barbara,
California. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation.

EXPERTS

The consolidated financial statements of QAD Inc. at January 31, 1996 and
January 31, 1997 and for each of the years ended December 31, 1994 and 1995, for
the one month period ended January 31, 1996 and for the year ended January 31,
1997 appearing in this Prospectus and the Registration Statement have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1 (Reg. No. 333-28441) (the "Registration Statement") under
the Act with respect to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the contents of any contract
or any other document are not necessarily complete, and, in each instance,
reference is made to the copy of such contract, or other document filed as an
exhibit to the Registration Statement. Each such statement is qualified in all
respects by such reference to such exhibit. A copy of the Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661 and Seven World Trade Center, 13th
Floor, New York, NY 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices after payment of fees prescribed by
the Commission. The Commission maintains a World Wide Web site (http://
www.sec.gov) that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.

64
<PAGE>

QAD INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report............................................................................... F-2

Consolidated Balance Sheets as of January 31, 1996 and 1997 and April 30, 1997 (unaudited)................. F-3

Consolidated Statements of Income for the years ended December 31, 1994 and 1995, the year ended January
31, 1997, the one month ended January 31, 1996 and the three month periods ended April 30, 1996 and 1997
(unaudited).............................................................................................. F-4

Consolidated Statement of Stockholders' Equity for the years ended December 31, 1994 and 1995, the one
month ended January 31, 1996, the year ended January 31, 1997 and quarter ended April 30, 1997
(unaudited).............................................................................................. F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995, the year ended
January 31, 1997, the one month ended January 31, 1996 and three month periods ended April 30, 1996 and
1997 (unaudited)......................................................................................... F-6

Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
QAD Inc.:

We have audited the accompanying consolidated balance sheets of QAD Inc. and
subsidiaries as of January 31, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended
January 31, 1997, December 31, 1995 and December 31, 1994 and the one month
ended January 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 principles 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of QAD Inc. and
subsidiaries as of January 31, 1997 and January 31, 1996 and the results of
their operations and their cash flows for the years ended January 31, 1997,
December 31, 1995 and December 31, 1994 and the one month ended January 31, 1996
in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Los Angeles, California
April 11, 1997

F-2
<PAGE>
QAD INC.
CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
----------- ----------- APRIL 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 1,463 $ 301 $ 1,306
Trade accounts receivable, net of allowances of $2,280, $3,694 and
$3,646 for January 31, 1996, 1997, and April 30, 1997, respectively... 35,236 46,745 43,854
Income tax receivable................................................... -- -- 166
Deferred income taxes................................................... 3,610 4,183 2,702
Other current assets.................................................... 1,741 2,112 4,172
----------- ----------- -----------

Total current assets.................................................. 42,050 53,341 52,200

Property and equipment, net............................................... 19,058 18,071 19,324
Other assets, net......................................................... 2,037 3,051 4,836
Deferred income taxes..................................................... 1,962 2,787 4,833
----------- ----------- -----------
Total assets........................................................ $ 65,107 $ 77,250 $ 81,193
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current installments of long-term debt................ $ 11,694 $ 8,465 $ 15,143
Accounts payable........................................................ 9,525 12,516 12,238
Accrued expenses........................................................ 5,489 9,626 6,875
Income taxes payable.................................................... 288 741 --
Deferred revenue and deposits........................................... 20,904 28,602 30,160
----------- ----------- -----------

Total current liabilities............................................. 47,900 59,950 64,416

Long-term debt, less current installments............................... 7,097 5,036 4,320
Deferred revenue - noncurrent........................................... 981 991 756
Other deferred liabilities.............................................. -- 379 641
Minority interest....................................................... 106 90 108
Stockholders' equity:
Preferred stock, Authorized 5,000,000 shares; none issued and
outstanding........................................................... -- -- --
Common stock, no par value. Authorized 150,000,000 shares; issued and
outstanding 20,978,754 shares at January 31, 1996, 22,218,572 shares
at January 31, 1997 and 22,524,234 shares at April 30, 1997........... 2,223 5,942 6,554
Retained earnings....................................................... 6,539 7,539 8,099
Receivable from stockholders............................................ (151) (197) (642)
Unearned compensation -- restricted stock............................... -- (2,129) (2,255)
Cumulative foreign currency translation adjustment...................... 412 (351) (804)
----------- ----------- -----------

Total stockholders' equity............................................ 9,023 10,804 10,952
----------- ----------- -----------
Total liabilities and stockholders' equity.......................... $ 65,107 $ 77,250 $ 81,193
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
QAD INC.
CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT FOR SHARE DATA)

Other (income) expense:
Interest income......................... (34) (38) (52) -- -- (48)
Interest expense........................ 462 825 1,657 126 429 435
Other................................... (99) 48 (797) (61) (146) (803)
------------ ------------ ----------- ----------- ------------- -------------
Total other (income) expense.......... 329 835 808 65 283 (416)
------------ ------------ ----------- ----------- ------------- -------------

Income (loss) before income taxes......... 3,755 (3,481) 1,514 (3,939) (10,483) 733
Income tax expense (benefit).............. 877 (2,795) 514 (1,078) (3,166) 173
------------ ------------ ----------- ----------- ------------- -------------
Net income (loss)......................... $ 2,878 $ (686) $ 1,000 $ (2,861) $ (7,317) $ 560
------------ ------------ ----------- ----------- ------------- -------------
------------ ------------ ----------- ----------- ------------- -------------
Net income (loss) per share............... $ 0.12 $ (0.03) $ 0.04 $ (0.13) $ (0.33) $ 0.02
------------ ------------ ----------- ----------- ------------- -------------
------------ ------------ ----------- ----------- ------------- -------------
Weighted average number of shares used in
computing net income (loss) per share.... 23,886,878 21,888,583 23,533,877 22,018,373 22,166,665 24,014,963
------------ ------------ ----------- ----------- ------------- -------------
------------ ------------ ----------- ----------- ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
QAD INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1994, DECEMBER 31, 1995, JANUARY 31, 1997,
ONE MONTH ENDED JANUARY 31, 1996 AND QUARTER ENDED APRIL 30, 1997

(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK RESTRICTED STOCK
------------------------ RETAINED RECEIVABLE FROM ---------------------
SHARES AMOUNT EARNINGS STOCKHOLDERS SHARES AMOUNT
----------- ----------- ----------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993............... 20,000,000 $ 30 $ 7,208 $ -- -- $ --
Common Stock Issued:
Under stock purchase plan.............. 813,864 1,812 -- -- -- --
Under stock options.................... -- -- -- -- -- --
Pursuant to performance awards......... 59,600 131 -- -- -- --
Common stock repurchases................. (68,606) (168) -- -- -- --
Translation adjustments.................. -- -- -- -- -- --
Net income (loss)........................ -- -- 2,878 -- -- --
----------- ----------- ----------- ----- ---------- ---------
Balance, December 31, 1994............... 20,804,858 1,805 10,086 -- -- --
Common Stock Issued:
Under stock purchase plan.............. 250,750 601 -- -- -- --
Under stock options.................... 1,024,000 74 -- -- -- --
Pursuant to performance awards......... 148,514 336 -- -- -- --
Tax benefit associated with stock option
exercise............................... -- -- -- -- -- --
Common stock repurchases................. (1,262,370) (624) -- -- -- --
Receivable from stockholders............. -- -- -- (151) -- --
Translation adjustments.................. -- -- -- -- -- --
Net income (loss)........................ -- -- (686) -- -- --
----------- ----------- ----------- ----- ---------- ---------
Balance, December 31, 1995............... 20,965,752 2,192 9,400 (151) -- --
Common Stock Issued:
Pursuant to performance awards......... 23,722 57 -- -- -- --
Common stock repurchases................. (10,720) (26) -- -- -- --
Translation adjustments.................. -- -- -- -- -- --
Net income (loss)........................ -- -- (2,861) -- -- --
----------- ----------- ----------- ----- ---------- ---------
Balance, January 31, 1996................ 20,978,754 2,223 6,539 (151) -- --
Common Stock Issued:
Under stock purchase plan.............. 793,438 1,411 -- -- -- --
Under stock options.................... 105,000 185 -- -- -- --
Pursuant to performance awards......... 108,062 256 -- -- -- --
Pursuant to restricted stock awards.... 559,066 2,584 -- -- (559,066) (2,584)
Common stock earned under restricted
stock awards......................... -- -- -- -- 149,954 455
Common stock repurchases................. (325,748) (717) -- -- -- --
Receivable from stockholders............. -- -- -- (46) -- --
Translation adjustments.................. -- -- -- -- -- --
Net income (loss)........................ -- -- 1,000 -- -- --
----------- ----------- ----------- ----- ---------- ---------
Balance, January 31, 1997................ 22,218,572 5,942 7,539 (197) (409,112) (2,129)
Common Stock Issued (unaudited):
Under stock purchase plan.............. 211,760 2,017 -- -- -- --
Under stock options.................... 299,000 709 -- -- -- --
Pursuant to performance awards......... 62,060 431 -- -- -- --
Pursuant to restricted stock awards.... 20,400 194 -- -- (20,400) (194)
Common stock earned under restricted
stock awards......................... -- -- -- -- 16,966 68
Common stock repurchases (unaudited)..... (287,558) (2,739) -- -- -- --
Receivable from stockholders
(unaudited)............................ -- -- -- (445) -- --
Translation adjustments (unaudited)...... -- -- -- -- -- --
Net income (loss) (unaudited)............ -- -- 560 -- -- --
----------- ----------- ----------- ----- ---------- ---------
Balance, April 30, 1997.................. 22,524,234 $ 6,554 $ 8,099 $ (642) (412,546) $ (2,255)
----------- ----------- ----------- ----- ---------- ---------
----------- ----------- ----------- ----- ---------- ---------

<CAPTION>
CUMULATIVE TOTAL
TRANSLATION STOCKHOLDERS'
ACCOUNT EQUITY
------------- -------------
<S> <C> <C>
Balance, December 31, 1993............... $ (140) $ 7,098
Common Stock Issued:
Under stock purchase plan.............. -- 1,812
Under stock options.................... -- --
Pursuant to performance awards......... -- 131
Common stock repurchases................. -- (168)
Translation adjustments.................. 242 242
Net income (loss)........................ -- 2,878
----- -------------
Balance, December 31, 1994............... 102 11,993
Common Stock Issued:
Under stock purchase plan.............. -- 601
Under stock options.................... -- 74
Pursuant to performance awards......... -- 336
Tax benefit associated with stock option
exercise............................... -- --
Common stock repurchases................. -- (624)
Receivable from stockholders............. -- (151)
Translation adjustments.................. 189 189
Net income (loss)........................ -- (686)
----- -------------
Balance, December 31, 1995............... 291 11,732
Common Stock Issued:
Pursuant to performance awards......... -- 57
Common stock repurchases................. -- (26)
Translation adjustments.................. 121 121
Net income (loss)........................ -- (2,861)
----- -------------
Balance, January 31, 1996................ 412 9,023
Common Stock Issued:
Under stock purchase plan.............. -- 1,411
Under stock options.................... -- 185
Pursuant to performance awards......... -- 256
Pursuant to restricted stock awards.... -- --
Common stock earned under restricted
stock awards......................... -- 455
Common stock repurchases................. -- (717)
Receivable from stockholders............. -- (46)
Translation adjustments.................. (763) (763)
Net income (loss)........................ -- 1,000
----- -------------
Balance, January 31, 1997................ (351) 10,804
Common Stock Issued (unaudited):
Under stock purchase plan.............. -- 2,017
Under stock options.................... -- 709
Pursuant to performance awards......... -- 431
Pursuant to restricted stock awards.... -- --
Common stock earned under restricted
stock awards......................... -- 68
Common stock repurchases (unaudited)..... -- (2,739)
Receivable from stockholders
(unaudited)............................ -- (445)
Translation adjustments (unaudited)...... (453) (453)
Net income (loss) (unaudited)............ -- 560
----- -------------
Balance, April 30, 1997.................. $ (804) $ 10,952
----- -------------
----- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
QAD INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, JANUARY 31,
1994 1995 1997 1996
------------ ------------ ----------- ----------- THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 2,878 $ (686) $ 1,000 $ (2,861) $ (7,317) $ 560
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........ 2,664 4,346 5,345 390 1,319 1,583
Provision for doubtful accounts and
sales returns...................... 1,333 945 3,432 (25) 701 585
Loss on disposal of equipment........ -- -- 25 -- -- (11)
Minority interest.................... -- -- (16) 106 (98) 18
Compensation expense pursuant to
stock repurchase................... -- 2,408 -- -- -- --
Compensation expense pursuant to
stock awards....................... 131 336 1,044 57 156 755
Changes in assets and liabilities:
(Increase) decrease in assets:
Trade accounts receivable.......... (8,886) (15,103) (14,941) 5,444 8,180 2,306
Income tax receivable.............. -- (231) -- 231 -- (166)
Deferred income taxes.............. (1,306) (3,780) (1,398) (1,781) (3,576) (565)
Other assets....................... (1,389) (1,929) (2,408) (15) (1,646) (4,221)
Increase (decrease) in liabilities:
Accounts payable................... 3,209 6,283 2,991 (2,816) 2,761 (278)
Accrued expenses................... 1,500 2,236 4,137 (607) (438) (2,751)
Income taxes payable............... 572 (1,192) 453 288 (197) (741)
Deferred revenue and deposits...... 3,340 10,459 7,708 539 229 1,323
Other deferred liabilities......... -- -- 46 -- 19 6
Foreign currency translation
adjustment....................... 242 189 (763) 121 (104) (453)
------------ ------------ ----------- ----------- ------------- -------------
Net cash provided by (used in)
operating activities......... 4,288 4,281 6,655 (929) (11) (2,050)
------------ ------------ ----------- ----------- ------------- -------------
Cash flows from investing activities:
Additions to land and buildings........ (5,819) (2,341) (435) (206) (21) (69)
Purchase of property and equipment (4,028) (7,243) (3,008) (735) (1,153) (2,400)
Proceeds from disposition of property
and equipment........................ 11 117 83 -- -- 20
------------ ------------ ----------- ----------- ------------- -------------
Net cash used in investing
activities................... (9,836) (9,467) (3,360) (941) (1,174) (2,449)
------------ ------------ ----------- ----------- ------------- -------------
</TABLE>

(Continued)

F-6
<PAGE>
QAD INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
ONE MONTH THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, JANUARY 31, APRIL 30, APRIL 30,
1994 1995 1997 1996 1996 1997
------------ ------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from financing activities:
Proceeds from notes payable and
long-term debt....................... $ 22,019 $ 24,654 $ 84,841 $ 4,254 $ 11,365 $ 32,980
Reduction of notes payable and long-
term debt............................ (17,822) (19,555) (90,131) (2,414) (10,252) (27,018)
Issuance of common stock for cash...... 1,812 675 1,596 -- -- 2,726
Repurchase of common stock............. (168) (624) (717) (26) (85) (2,739)
Receivable from stockholders........... -- (151) (46) -- -- (445)
------------ ------------ ----------- ----------- ------------- -------------
Net cash provided by (used in)
financing activities............... 5,841 4,999 (4,457) 1,814 1,028 5,504
------------ ------------ ----------- ----------- ------------- -------------
Net increase (decrease) in cash...... 293 (187) (1,162) (56) (157) 1,005

Cash at beginning of period............ 1,413 1,706 1,463 1,519 1,463 301
------------ ------------ ----------- ----------- ------------- -------------
Cash at end of period.................. $ 1,706 $ 1,519 $ 301 $ 1,463 $ 1,306 $ 1,306
------------ ------------ ----------- ----------- ------------- -------------
------------ ------------ ----------- ----------- ------------- -------------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest............................. $ 462 $ 824 $ 1,553 $ 99 $ 345 $ 351
Income taxes......................... $ 876 $ 1,087 $ 707 $ 6 $ 508 $ 1,766
------------ ------------ ----------- ----------- ------------- -------------
------------ ------------ ----------- ----------- ------------- -------------
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

During calendar 1994 and 1995, fiscal year ended January 31, 1997 and the one
month ended January 31, 1996, the Company acquired property and equipment under
capital lease obligations aggregating $1,863,517, $1,081,087, $97,200 and
$79,263, respectively.

During calendar 1995, the Company issued a note payable in the amount of
$2,407,788 in connection with the repurchase of common shares.

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

The Company is a leading provider of Enterprise Resource Planning software
for multinational and other large manufacturing companies. The Company's
software solutions are designed to facilitate global management of resources and
information to allow manufacturers to reduce order fulfillment cycle times and
inventories, improve operating efficiencies and measure critical company
performance criteria against defined business plan objectives. The flexibility
of the Company's products also helps manufacturers adapt to growth,
organizational change, business process reengineering, supply chain management
and other challenges.

Effective February 1, 1996, the Company determined that it would change its
reporting period from years ending December 31 to fiscal years ending January
31. Accordingly, the accompanying statements of income, stockholders' equity and
cash flows include results for the one month transition period ending January
31, 1996.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
QAD Inc. and its majority-owned subsidiaries. The Company also has various
branch offices worldwide. All intercompany accounts and transactions have been
eliminated in consolidation.

INTERIM FINANCIAL INFORMATION

The financial statements as of April 30, 1997 and for the three months ended
April 30, 1996 and 1997 are unaudited but reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of financial position and results of
operations. Operating results for the three months ended April 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 1998.

CONCENTRATIONS OF CREDIT RISK

Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base, and
their dispersion across many different industries and geographic locations
throughout the world. At January 31, 1997 and April 30, 1997, one customer had
an outstanding receivable that constituted 12% and 7% of the Company's net trade
accounts receivable, respectively. There were no other concentrations of such
credit risk for the periods presented.

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 disclosures
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

F-8
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

The Company's principal source of software license fee revenue is derived
from licensing MFG/PRO software. Revenues from maintenance and other activities
are generated from maintenance support services, training and consulting and are
billed separately from license revenues. Revenues from software license
agreements, including licenses sold through distributors, are recognized at the
time of shipment, net of any applicable distributor discount, provided there are
no remaining significant obligations to be fulfilled by the Company and
collectibility is probable within a 12-month period from date of shipment. Where
distributors have reproduction rights, revenue is recognized upon notification
of shipment by the distributor. Typically, the Company's software licenses do
not include significant vendor obligations. Where license contracts call for
payment terms in excess of 12 months from date of shipment, revenue is
recognized as payments become due. Maintenance revenues for ongoing customer
support and product updates are recognized ratably over the term of the
maintenance period, which is generally 12 months. Training and consulting
revenues are recognized as the services are performed. Returns and allowances
are estimated and provided for in the period of sale.

Revenue on all sales in which there are outstanding obligations to provide
resources over a period of time, as a component of the sale, is deferred and
recognized as services are provided on a percentage of completion basis. At
December 31, 1995, and January 31, 1997 $2,261,000 and $811,000, respectively,
of revenue, net of related expenses, had been deferred until future periods for
recognition as services are provided. Further, the Company recognizes revenue
consistent with customer payment terms on all sales where extended payment terms
beyond one year are granted. At January 31, 1997, sales contracts totalling
$4,259,000 having payment terms through January 31, 2000 were deferred, to be
recognized as payments become due.

DEPRECIATION AND AMORTIZATION

Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the related assets. Asset lives range
from three to seven years. Leasehold improvements are amortized on a
straight-line basis over the term of the lease or the life of the related
improvements, whichever is shorter.

COMPUTER SOFTWARE COSTS

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," issued by the Financial Accounting Standards Board, the Company
capitalizes software development costs incurred in connection with the
translation of its products into foreign languages once technological
feasibility has been achieved. Capitalized development costs are amortized on a
straight-line basis over three years and charged to cost of revenues. All other
development costs are expensed to research and development as incurred.

F-9
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCRUED EXPENSES

Accrued expenses are as follows:

<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1996 1997
--------- --------- APRIL 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll.................................................................. $ 4,982 $ 7,611 $ 5,505
Accrued other.................................................................... 507 2,015 1,370
--------- --------- -----------
$ 5,489 $ 9,626 $ 6,875
--------- --------- -----------
--------- --------- -----------
</TABLE>

INCOME TAXES

The Company provides for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
employs an asset and liability approach in accounting for income taxes payable
or refundable at the date of the financial statements as a result of all events
that have been recognized in the financial statements and as measured by the
provisions of enacted laws.

COMPUTATION OF NET INCOME (LOSS) PER SHARE

Net income (loss) per share has been computed using the weighted average
number of shares of common stock and common stock equivalents outstanding using
the treasury-stock method summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH
DECEMBER 31, YEAR ENDED ENDED
-------------------- JANUARY 31, JANUARY 31,
1994 1995 1997 1996
--------- --------- ----------- ----------- THREE MONTHS ENDED
APRIL 30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares of common
stock and common stock equivalents
outstanding........................ 23,098,539 21,100,244 22,745,538 21,230,034 21,378,326 23,226,624
Weighted average shares of common
stock and common stock equivalents
issued or to be issued during the
12 months preceding the initial
public offering.................... 788,339 788,339 788,339 788,339 788,339 788,339
--------- --------- ----------- ----------- ----------- -----------
Shares used in income (loss) per
share calculation.................. 23,886,878 21,888,583 23,533,877 22,018,373 22,166,665 24,014,963
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
</TABLE>

Pursuant to the requirements of the Securities and Exchange Commission,
common stock and common stock options issued by the Company during the 12 months
immediately preceding an initial public offering are included in the calculation
of the weighted average shares outstanding for all periods presented using the
treasury-stock method, based on the estimated offering price, for stock options.
The impact of incremental shares arising from options granted within one year of
the initial public offering is included for all periods, including loss periods
where the effect on loss per share is anti-dilutive. Accordingly, weighted
average shares of common stock and common stock equivalents outstanding include

F-10
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

788,339 shares as a result of common stock and stock options issued within 12
months of the initial public offering and are shown as outstanding for all
periods presented, including loss periods.

Stock options issued more than 12 months before the initial public offering
date are excluded from the computation for loss periods as their inclusion would
be anti-dilutive.

FOREIGN CURRENCY TRANSLATION

The functional currency of each foreign subsidiary is its own local
currency. Accordingly, in consolidation, assets and liabilities are translated
to U.S. dollars at the exchange rate on the balance sheet date. Resulting
translation adjustments are accumulated as a separate component of stockholders'
equity. Revenues, costs and expenses are translated at average rates for each
month. (Gains) and losses from foreign currency transactions are reflected in
net earnings in the year incurred, classified as "other income expense," and
totaled approximately $343,000, $477,000, $(407,000) and $(34,000) for the years
ended December 31, 1994, December 31, 1995 and January 31, 1997 and the one
month period ended January 31, 1996, respectively. For the three month period
ended April 30, 1997, foreign currency transaction gains included in other
income totalled $430,000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the following financial instruments approximate fair
value because of the short maturity of those instruments: accounts receivable,
prepaid expenses and other current assets, accounts payable, accrued expenses,
deferred revenue and deposits.

The carrying value of the Company's obligations under capital leases, notes
payable and long-term debt approximates fair value and was estimated by
discounting the future cash flows of the capital leases, notes payable and
long-term debt at rates currently offered to the Company for similar capital
leases, notes payable and long-term debt of comparable maturities by the
Company's bankers.

LONG-LIVED ASSETS

The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," during 1995. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted operating
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Adoption of this statement did not have a material impact on the Company's
financial position, results of operations or liquidity.

ACCOUNTING FOR STOCK OPTIONS

Prior to January 1, 1996, the Company accounted for its stock option grants
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of

F-11
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995, 1996 and future years as if the fair value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 specifies new standards designed to improve
the earnings per share ("EPS") information provided in financial statements by
simplifying the existing computational guidelines, `revising the disclosure
requirements and increasing the comparability of EPS data on an international
basis. Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision and (c) revising the
contingent share provision and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not determined the
impact of the implementation of SFAS No. 128.

F-12
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

2. PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
----------- ----------- APRIL 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Land and buildings.................................... $ 8,367 $ 8,802 $ 8,871
Automobiles........................................... 75 71 93
Computer equipment and software....................... 10,628 12,306 14,833
Furniture and office equipment........................ 5,278 6,160 6,403
Leasehold improvements................................ 872 1,032 1,349
Equipment under capital lease......................... 1,884 1,921 1,070
----------- ----------- -----------
27,104 30,292 32,619
Less accumulated depreciation and amortization, which
includes $650, $1,217 and $469 for January 31, 1996,
January 31, 1997 and April 30, 1997, respectively,
for equipment under capital leases.................. (8,046) (12,221) (13,295)
----------- ----------- -----------
Net property and equipment........................ $ 19,058 $ 18,071 $ 19,324
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

Included in land and buildings is capitalized interest aggregating $290,000,
$329,000 and $329,000 as of January 31, 1996, January 31, 1997 and April 30,
1997, respectively.

3. OTHER ASSETS

Other assets at January 31, 1996, January 31, 1997 and April 30, 1997
include capitalized software development costs of $858,000, $1,065,000 and
$1,218,000 (net of $1,671,000, $2,341,000 and $2,511,000 of accumulated
amortization), respectively. Amortization of these costs totaled $550,000,
$694,000, $671,000 and $61,000 during the years ended December 31, 1994,
December 31, 1995 and January 31, 1997 and one month ended January 31, 1996,
respectively. For the interim periods ended April 30, 1996 and 1997, such costs
aggregated $168,000 and $172,000, respectively. Amortization costs are included
in cost of revenues. Software development costs incurred prior to achieving
technological feasibility are expensed as incurred as research and development.
Such costs aggregated $10,618,000, $17,037,000, $25,623,000 and $1,547,000 for
the years ended December 31, 1994, December 31, 1995 and January 31, 1997 and
one month ended January 31, 1996, respectively. For the interim periods ended
April 30, 1996 and 1997, such costs aggregated $5,921,000 and $6,171,000,
respectively.

F-13
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

4. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt are summarized as follows (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
----------- ----------- APRIL 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Advances under a $16,000,000 revolving credit agreement with a bank,
secured by substantially all assets and guarantees of certain
stockholders, bearing interest at the highest LIBOR for the period (5.49%
at January 31, 1997) plus 4.875% per annum, expiring July 1997........... $ -- $ 4,349 $ 11,265
Advances under a $15,000,000 line of credit agreement with a bank, secured
by accounts receivable and guarantees of certain stockholders, bearing
interest at the prime rate (8.5% at January 31, 1996) plus .85% per
annum, expiring June 1996................................................ 5,525 -- --
Term notes payable, secured by property and equipment, payable in monthly
installments ranging from $6,276 to $41,667, at interest rates ranging
from 8.29% to 10.365% per annum, expiring from June 1997 to December
1999..................................................................... 5,510 5,258 4,429
Note payable under term portion of credit agreement, secured by real
estate, principal payable commencing August 1996 in monthly installments
of $66,666 plus interest at the highest LIBOR during the month (5.49% at
January 31, 1997) plus 4.875% per annum (to be no less than 8% per
annum), through July 2001................................................ -- 3,600 3,400
Notes payable, secured by real estate, payable in monthly installments
ranging from $10,194 to $30,783, at interest rates ranging from 9.0% to
9.85% per annum, expiring from October 1997 to July 2004................. 4,300 -- --
Term note payable, net of unamortized discount of $91,931 at 9.35% per
annum, unsecured, payable $848,750 on February 29, 1996, $628,750 on May
31, 1996, $628,750 on August 31, 1996 and $408,750 on November 30,
1996..................................................................... 2,423 -- --
Note payable, secured by leasehold improvements, payable in monthly
installments of $681 through February 1998............................... 17 9 7
Capital lease obligations.................................................. 1,016 285 362
----------- ----------- -----------
18,791 13,501 19,463
Less current installments.................................................. (11,694) (8,465) (15,143)
----------- ----------- -----------
$ 7,097 $ 5,036 $ 4,320
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The Company's revolving credit agreement expires on July 31, 1997, subject
to automatic successive one-year extensions if not terminated by the Company or
the lender 90 days prior to the expiration date. The maximum available amount of
borrowings under the revolving credit agreement is equal to the lesser of $20
million or the sum of a percentage of the Company's accounts receivable, $4
million of which may

F-14
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

4. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
be used only for loans secured by real estate owned by the Company. The total
amount of available borrowings under the revolving credit agreement at April 30,
1997 was approximately $20 million. Borrowings under the revolving credit
agreement bear interest, calculated monthly, at an annual rate equal to the
highest LIBOR rate in effect during the month plus 4.875% but in no event less
than 8%. Minimum monthly interest charges are $20,000 (resulting in a rate of
10.565% at April 30, 1997). The Company's revolving credit agreement is
collateralized by a security interest in substantially all of the Company's
assets.

At January 31, 1997, future minimum principal payments of notes payable and
long-term debt are as follows (in thousands):

<TABLE>
<S> <C>
Year ending January 31:
1998....................... $ 8,465
1999....................... 2,615
2000....................... 1,221
2001....................... 800
2002....................... 400
---------
$ 13,501
---------
---------
</TABLE>

5. DEFERRED REVENUE

The Company bills for ongoing maintenance and post-sale customer support
separately from sales of products and records such amounts as deferred revenue
when billed. Deferred revenue aggregated $21,228,000, $29,125,000 and
$30,228,000 at January 31, 1996, January 31, 1997 and April 30, 1997,
respectively. Revenue under maintenance contracts is recognized ratably over the
term of the contract which is typically 12 months.

F-15
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

6. INCOME TAXES

Components of income tax expense (benefit) are as follows (in thousands):

<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, JANUARY 31,
1994 1995 1997 1996
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................................................. $ 943 $ 371 $ 672 $ (1,402)
State................................................... 313 110 (63) (203)
Foreign................................................. 264 503 227 890
------ ------------ ----- -----------
Total............................................. 1,520 984 836 (715)
------ ------------ ----- -----------
Deferred:
Federal................................................. (562) (1,946) (94) 80
State................................................... (81) (290) (10) 9
Foreign................................................. -- (1,543) (218) (452)
------ ------------ ----- -----------
Total............................................. (643) (3,779) (322) (363)
------ ------------ ----- -----------
$ 877 $ (2,795) $ 514 $ (1,078)
------ ------------ ----- -----------
------ ------------ ----- -----------
</TABLE>

Statement of Financial Accounting Standards No. 109 requires companies to
record deferred tax assets for the benefit to be derived from deductible
temporary differences, net of appropriate valuation reserves to reflect
management estimates of realizability of such deferred tax assets. The tax
effects of

F-16
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

6. INCOME TAXES (CONTINUED)
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below (in thousands):

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts............................................................... $ 759 $ 1,387
Accrued vacation...................................................................... 611 524
Alternative minimum tax............................................................... 187 98
Research and development.............................................................. 914 1,217
Foreign tax credits................................................................... -- 778
Long term contract.................................................................... 859 328
Net operating loss carryforwards...................................................... 4,044 5,054
Other................................................................................. 12 34
----------- -----------
7,386 9,420
Less valuation allowance.............................................................. (1,163) (2,081)
----------- -----------
Net deferred tax assets............................................................... 6,223 7,339
Less current portion (net of $95 and $633 valuation allowance, respectively).......... (4,103) (4,655)
----------- -----------
Long-term net deferred tax assets (net of $1,068 and $1,448 valuation allowance,
respectively)..................................................................... $ 2,120 $ 2,684
----------- -----------
----------- -----------
Deferred tax liabilities:
Capitalized translation costs......................................................... $ 343 $ 355
Foreign sales corporation............................................................. 85 --
State income taxes.................................................................... 52 119
Other................................................................................. 13 (2)
Depreciation and amortization......................................................... 158 (103)
----------- -----------
651 369
Less current portion.................................................................. (493) (472)
----------- -----------
Long-term deferred tax liabilities.................................................. $ 158 $ (103)
----------- -----------
----------- -----------
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.

For U.S. tax purposes, management has determined that the realization of
recorded deferred tax assets arising in the United States is reasonably assured,
and accordingly, no valuation allowance has been recorded on such items. With
available tax planning strategies and projections of future income over the
periods in which the foreign deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize a portion of
the benefits of these deductible differences on tax returns

F-17
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

6. INCOME TAXES (CONTINUED)
filed in foreign jurisdictions. However, there can be no assurance that any
taxable income will be generated in the respective foreign jurisdictions.

The Company's net operating loss carryforward benefits aggregating $5.1
million at January 31, 1997 arise principally from losses incurred by foreign
subsidiaries and expire commencing in 2001.

At January 31, 1996 and January 31, 1997, the valuation allowance
attributable to deferred tax assets was $1,163,000 and $2,081,000, respectively,
an overall increase of $918,000.

Actual income tax expense (benefit) differs from that obtained by applying
the statutory Federal income tax rate to earnings before income taxes as follows
(in thousands):

<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, JANUARY 31,
1994 1995 1997 1996
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Computed expected tax expense (benefit)................... $ 1,277 $ (1,183) $ 515 $ (1,339)
State income taxes, net of Federal income tax benefit..... 153 (209) 91 (236)
Tax expense from foreign operations....................... 385 -- 117 649
Alternative minimum tax ("AMT")........................... -- 182 -- --
Net change in deferred tax assets and liabilities......... (643) (1,856) 918 (87)
Meals and entertainment................................... 232 279 286 9
Foreign sales corporation................................. 242 1,341 (539) --
Research, AMT and foreign tax credits..................... (747) (1,386) (1,208) (174)
Additional liability provided............................. -- -- 350 94
Other..................................................... (22) 37 (16) 6
------ ------------ ----------- -----------
$ 877 $ (2,795) $ 514 $ (1,078)
------ ------------ ----------- -----------
------ ------------ ----------- -----------
</TABLE>

7. 401(K) PLAN

The Company has a defined contribution 401(k) plan which is available to
U.S. employees after 30 days of employment. Employees may contribute up to the
maximum allowable by the Internal Revenue Code. The Company may make additional
contributions at the discretion of the Board of Directors. Participants are
immediately vested in their employee contributions. Employer contributions vest
over a five-year period. The employer contributions for the years ended December
31, 1994, December 31, 1995 and January 31, 1997 were $391,000, $101,000 and
$422,000, respectively, which are included in general and administrative
expenses in the accompanying consolidated statements of income.

F-18
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES

The Company finances equipment under capital leases and leases office
facilities under operating lease agreements expiring through 2002. The present
value of future minimum capital lease payments and future minimum lease payments
under noncancelable operating leases is as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES LEASES
----------------- -----------
<S> <C> <C>
Year ending January 31:
1998............................................................... $ 259 $ 4,730
1999............................................................... 40 3,533
2000............................................................... 3 2,450
2001............................................................... -- 1,209
2002............................................................... -- 700
----- -----------
Total minimum lease payments................................. 302 $ 12,622
-----------
-----------
Less amount representing interest at rates ranging from 11% to
14.5%............................................................ (17)
-----
Present value of minimum lease payments...................... $ 285
-----
-----
</TABLE>

Total rent expense for the years ended December 31, 1994, December 31, 1995
and January 31, 1997 and one month ended January 31, 1996 aggregated $3,056,000,
$4,981,000, $5,929,000 and $457,000, respectively.

9. GEOGRAPHIC INFORMATION

The following table shows revenues, operating income (loss) and identifiable
assets by geographic segment (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31,
1994 1995 1997
------------- ------------- -----------
<S> <C> <C> <C>
Revenue:
U.S................................................. $ 36,380 $ 49,955 $ 73,519
Europe.............................................. 18,469 24,619 32,725
Asia/Pacific........................................ 9,320 12,354 15,543
Other............................................... 2,191 3,021 4,657
------------- ------------- -----------
$ 66,360 $ 89,949 $ 126,444
------------- ------------- -----------
------------- ------------- -----------
Operating income (loss):
U.S................................................. $ 5,014 $ 1,094 $ 6,441
Europe.............................................. (341) 1,251 341
Asia/Pacific........................................ (1,142) (5,621) (5,691)
Other............................................... 553 630 1,231
------------- ------------- -----------
$ 4,084 $ (2,646) $ 2,322
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
--------------- ---------------
<S> <C> <C>
Identifiable assets:
U.S........................................................ $ 46,959 $ 36,661
Europe..................................................... 18,691 17,603
Asia/Pacific............................................... 9,226 9,429
Other...................................................... 2,374 1,414
------- -------
$ 77,250 $ 65,107
------- -------
------- -------
</TABLE>

F-19
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

10. EMPLOYEE STOCK OPTION, PURCHASE PLANS AND RESTRICTED STOCK AWARDS

EMPLOYEE STOCK OPTION AGREEMENTS

The Company has stock option agreements with certain key employees. As of
January 31, 1997 and April 30, 1997, options to purchase 1,121,000 and 1,061,000
shares of common stock had been granted and were outstanding. Outstanding
options generally vest over a five-year period and have contractual lives of 10
years. Transactions in stock options are summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED OPTIONS
SHARES AVERAGE PRICE EXERCISABLE
------------ ------------- ----------
<S> <C> <C> <C>
Outstanding options at December 31, 1993...................... 2,350,000 $ 0.18 1,904,000

Options issued................................................ --
Options exercised............................................. --
Options expired and terminated................................ --
------------
Outstanding options at December 31, 1994...................... 2,350,000 0.18 2,114,000

Options issued................................................ --
Options exercised............................................. (1,024,000) 0.02
Options expired and terminated................................ --
------------
Outstanding options at December 31, 1995...................... 1,326,000 0.31 1,240,000

Options issued................................................ --
Options exercised............................................. --
Options expired and terminated................................ --
------------
Outstanding options at January 31, 1996....................... 1,326,000 0.31 1,240,000

Options issued................................................ --
Options exercised............................................. (105,000) 0.40
Options expired and terminated................................ (100,000) 1.61
------------
Outstanding options at January 31, 1997....................... 1,121,000 0.18 1,121,000

Options issued................................................ 239,000 11.55
Options exercised............................................. (299,000) 0.21
Options expired and terminated................................ --
------------
Outstanding options at April 30, 1997......................... 1,061,000 $ 2.73 822,000
------------
------------
</TABLE>

F-20
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

10. EMPLOYEE STOCK OPTION, PURCHASE PLANS AND RESTRICTED STOCK AWARDS
(CONTINUED)

The weighted average remaining contractual life of stock options outstanding
as of April 30, 1997 was as follows:

<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
NUMBER OF OPTIONS WEIGHTED-AVERAGE ------------------------------
OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES APRIL 30, 1997 LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------------------- ------------------ --------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.12..................... 225,000 2.8 $ 0.12 225,000 $ 0.12
0.19..................... 577,000 3.3 0.19 577,000 0.19
0.39..................... 20,000 4.6 0.39 20,000 0.39
9.52 to 13.00............ 239,000 9.8 11.55 -- --
--
---------- ------ ----------- -----
Total................... 1,061,000 4.7 2.73 822,000 $ 0.17
--
--
---------- ------ ----------- -----
---------- ------ ----------- -----
</TABLE>

The Company applies APB Opinion No. 25 in accounting for its option plans
and, accordingly, no compensation cost was recognized as the exercise price of
the stock options equalled the fair value at the grant date. The pro forma
impact of applying SFAS No. 123 is not presented for the years ended December
31, 1995 and January 31, 1997 as SFAS 123 is applicable only to options granted
during fiscal 1995 and later, and all options outstanding as of January 31, 1997
were granted prior to 1995.

During 1995, the Company repurchased 1,000,000 shares issued to an employee
immediately upon exercise of stock options. Accordingly, the Company recorded
compensation expense of $2,408,000 in the accompanying consolidated financial
statements for the year ended December 31, 1995. Additionally, during the year
ended January 31, 1997 certain employees holding vested options with respect to
70,000 shares at an average of $0.27 per share noticed their intention to
terminate employment. The Company determined that it would reacquire the shares
which would be issued to the employees. Accordingly, $648,000 of compensation
expense representing the difference between exercise price and acquisition cost,
has been accrued as compensation expense at January 31, 1997.

1994 STOCK OWNERSHIP PROGRAM

The Company has also established the QAD Inc. 1994 Stock Ownership Program
(the "Plan") covering 4,800,000 shares of its common stock. Subject to certain
limitations, the Plan allows eligible employees to purchase shares of common
stock at the fair market value of the common stock by direct cash payment or at
95% of the fair market value through payroll deduction. The Company has the
right, but not the obligation, to repurchase shares at fair value upon the
termination of employment. During the years ended December 31, 1994, December
31, 1995, and January 31, 1997 and the three months ended April 30, 1997,
813,864, 250,750, 793,438 and 211,760 shares, respectively, were issued under
the Plan at average prices of $2.23, $2.40, $1.78 and $9.53, respectively. No
shares were issued under the Plan in January 1996.

During the year ended January 31, 1997 and the three months ended April 30,
1997, respectively, 559,066 and 20,400 restricted shares of the Company's common
stock were granted to certain employees. The fair market value of shares awarded
was $2,584,000 and $194,000, respectively. These amounts were recorded as
unearned compensation--restricted stock, shown as a separate component of
stockholders' equity. Unearned compensation is being amortized to expense over
the periods in which the restrictions

F-21
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

10. EMPLOYEE STOCK OPTION, PURCHASE PLANS AND RESTRICTED STOCK AWARDS
(CONTINUED)
lapse, generally one to three years from date of award. Such expenses amounted
to $788,000 and $324,000 in the year ended January 31, 1997 and the three months
ended April 30, 1997, respectively, $333,000 and $256,000 of which is included
in accrued compensation, respectively, and $455,000 and $68,000 of which has
been recorded as a reduction in unearned compensation--restricted stock as the
restricted shares are issued to employees.

During the years ended December 31, 1994, December 31, 1995 and January 31,
1997, and one month ended January 31, 1996, the Company granted 59,600, 148,600,
108,000 and 24,000 unrestricted shares, respectively, to certain employees
having a fair value of $131,000, $336,000, $256,000 and $57,000 at date of
grant, respectively. Compensation expense has been recognized in each respective
period for the fair value of such stock grants. Unrestricted stock grants
aggregating 62,000 shares in the three months ended April 30, 1997 with a value
of $431,000 are included under costs and expenses for the period.

1997 STOCK INCENTIVE PROGRAM (UNAUDITED)

The Company intends to adopt the 1997 Stock Incentive Program (the
"Program"). The Program consists of seven parts:

The first part is the Incentive Stock Option Plan under which are granted
incentive stock options. The second part is the NonQualified Stock Option Plan
under which are granted nonqualified stock options. The third part is the
Restricted Share Plan under which are granted restricted shares of Common Stock.
The fourth part is the Employee Stock Purchase Plan. The fifth part is the
Non-Employee Director Stock Option Plan under which grants of options to
purchase shares of Common Stock may be made to non-employee directors of the
Company. The sixth part is the Stock Appreciation Rights Plan under which SARs
(as defined therein) are granted. The seventh part is the Other Stock Rights
Plan under which (i) units representing the equivalent shares of Common Stock
are granted; (ii) payments of compensation in the form of shares of Common Stock
are granted; and (iii) rights to receive cash or shares of Common Stock based on
the value of dividends paid with respect to a share of Common Stock are granted.
The maximum aggregate number of shares of Common Stock subject to the Program is
4,000,000 shares. The Program will be valid for 10 years from the date of
adoption.

TOTAL COMPENSATION COST RECOGNIZED FOR STOCK-BASED COMPENSATION PLANS

Total compensation cost recognized for stock-based employee compensation
awards was as follows:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
---------------------------------------- ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, APRIL 30,
1994 1995 1997 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Pursuant to performance awards......................... $ 131,000 $ 336,000 $ 256,000 $ 431,000
Pursuant to restricted stock grants.................... -- -- 788,000 324,000
Pursuant to optioned shares repurchased immediately
upon exercise......................................... -- 2,408,000 648,000 --
------------ ------------ ------------ -------------
Total................................................ $ 131,000 $2,744,000 $ 1,692,000 $ 755,000
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>

F-22
<PAGE>

QAD INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE THREE MONTHS ENDED
APRIL 30, 1996 AND APRIL 30, 1997 IS UNAUDITED)

10. EMPLOYEE STOCK OPTION, PURCHASE PLANS AND RESTRICTED STOCK AWARDS
(CONTINUED)

During the one month-period ended January 31, 1996 compensation cost
aggregating $57,000 was recognized pursuant to stock performance awards.

RECEIVABLE FROM STOCKHOLDERS

In connection with the 1994 Stock Ownership Program, the Company has
guaranteed indebtedness incurred by certain stockholders to purchase shares with
cash deposited with a lending institution. These amounts are classified as
"Receivable from Stockholders" in the accompanying balance sheets.

11. INVESTMENT

In March 1997, the Company acquired an interest in a high technology company
for an aggregate purchase price of $1.0 million, $400,000 of which had been
advanced at January 31, 1997. The Company has an option to acquire an additional
interest in the business for an aggregate purchase price of $2.0 million, which
option expires no later than September 15, 1997. Should the option be exercised,
the Company will own a 33% interest in the enterprise.

12. SUBSEQUENT EVENT AND PLANNED STOCK SPLIT

Subsequent to January 31, 1997 the Company began efforts to complete an
offering of shares to the public through the filing of a Form S-1 Registration
Statement with the Securities and Exchange Commission. In connection with the
planned public offering, the board of directors has resolved to reincorporate in
the State of Delaware prior to completion of the offering and, further, resolved
to increase the number of authorized shares and split its common shares in a
2-for-1 stock split.

For financial reporting purposes, the stock split has been given effect in
the accompanying consolidated financial statements for all periods presented.

F-23
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY
OF THE U.S. UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 5
Use of Proceeds................................. 20
Dividend Policy................................. 20
Capitalization.................................. 21
Dilution........................................ 22
Selected Consolidated Financial Data............ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business........................................ 35
Management...................................... 48
Certain Transactions............................ 53
Principal Stockholders.......................... 53
Description of Capital Stock.................... 54
Shares Eligible for Future Sale................. 57
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders.............................. 59
Underwriting.................................... 61
Legal Matters................................... 64
Experts......................................... 64
Additional Information.......................... 64
Index to Consolidated Financial Statements...... F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

5,750,000 SHARES

[LOGO]

COMMON STOCK

---------

P R O S P E C T U S

, 1997

---------

SMITH BARNEY INC.
COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 10, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
P R O S P E C T U S

5,750,000 SHARES

[LOGO]

COMMON STOCK

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

All of the shares of Common Stock offered hereby are being sold by QAD Inc.
("QAD" or the "Company"). Of the 5,750,000 shares of Common Stock offered
hereby, 1,150,000 shares are being offered in an international offering outside
the United States and Canada by the Managers (as defined herein) and 4,600,000
shares are being offered for sale in a concurrent offering in the United States
and Canada by the U.S. Underwriters (as defined herein) (collectively, the
"Offering").

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

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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

<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
Per Share $ $ $
Total (3) $ $ $
</TABLE>

(1) For information regarding indemnification of the Managers and the U.S.
Underwriters, see "Underwriting."

(2) Before deducting estimated offering expenses of $1,800,000, payable by the
Company.

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

The shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1997, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.

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

SMITH BARNEY INC.
COWEN & COMPANY

ROBERTSON, STEPHENS & COMPANY

, 1997
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY ANY OF THE MANAGERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
Use of Proceeds................................ 20
Dividend Policy................................ 20
Capitalization................................. 21
Dilution....................................... 22
Selected Consolidated Financial Data........... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 35
Management..................................... 48
Certain Transactions........................... 53
Principal Stockholders......................... 53
Description of Capital Stock................... 54
Shares Eligible for Future Sale................ 57
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders............................. 59
Underwriting................................... 61
Legal Matters.................................. 64
Experts........................................ 64
Additional Information......................... 64
Index to Consolidated Financial Statements..... F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS MANAGERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

5,750,000 SHARES

[LOGO]

COMMON STOCK

---------

P R O S P E C T U S

, 1997

---------

SMITH BARNEY INC.
COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following sets forth the estimated expenses of this offering (other than
the underwriting discounts and commissions), all of which will be borne by the
Registrant.

<TABLE>
<S> <C>
Registration Fee................................................ $ 28,054
NASD Filing Fee................................................. 9,758
Nasdaq Stock Market Listing Fees................................ 50,000
Printing and Engraving Expenses................................. 150,000
Blue Sky Fees and Expenses (including counsel fees)............. 5,000
Legal Fees and Expenses......................................... 600,000
Consulting Fees................................................. 250,000
Accounting Fees and Expenses.................................... 175,000
Transfer Agent and Registrar Fees............................... 4,500
Directors and Officers' Insurance............................... 400,000
Miscellaneous................................................... 127,688
---------
Total $1,800,000
---------
---------
</TABLE>

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

* All amounts are estimated except for the Registration Fee, the NASD Filing
Fee and the Nasdaq Stock Market Listing Fees.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Bylaws (Exhibit 3.7 hereto) also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent currently permissible under Delaware
law.

The Registrant's Certificate of Incorporation (Exhibit 3.5 hereto) limits
the personal liability of its directors (in their capacity as directors but not
in their capacity as officers) to the Registrant or its stockholders to the
fullest extent permissible under Delaware law. Specifically, directors of the
Registrant will not be personally liable for monetary damages for breach of a
director's fiduciary duty, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant and its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any transaction from which the director
derived an improper personal benefit or (iv) for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law.

Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with each of its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.

II-1
<PAGE>
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.

The U.S. Underwriting Agreement and the International Underwriting
Agreement, filed as Exhibit 1.1 and Exhibit 1.2, respectively, to this
Registration Statement, provide for indemnification by the U.S. Underwriters and
the Managers of the Registrant and its directors and officers who sign this
Registration Statement for certain liabilities arising under the Securities Act
or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Set forth in chronological order below is information regarding the number
of shares of capital stock issued and the number of options granted by the
Registrant since January 1, 1994. Further included is the consideration, if any,
received by the Registrant for such shares and options, and information relating
to the section of the Securities Act or rule of the Securities and Exchange
Commission under which exemption from registration was claimed. All awards of
options did not involve any offer or sale under the Securities Act and therefore
the issuance of such options by the Registrant was not registered under the
Securities Act.

1994 STOCK OWNERSHIP PROGRAM

In 1993 the Registrant instituted its 1994 Stock Ownership Program pursuant
to which it grants its employees awards of shares of Common Stock or the right
to purchase limited numbers of shares of Common Stock at specified trade dates
during each year at a fair market value determined by an independent appraisal.
In 1994, 1995, 1996 and 1997, certain employees of the Registrant purchased or
were awarded the following aggregate number of shares of the Registrant's Common
Stock under the Registrant's 1994 Stock Ownership Program:

(i) in 1994 certain employees purchased an aggregate of 219,250
shares of Common Stock at purchase prices ranging from $1.98 to $2.53 per
share and the Registrant made stock awards of 174,260 shares of Common
Stock under the 1994 Stock Ownership Program to certain employees;

(ii) in 1995 certain employees purchased an aggregate of 250,400
shares of Common Stock at purchase prices ranging from $2.21 to $2.53 per
share and the Registrant made stock awards of 228,936 shares of Common
Stock under the 1994 Stock Ownership Program to certain employees;

(iii) in 1996 certain employees purchased an aggregate of 619,722
shares of Common Stock at purchase prices ranging from $1.47 to $2.22 per
share and the Registrant made stock awards of 519,468 shares of Common
Stock under the 1994 Stock Ownership Program to certain employees; and

(iv) in 1997 certain employees purchased an aggregate of 212,850
shares of Common Stock at purchase prices ranging from $7.94 to $9.53 per
share and in February 1997 the Registrant made stock awards of 225,576
shares of Common Stock under the 1994 Stock Ownership Program to certain
employees.

No underwriters were engaged in connection with any of the foregoing offers
or sales of securities. Of the shares of Common Stock purchased by employees in
1994, 1995, 1996 and 1997 as described above, 150, 650, 19,650 and 5,250 shares,
respectively, were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act relating to offerings and
sales not involving a public offering. Of the shares of Common Stock awarded to
employees in 1994, 1995, 1996 and 1997 as described above, 113,788, 78,668,
171,262 and 8,502 shares, respectively, were not offered or sold within the
meaning of Section 2(3) of the Securities Act, and, therefore, were not subject
to Section 5 of the

II-2
<PAGE>
Securities Act, and 8,600, 23,200, 166,046 and 168,500 shares, respectively,
were offered and sold in reliance upon the exemption from registration under
Section 4(2) of the Securities Act. The remaining shares of Common Stock
purchased by or awarded to employees in the above transactions were offered and
sold in reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act relating to certain sales by an issuer to its employees
under certain compensatory plans.

STOCK OPTION AGREEMENTS

In addition to the foregoing transactions under the 1994 Stock Ownership
Program, the Registrant issued the following securities to its employees:

(i) in 1995 the Registrant issued 1,024,000 shares of Common Stock
upon the exercise of outstanding stock options with exercise prices
ranging from $0.02 to $0.39 per share;

(ii) in 1996 the Registrant issued 105,000 shares of Common Stock
upon the exercise of outstanding stock options with exercise prices
ranging from $0.12 to $0.81 per share;

(iii) in 1997 the Registrant issued 299,000 shares of Common Stock
upon the exercise of outstanding stock options with exercise prices
ranging from $0.19 to $0.39 per share; and

(iv) in 1997 the Registrant granted options to employees pursuant to
stock option agreements to purchase an aggregate of 301,000 shares of
Common Stock at an exercise prices ranging from $9.53 to $13.00 per
share.

No underwriters were engaged in connection with any of the foregoing offers
or sales of securities. Of the shares of Common Stock issued upon the exercise
in 1997 of outstanding stock options as described above, 268,000 shares were
offered and sold in reliance upon the exemption from registration under Section
4(2) of the Securities Act. The remaining shares of Common Stock issued upon the
exercise in 1994, 1995, 1996 and 1997 of outstanding stock options as described
above, were offered and sold in reliance upon the exemption from registration
under Rule 701 promulgated under the Securities Act. Of the shares of Common
Stock subject to unexercised options granted in 1997 as described above, 230,000
shares were offered in reliance upon the exemption from registration under
Section 4(2) of the Securities Act. The remaining shares of Common Stock subject
to unexercised options granted in 1997 as described above, were offered in
reliance upon the exemption from registration under Rule 701 promulgated under
the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
1.1 Form of U.S. Underwriting Agreement*

<C> <S>
1.2 Form of International Underwriting Agreement*

3.1 Restated Articles of Incorporation of QAD Inc., a California corporation ("QAD
California"), filed with the California Secretary of State on December 15, 1993*

3.2 Certificate of Amendment of QAD California filed on March 23, 1994*

3.3 Certificate of Amendment of QAD California filed on July 10, 1996*

3.4 Certificate of Amendment of QAD California filed on February 10, 1997*

3.5 Certificate of Incorporation of QAD Inc., a Delaware corporation ("QAD Delaware"),
filed with the Delaware Secretary of State on May 15, 1997

3.6 Bylaws of QAD California*

3.7 Certificate of Amendment of QAD Delaware, filed with the Delaware Secretary of State
on June 19, 1997
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
3.8 Certificate of Merger of QAD California into QAD Delaware dated July 8, 1997

3.9 Bylaws of QAD Delaware

4.1 Specimen Stock Certificate

5.1 Opinion of Nida & Maloney, a Professional Corporation**

10.1 QAD Inc. 1994 Stock Ownership Program*

10.2 QAD Inc. 1997 Stock Incentive Program*

10.3 Form of Indemnification Agreement with Directors and Executive Officers

10.4 Loan and Security Agreement between Greyrock Business Credit, a Division of Nations
Credit Commercial Corporation ("GBC") and the Registrant dated July 3, 1996*

10.5 Schedule to Loan Agreement between GBC and the Registrant dated July 3, 1996*

10.6 Letter Agreement between the Registrant and GBC dated July 3, 1996*

10.7 Letter Agreement between the Registrant and GBC dated July 5, 1996*

10.8 Letter Agreement between the Registrant and GBC dated July 5, 1996*

10.9 Secured Promissory Note in the original principal amount of $4,000,000 made by the
Registrant to the order of GBC dated July 3, 1996*

10.10 Trademark Security Agreement between GBC and the Registrant dated July 3, 1996*

10.11 Security Agreement in Copyrighted Works executed by the Registrant in favor of GBC
dated July 3, 1996*

10.12 Deed of Trust with respect to real property located in Santa Barbara County,
California executed by the Registrant in favor of GBC dated July 3, 1996*

10.13 Employment Offer Letter between the Registrant and Dennis R. Raney dated January 15,
1997*

10.14 Master License Agreement between the Registrant and Progress Software Corporation
dated June 30, 1995+*

10.15 Lease Agreement between the Registrant and Matco Enterprises, Inc. for Suites I, K
and L located at 5464 Carpinteria Ave., Carpinteria, California dated November 30,
1992

10.16 First Amendment to Office Lease between the Registrant and Matco Enterprises, Inc.
for Suites C and H located at 5464 Carpinteria Ave., Carpinteria, California dated
September 9, 1993

10.17 Second Amendment to Office Lease between the Registrant and Matco Enterprises, Inc.
for Suite J located at 5464 Carpinteria Ave., Carpinteria, California dated January
14, 1994

10.18 Third Amendment to Office Lease between the Registrant and Matco Enterprises, Inc.
for Suites B and C located at 5464 Carpinteria Ave., Carpinteria, California dated
January 14, 1994

10.19 Fourth Amendment to Office Lease between the Registrant and Matco Enterprises, Inc.
for Suite H located at 5464 Carpinteria Ave., Carpinteria, California dated
February 15, 1994

10.20 Fifth Amendment to Office Lease between the Registrant and Matco Enterprises, Inc.
for Suites G and E located at 5464 Carpinteria Ave., Carpinteria, California dated
September 12, 1994

10.21 Sixth Amendment to Office Lease between the Registrant and Matco Enterprises, Inc.
for Suites A, B, D, F and H, and Room A located at 5464 Carpinteria Ave.,
Carpinteria, California dated October 30, 1996

10.22 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 3 through 8 located at 6430 Via Real, Carpinteria,
California dated November 30, 1993
</TABLE>

II-4

<PAGE>

<TABLE>
<C> <S>
10.23 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 3 through 8 located at 6430 Via Real, Carpinteria,
California dated November 30, 1993

10.24 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for 6450 Via Real, Carpinteria, California dated November 30,
1993

10.25 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for 6450 Via Real, Carpinteria, California dated November 30,
1993

10.26 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 1 through 5 located at 6460 Via Real, Carpinteria,
California dated November 30, 1993

10.27 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 1 through 5 located at 6460 Via Real, Carpinteria,
California dated November 30, 1993

10.28 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 7 and 8 located at 6440 Via Real, Carpinteria,
California dated September 8, 1995

10.29 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 7 and 8 located at 6440 Via Real, Carpinteria,
California dated September 8, 1995

10.30 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 9 and 10 located at 6440 Via Real, Carpinteria,
California dated September 8, 1995

10.31 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 9 and 10 located at 6440 Via Real, Carpinteria,
California dated September 8, 1995

10.32 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 1 and 2 located at 6430 Via Real, Carpinteria,
California dated September 8, 1995

10.33 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 1 and 2 located at 6430 Via Real, Carpinteria,
California dated September 8, 1995

10.34 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 1 through 7 and 10 located at 6420 Via Real,
Carpinteria, California dated January 27, 1997

10.35 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South
Coast Business Park for Suites 1 through 7 and 10 located at 6420 Via Real,
Carpinteria, California dated January 27, 1997

10.36 Multi-Tenant Office Lease Agreement between the Registrant and EDB Property Partners,
LP III, successor to Laurel Larchmont Office, Inc. located at 10,000 Midlantic
Drive, Mt. Laurel, New Jersey dated December 29, 1993

10.37 Amendment to Multi-Tenant Office Lease Agreement between the Registrant and EDB
Property Partners, LP III, successor to Laurel Larchmont Office, Inc. located at
10,000 Midlantic Drive, Mt. Laurel, New Jersey dated April 26, 1994

10.38 Second Amendment to Multi-Tenant Lease Agreement between the Registrant and EDB
Property Partners, LP III, dated May 30, 1995

10.39 Third Amendment to Multi-Tenant Lease Agreement between the Registrant and EDB
Property Partners L.P. I dated November 30, 1995
</TABLE>

II-5

<PAGE>

<TABLE>
<C> <S>
10.40 Agreement and Plan of Merger between QAD California and QAD Delaware dated July 8,
1997

21.1 Subsidiaries of the Registrant*

23.1 Consent of KPMG Peat Marwick LLP and opinion on Schedule II

23.2 Consent of Nida & Maloney, a Professional Corporation (included in Exhibit 5.1)**

24.1 Power of Attorney*

24.2 Authorizing Resolutions

27.1 Financial Data Schedule*
</TABLE>

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

* Previously filed.

** To be filed by amendment.

+ Confidential treatment is being requested.

(b) Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts

All other schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the Consolidated Financial
Statements or the Notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(a) To provide to the underwriter at the closing specified in the underwriting
agreements certificates in such denominations and registered in such names
as required by the underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(c) (1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 403(a) and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Carpinteria, California, on July 10, 1997.

QAD INC.

By: /s/ DENNIS R. RANEY
---------------------------------------
Dennis R. Raney
Senior Vice President, Finance and
Administration
and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

Chairman of the Board and
PAMELA M. LOPKER* President
- ------------------------------ (Principal Executive July 10, 1997
Pamela M. Lopker Officer)

KARL F. LOPKER*
- ------------------------------ Director and Chief July 10, 1997
Karl F. Lopker Executive Officer

EVAN M. BISHOP*
- ------------------------------ Director July 10, 1997
Evan M. Bishop

Senior Vice President,
Finance and
/s/ DENNIS R. RANEY Administration and Chief
- ------------------------------ Financial Officer July 10, 1997
Dennis R. Raney (Principal Financial and
Accounting Officer)

*By: /s/ DENNIS R. RANEY
---------------------------------------------
Dennis R. Raney
Attorney-in-fact

II-7
<PAGE>
SCHEDULE II

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DELETIONS(1) ADJUSTMENTS END OF PERIOD
- --------------------------------------------- ------------- ----------- ----------- ------------- -------------

<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and sales
returns

Year ended:
December 31, 1994........................ $ 2,108 $ 1,333 $ (964) $ 51 $ 2,528
December 31, 1995........................ 2,528 945 (1,209) 34 2,298
January 31, 1997......................... 2,280 3,432 (1,983) (35) 3,694

One month ended:
January 31, 1996......................... 2,298 (25) -- 7 2,280

Three months ended:
April 30, 1996 (unaudited)............... 2,280 701 (684) (16) 2,281
April 30, 1997 (unaudited)............... 3,694 585 (524) (109) 3,646
</TABLE>

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

(1) Actual write-offs and product returns.

S-1
<PAGE>
EXHIBIT INDEX

1.2 Form of International Underwriting Agreement.................................................. *

3.1 Restated Articles of Incorporation of QAD Inc., a California corporation ("QAD California"),
filed with the California Secretary of State on December 15, 1993........................... *

3.2 Certificate of Amendment of QAD California filed on March 23, 1994............................ *

3.3 Certificate of Amendment of QAD California filed on July 10, 1996............................. *

3.4 Certificate of Amendment of QAD California filed on February 10, 1997......................... *

3.5 Certificate of Incorporation of QAD Inc., a Delaware corporation ("QAD Delaware"), filed with
the Delaware Secretary of State on May 15, 1997............................................. F

3.6 Bylaws of QAD California...................................................................... *

3.7 Certificate of Amendment of QAD Delaware, filed with the Delaware Secretary of State on June
19, 1997.................................................................................... F

3.8 Certificate of Merger of QAD California into QAD Delaware dated July 8, 1997.................. F

3.9 Bylaws of QAD Delaware........................................................................ F

4.1 Specimen Stock Certificate.................................................................... F

5.1 Opinion of Nida & Maloney, a Professional Corporation......................................... **

10.1 QAD Inc. 1994 Stock Ownership Program......................................................... *

10.2 QAD Inc. 1997 Stock Incentive Program......................................................... *

10.3 Form of Indemnification Agreement with Directors and Executive Officers....................... F

10.4 Loan and Security Agreement between Greyrock Business Credit, a Division of Nations Credit
Commercial Corporation ("GBC") and the Registrant dated July 3, 1996........................ *

10.5 Schedule to Loan Agreement between GBC and the Registrant dated July 3, 1996.................. *

10.6 Letter Agreement between the Registrant and GBC dated July 3, 1996............................ *

10.7 Letter Agreement between the Registrant and GBC dated July 5, 1996............................ *

10.8 Letter Agreement between the Registrant and GBC dated July 5, 1996............................ *

10.9 Secured Promissory Note in the original principal amount of $4,000,000 made by the Registrant
to the order of GBC dated July 3, 1996...................................................... *

10.10 Trademark Security Agreement between GBC and the Registrant dated July 3, 1996................ *

10.11 Security Agreement in Copyrighted Works executed by the Registrant in favor of GBC dated July
3, 1996..................................................................................... *

10.12 Deed of Trust with respect to real property located in Santa Barbara County, California
executed by the Registrant in favor of GBC dated July 3, 1996............................... *

10.13 Employment Offer Letter between the Registrant and Dennis R. Raney dated January 15, 1997..... *

10.14 Master License Agreement between the Registrant and Progress Software Corporation dated June
30, 1995+................................................................................... *

10.15 Lease Agreement between the Registrant and Matco Enterprises, Inc. for Suites I, K and L
located at 5464 Carpinteria Ave., Carpinteria, California dated November 30, 1992........... F
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED (F)
- ----------- ---------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.16 First Amendment to Office Lease between the Registrant and Matco Enterprises, Inc. for Suites
C and H located at 5464 Carpinteria Ave., Carpinteria, California dated September 9, 1993... F

10.17 Second Amendment to Office Lease between the Registrant and Matco Enterprises, Inc. for Suite
J located at 5464 Carpinteria Ave., Carpinteria, California dated January 14, 1994.......... F

10.18 Third Amendment to Office Lease between the Registrant and Matco Enterprises, Inc. for Suites
B and C located at 5464 Carpinteria Ave., Carpinteria, California dated January 14, 1994.... F

10.19 Fourth Amendment to Office Lease between the Registrant and Matco Enterprises, Inc. for Suite
H located at 5464 Carpinteria Ave., Carpinteria, California dated February 15, 1994......... F

10.20 Fifth Amendment to Office Lease between the Registrant and Matco Enterprises, Inc. for Suites
G and E located at 5464 Carpinteria Ave., Carpinteria, California dated September 12,
1994........................................................................................ F

10.21 Sixth Amendment to Office Lease between the Registrant and Matco Enterprises, Inc. for Suites
A, B, D, F and H, and Room A located at 5464 Carpinteria Ave., Carpinteria, California dated
October 30, 1996............................................................................ F

10.22 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 3 through 8 located at 6430 Via Real, Carpinteria, California dated
November 30, 1993........................................................................... F

10.23 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 3 through 8 located at 6430 Via Real, Carpinteria, California dated
November 30, 1993........................................................................... F

10.24 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for 6450 Via Real, Carpinteria, California dated November 30, 1993............ F

10.25 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for 6450 Via Real, Carpinteria, California dated November 30, 1993............ F

10.26 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 1 through 5 located at 6460 Via Real, Carpinteria, California dated
November 30, 1993........................................................................... F

10.27 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 1 through 5 located at 6460 Via Real, Carpinteria, California dated
November 30, 1993........................................................................... F

10.28 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 7 and 8 located at 6440 Via Real, Carpinteria, California dated
September 8, 1995........................................................................... F

10.29 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 7 and 8 located at 6440 Via Real, Carpinteria, California dated
September 8, 1995........................................................................... F

10.30 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 9 and 10 located at 6440 Via Real, Carpinteria, California dated
September 8, 1995........................................................................... F
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED (F)
- ----------- ---------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.31 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 9 and 10 located at 6440 Via Real, Carpinteria, California dated
September 8, 1995........................................................................... F

10.32 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 1 and 2 located at 6430 Via Real, Carpinteria, California dated
September 8, 1995........................................................................... F

10.33 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 1 and 2 located at 6430 Via Real, Carpinteria, California dated
September 8, 1995........................................................................... F

10.34 Lease Agreement between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 1 through 7 and 10 located at 6420 Via Real, Carpinteria,
California dated January 27, 1997........................................................... F

10.35 Addendum to Lease between the Registrant and William D. and Edna J. Wright dba South Coast
Business Park for Suites 1 through 7 and 10 located at 6420 Via Real, Carpinteria,
California dated January 27, 1997........................................................... F

10.36 Multi-Tenant Office Lease Agreement between the Registrant and EDB Property Partners, LP III,
successor to Laurel Larchmont Office, Inc. located at 10,000 Midlantic Drive, Mt. Laurel,
New Jersey dated December 29, 1993.......................................................... F

10.37 Amendment to Multi-Tenant Office Lease Agreement between the Registrant and EDB Property
Partners, LP III, successor to Laurel Larchmont Office, Inc. located at 10,000 Midlantic
Drive, Mt. Laurel, New Jersey dated April 26, 1994.......................................... F

10.38 Second Amendment to Multi-Tenant Lease Agreement between the Registrant and EDB Property
Partners, LP III, dated May 30, 1995........................................................ F

10.39 Third Amendment to Multi-Tenant Lease Agreement between the Registrant and EDB Property
Partners L.P. I dated November 30, 1995..................................................... F

10.40 Agreement and Plan of Merger between QAD California and QAD Delaware dated July 8, 1997....... F

21.1 Subsidiaries of the Registrant................................................................ *

23.1 Consent of KPMG Peat Marwick LLP.............................................................. F

23.2 Consent of Nida & Maloney, a Professional Corporation (included in Exhibit 5.1)............... **

24.1 Power of Attorney............................................................................. *

24.2 Authorizing Resolutions....................................................................... F

27.1 Financial Data Schedule....................................................................... *
</TABLE>

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

* Previously filed.

** To be filed by amendment.

+ Confidential treatment is being requested.

<PAGE>

CERTIFICATE OF INCORPORATION

QAD INC.

The undersigned, for the purpose of organizing a corporation under the
General Corporation Law of the State of Delaware, certifies:

FIRST: The name of the corporation is QAD Inc. (hereinafter referred
to as the "CORPORATION").

SECOND: The address of the Corporation's registered office in the
State of Delaware is The Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (hereinafter referred to as the "GCL").

FOURTH: Unless and until the Automatic Conversion (as defined in
SECTION B(1)(f)(ii) of this ARTICLE FOURTH) occurs, the Corporation is
authorized to issue two classes of shares of common stock and one class of
preferred stock. The total number of shares of stock which the Corporation
shall have authority to issue is twenty million one-hundred thousand
(20,100,000) shares, consisting of twenty million (20,000,000) shares of common
stock, par value $.001 per share (the "COMMON STOCK") and one hundred thousand
(100,000) shares of preferred stock, par value $.001 per share (the "PREFERRED
STOCK"). Unless and until the Automatic Conversion occurs, the only shares of
Common Stock which the Corporation shall have authority to issue is nineteen
million nine hundred thousand nine hundred (19,999,900) shares of Class A Common
Stock, par value $.001 per share (the "CLASS A COMMON STOCK") and one hundred
(100) shares of Class B Common Stock, par value $.001 per share (the "CLASS B
COMMON STOCK"). Upon and after the Automatic Conversion, the Corporation shall
be authorized to issue one class of Common Stock, consisting of twenty million
(20,000,000) shares designated as Common Stock, and one class of Preferred
Stock, consisting of one hundred thousand (100,000) shares designated as
Preferred Stock. The term "COMMON STOCK" shall refer to the Class A Common
Stock and the Class B Common Stock, collectively, unless and until the Automatic
Conversion occurs, and to the Common Stock upon and after the Automatic
Conversion.

A. PREFERRED STOCK. The Board of Directors of the Corporation
(hereinafter referred to as the "BOARD OF DIRECTORS") is hereby expressly
authorized at any time, and from time to time, to create and provide for the
issuance of shares of

<PAGE>

Preferred Stock in one or more series and, by filing a certificate pursuant to
the GCL (hereinafter referred to as a "PREFERRED STOCK DESIGNATION"), to
establish the number of shares to be included in each such series, and to fix
the designations, preferences and relative, participating, optional or other
special rights of the shares of each such series and the qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue thereof adopted by the Board
of Directors, including, but not limited to, the following:

1. the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;

2. whether dividends, if any, shall be cumulative or noncumulative,
the dividend rate of such series, and the dates and preferences of
dividends on such series;

3. the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;

4. the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;

5. whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of, any other
series of any class or classes of capital stock of, or any other security
of, the Corporation or any other corporation, and, if provision be made for
any such conversion or exchange, the times, prices, rates, adjustments and
any other terms and conditions of such conversion or exchange;

6. the voting powers, if any, and whether such voting powers are
full or limited in such series;

7. the restrictions, if any, on the issue or reissue of shares of
the same series or of any other class or series;

8. the amounts payable on and the preferences, if any, of the shares
of such series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and

9. any other relative rights, preferences and limitations of that
series.

B. COMMON STOCK. The Common Stock shall be subject to the express
terms of any series of Preferred Stock set forth in the Preferred Stock
Designation relating thereto. Each holder of Common Stock shall have one vote
in respect of each share of Common Stock held by such holder of record on the
books of the Corporation for the election of directors and on all other

<PAGE>

matters on which stockholders of the Corporation are entitled to vote. The
holders of shares of Common Stock shall be entitled to receive, when and if
declared by the Board of Directors, out of the assets of the Corporation which
are by law available therefor, dividends payable either in cash, in stock or
otherwise. In addition, the Class A Common Stock shall be subject to the
express restrictions set forth below in this SECTION B.

1. RESTRICTIONS ON CLASS A COMMON STOCK.

a. CORPORATION'S RIGHT TO REPURCHASE UPON TERMINATION OF
AFFILIATION. All shares of Class A Common Stock held of record by a person
who is an employee or director of, or a consultant to, the Corporation or
any of its subsidiaries shall be subject to the Corporation's right to
repurchase all of such shares in the event that such holder's affiliation
with the Corporation as an employee, director or consultant is terminated.
Such right of repurchase upon termination of affiliation shall also be
applicable to all shares of Class A Common Stock which such person has the
right to acquire subsequent to his or her termination of affiliation
pursuant to any of the Corporation's employee benefit plans or pursuant to
any option or other contractual right to acquire shares of Class A Common
Stock in effect at the date of such termination of affiliation. An
authorized leave of absence approved in accordance with the Corporation's
policy from time to time in effect shall not constitute a termination of
affiliation for purposes of this PARAGRAPH (a); PROVIDED, HOWEVER, that the
issuance of a formal personnel action notice by the Corporation's personnel
department advising an employee that his or her leave of absence is
terminated shall constitute a termination of affiliation for purposes of
this PARAGRAPH (a). The Corporation's right of repurchase shall be
exercised by mailing written notice to such holder at his or her address of
record on the Corporation's stock record books within ninety (90) days
following the termination of such affiliation, which notice shall request
delivery of certificates representing the shares of Class A Common Stock,
duly endorsed in blank or to the Corporation, free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. If the
Corporation repurchases such shares, the price shall be the higher of (i)
the original purchase price paid for such shares by such holder if such
shares were acquired from the Corporation by such holder or (ii) the
Formula Price (as hereinafter defined) per share on (x) the date of such
termination of affiliation, in the case of either shares owned by the
holder at that date or shares issuable to such holder subsequent to the
date of termination of affiliation pursuant to any option or other
contractual right to acquire shares of Class A Common Stock which were
outstanding at that date, or (y) the date such shares are distributed to
such holder, in the case of shares distributable to such holder subsequent
to his or her termination of affiliation pursuant to any of the

<PAGE>

Corporation's employee benefit plans. For purposes of the foregoing
sentence, an adjustment shall be made to the original purchase price paid
for such shares to account for any changes in the capitalization of the
Company, as determined by the Board of Directors. If for any reason the
Corporation is unable to make payment directly to a holder, then the
Corporation may make such payment by depositing the purchase price in an
account for the benefit of such holder and such shares of Class A Common
Stock shall thereby be deemed to have been transferred to the Corporation
on the date cash payment is made and no longer outstanding and all rights
of the holder with respect to such shares terminated.

b. CORPORATION'S RIGHT OF FIRST REFUSAL. If at any time a
holder of Class A Common Stock receives a bona fide offer to purchase such
shares and desires to sell any of such shares (other than through the
limited market maintained by the Corporation), such holder shall first give
notice to the Secretary of the Corporation containing:

(i) A statement signed by such holder notifying the
Corporation that such holder desires to sell shares of Class A Common
Stock and has received a bona fide offer to purchase such shares.

(ii) A statement signed by the intended purchaser
containing:

(a) the intended purchaser's full name, address
and taxpayer identification number;

(b) the number of shares to be purchased;

(d) other terms under which the purchase is
intended to be made; and

(e) a representation that the offer, under the
terms specified, is bona fide.

(iii) If the purchase price is payable in cash, in
whole or in part, a copy of a certified check, cashier's check or
money order payable to such holder from the purchaser in the aggregate
amount of the purchase price which is to be paid in cash.

The Corporation shall thereupon have an option exercisable within
fourteen (14) days of receipt of such notice by the Secretary to purchase
all, but not less than all, of the shares specified in the notice at the
lesser of (a) the Formula Price (as hereinafter defined) per share

<PAGE>

following receipt of the notice from the holder, or (b) the offer price and
upon the same terms as set forth in the notice, accompanied by payment of
the purchase price; PROVIDED, HOWEVER, that if the offer price is payable,
in whole or in part, other than in cash, the Corporation shall pay the
equivalent value of any noncash consideration as mutually agreed upon
between the holder and the Corporation. Such option shall be exercised by
the Corporation by mailing written notice to such holder at his or her
address of record on the Corporation's stock record books. In the event
the Corporation does not exercise such option, such holder may sell the
shares specified in the notice within thirty (30) days thereafter to the
purchaser, at the price and upon the terms and conditions set forth
therein. The holder may not sell such shares to any other purchaser, or at
any different price, or on any different terms, without first reoffering
such shares to the Corporation.

c. ELECTION OF RIGHTS BY CORPORATION. In the event
circumstances shall occur which would ordinarily permit the Corporation to
exercise its rights under either PARAGRAPHS (a) OR (b) of this SUBSECTION 1
at the time when the Corporation's rights under the other subparagraph have
become and remain exercisable, the Corporation, by resolution of its Board
of Directors, acting in its sole discretion, may elect which of such rights
it shall exercise. The Board of Directors may designate one or more
nominees to purchase any shares of Class A Common Stock which it has the
right to purchase in lieu of purchasing such shares itself.

d. OTHER TRANSFERS. Except for the sales in the limited
market maintained by the Corporation and as provided in PARAGRAPHS (a) OR
(b) of this SUBSECTION 1, no holder of shares of Class A Common Stock may
sell, assign, pledge, transfer or otherwise dispose of or encumber any
shares of Class A Common Stock without the prior written approval of the
Corporation, and any attempt to so sell, assign, pledge, transfer or
otherwise dispose of or encumber such shares without such prior approval
shall be null and void. The Corporation is expressly authorized to
condition its approval of a transfer (other than by sale) of any shares of
Class A Common Stock by an employee or director of, or a consultant to, the
Corporation or by a person who acquired such shares other than by purchase,
directly or indirectly, from an employee or director of, or a consultant
to, the Corporation upon the transferee's agreement to hold such shares
subject to the Corporation's right to repurchase such shares pursuant to
PARAGRAPH (A) of this SUBSECTION 1 upon the termination of affiliation of
the employee, director or consultant.

e. DEFINITION OF FORMULA PRICE. As used in this
Certificate of Incorporation, the term "Formula Price" shall mean the
price, as determined in good faith, pursuant to the formula adopted by the
Board of Directors of the

<PAGE>

Corporation for the purpose of determining the fair market value of one (1)
share of the Corporation's Class A Common Stock, as such formula may be
modified from time to time by the Board of Directors.

f. LAPSE OR WAIVER OF RESTRICTIONS ON CLASS A COMMON
STOCK; CONVERSION UPON LAPSE.

(i) LAPSE. All restrictions upon the shares of Class
A Common Stock set forth in this SUBSECTION 1 shall automatically
lapse and be of no further force or effect if:

(a) the Corporation has declared effective by the
United States Securities and Exchange Commission a registration
statement (other than a registration statement on Form S-4 or
Form S-8 or other similar form) to effect an underwritten
offering of any class or series of its capital stock (or any
securities convertible into shares of capital stock) to the
general public; or

(b) the Corporation's application to have any
class or series of its capital stock (or any securities
convertible into shares of capital stock) listed on a national
securities exchange or quoted on The Nasdaq Stock Market is
approved.

(ii) AUTOMATIC CONVERSION. Upon the lapse of the
restrictions on the shares of Class A Common Stock as provided in
SUBPARAGRAPH (f)(i) above, each authorized share of Class A Common
Stock and each authorized share of Class B Common Stock shall
automatically convert into shares of the single class of common stock
of the Corporation designated as Common Stock on a one-for-one basis
(the "AUTOMATIC CONVERSION"). Shares of Common Stock shall not be
subject to any restrictions other than such restrictions generally
applicable to the Common Stock pursuant to the first paragraph of this
SECTION B of ARTICLE FOURTH.

(iii) WAIVER. The Corporation may, by resolution of
its Board of Directors, acting in its sole discretion, waive any or
all of the restrictions upon the shares of Class A Common Stock set
forth in this SUBSECTION 1 in such circumstances as the Board of
Directors deems appropriate, and such waiver may be effective as to
any or all of the shares of Class A Common Stock, or as to any or all
of the holders thereof.

2. RESTRICTIONS ON CLASS B COMMON STOCK. The Class B Common Stock
shall not be subject to any restrictions other

<PAGE>

than such restrictions generally applicable to the Common Stock pursuant to
the first paragraph of SECTION B of ARTICLE FOURTH. If at any time the
restrictions on the Class A Common Stock set forth in SUBSECTION 1 of this
SECTION B shall lapse as provided in SUBPARAGRAPH (f)(i) of SUBSECTION 1,
each authorized share of Class B Common Stock shall automatically convert
on a one-for-one basis into a share of Common Stock. Shares of Common
Stock shall not be subject to any restrictions other than such restrictions
generally applicable to the Common Stock pursuant to the first paragraph of
SECTION B of ARTICLE FOURTH.

FIFTH: A. In furtherance, and not in limitation, of the powers
conferred by law, the Board of Directors is expressly authorized and empowered:

1. to adopt, amend or repeal the Bylaws of the Corporation,
PROVIDED, HOWEVER, that any Bylaws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
Directors or by the stockholders having voting power with respect thereto;
and

2. from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined, or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be
conferred by law.

B. The Corporation may in its Bylaws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by law.

SIXTH: A. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall not be less than
3 nor more than 9 and shall be fixed from time to time in the manner described
in the Bylaws.

B. Unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.

C. The directors, other than those who may be elected by the holders
of any series of Preferred Stock or any other series or class of stock as set
forth in this Certificate of Incorporation, shall be classified with respect to
the time for which they severally hold office into three classes, as nearly
equal in number as possible, and designated as Class I, Class II

<PAGE>

and Class III, at the first annual meeting of stockholders when the Corporation
shall have at least 800 stockholders as determined under Section 2115 of the
California Corporations Code (hereinafter, the "FIRST MEETING"). The Directors
first appointed to Class I at the First Meeting shall hold office for a term
expiring at the annual meeting of the stockholders immediately following the
First Meeting; the Directors first appointed to Class II shall hold office for a
term expiring at the second annual meeting of the stockholders following the
First Meeting; and the Directors first appointed to Class III shall hold office
for a term expiring at the third annual meeting of the stockholders following
the First Meeting. Members of each class shall hold office until their
successors are elected and qualified. Thereafter, at each succeeding annual
meeting of the stockholders of the Corporation, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election, and until their successors are elected and
qualified. Notwithstanding the foregoing, if at the time of any annual meeting
of stockholders, the Corporation is prohibited by applicable law from having a
classified Board of Directors, all of the Directors shall be elected at such
annual meeting for a one year term only. If at the time of any subsequent
annual meeting of stockholders the Corporation is no longer prohibited by
applicable law from having a classified Board of Directors, the Board of
Directors shall again be classified in accordance with the first sentence of
this paragraph, and at such annual meeting Directors initially elected shall be
elected to serve in either Class I, Class II or Class III to hold office for a
term expiring at the first, second or third succeeding annual meeting of the
stockholders, respectively; thereafter successors to each Class shall be elected
in the accordance with the fourth sentence of this paragraph.

D. Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances, any
director may be removed from office at any time for cause by the affirmative
vote of the holders of at least a majority of the voting power of the then
outstanding Voting Stock, voting together as a single class. For the purposes
of this Certificate of Incorporation, "VOTING STOCK" shall mean the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors.

E. Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the Bylaws of the
Corporation.

F. Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances,
vacancies resulting from death, resignation, retirement, disqualification,
removal from

<PAGE>

office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, and directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the total number of directors which the Corporation would at the time have if
there were no vacancies shall shorten the term of any incumbent director.

SEVENTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment or repeal of this ARTICLE SEVENTH shall adversely affect any right or
protection of a director of the Corporation existing hereunder in respect of any
act or omission occurring prior to such amendment or repeal.

EIGHTH: Except as may be expressly provided below in this ARTICLE
EIGHTH, the Corporation reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by law,
and all powers, preferences and rights of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this ARTICLE EIGHTH; PROVIDED, HOWEVER,
that no Preferred Stock Designation shall be amended after the issuance of any
shares of the series of Preferred Stock created thereby, except in accordance
with the terms of such Preferred Stock Designation and the requirements of law;
AND PROVIDED, FURTHER, that the affirmative vote of at least 66-2/3 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend, repeal or adopt any provision
inconsistent with the provisions of ARTICLE FIFTH, ARTICLE SIXTH or ARTICLE
EIGHTH of this Certificate of Incorporation, unless such amendments or changes
are approved by a majority of the directors of the Corporation not affiliated or
associated with any person, other than Pamela M. Lopker or Karl F. Lopker,
holding (or which has announced an intention to acquire) 20% or more of the
voting power of the then outstanding Voting Stock, voting together as a single
class.

<PAGE>

NINTH: The name and mailing address of the incorporator is Melainie
K. Mansfield, Milbank, Tweed, Hadley & McCloy, 600 S. Figueroa St., Los Angeles,
California 90017.

WITNESS my signature this 15th day of May, 1997.

/s/ Melainie Mansfield
-----------------------------
Sole Incorporator

<PAGE>

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF
QAD INC.

QAD Inc., a Delaware corporation (the "Corporation"), CERTIFIES:

FIRST: The Corporation has not received any payment for any of its capital
stock.

SECOND: Directors of said Corporation were not named in its Certificate of
Incorporation and have not yet been elected as of the date hereof.

THIRD: The amendment set forth below to the Certificate of Incorporation
of the Corporation has been duly adopted by its Sole Incorporator in
accordance with the provisions of Section 241 of the General Corporation Law
of the State of Delaware.

A. The Preamble to Article FOURTH, which precedes Section A of same
Article, of the Corporation's Certificate of Incorporation is hereby amended
and replaced in full by the following:

"FOURTH: Unless and until the Automatic Conversion (as defined
in SECTION B(1)(f)(ii) of this ARTICLE FOURTH) occurs, the Corporation is
authorized to issue two classes of shares of common stock and one class of
preferred stock. The total number of shares of stock which the Corporation
shall have authority to issue is one hundred fifty-five million (155,000,000)
shares, consisting of one hundred fifty million (150,000,000) shares of
common stock, par value $.001 per share (the "COMMON STOCK") and five million
(5,000,000) shares of preferred stock, par value $.001 per share (the
"PREFERRED STOCK"). Unless and until the Automatic Conversion occurs, the
only shares of Common Stock which the Corporation shall have authority to
issue is one hundred forty-nine million (149,000,000) shares of Class A
Common Stock, par value $.001 per share (the "CLASS A COMMON STOCK") and one
million (1,000,000) shares of Class B Common Stock, par value $.001 per share
(the "CLASS B COMMON STOCK"). Upon and after the Automatic Conversion, the
Corporation shall be authorized to issue one class of Common Stock,
consisting of one hundred fifty million (150,000,000) shares designated as
Common Stock, and one class of Preferred Stock, consisting of five million
(5,000,000) shares designated as Preferred Stock. The term "COMMON STOCK"
shall refer to the Class A Common Stock and the Class B Common Stock,
collectively, unless and until the Automatic Conversion occurs, and to the
Common Stock upon and after the Automatic Conversion."

<PAGE>

B. Section D of Article SIXTH of the Corporation's Certificate of
Incorporation is hereby amended to read as follows:

"D. Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under
specified circumstances, any director may be removed from office at
any time with or without cause by the affirmative vote of the
holders of at least a majority of the voting power of the then
outstanding Voting Stock, voting together as a single class. For
the purposes of this Certificate of Incorporation, "VOTING STOCK"
shall mean the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of
directors."

IN WITNESS THEREOF, QAD Inc. has caused this Certificate of Amendment to be
executed by its Sole Incorporator this Nineteenth day of June, 1997.

QAD Inc., A Delaware Corporation

By: /s/ Melainie K. Mansfield
--------------------------
Melainie K. Mansfield
Sole Incorporator

-2-

<PAGE>

CERTIFICATE OF MERGER OF
QAD INC., A CALIFORNIA CORPORATION
INTO
QAD INC., A DELAWARE CORPORATION
(UNDER SECTION 252 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)

QAD Inc., a Delaware corporation, hereby certifies that:

(1) The name and state of incorporation of each of the constituent
corporations are:

(a) QAD Inc., a California corporation ("QAD-California"); and

(b) QAD Inc., a Delaware corporation ("QAD-Delaware").

(2) An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by QAD-California and by QAD-Delaware in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.

(3) The name of the surviving corporation is QAD Inc., a Delaware
corporation.

(4) The certificate of incorporation of QAD-Delaware shall be the
certificate of incorporation of the surviving corporation.

(5) The surviving corporation is a corporation of the State of
Delaware.

(6) The executed Agreement and Plan of Merger is on file at the
principal place of business of QAD-Delaware at 6450 Via Real, Carpinteria,
California 93013.

(7) A copy of the Agreement and Plan of Merger will be furnished by
QAD-Delaware, on request and without cost, to any stockholder of QAD-California
or QAD-Delaware.

(8) The authorized capital stock of QAD-California, as of the date
hereof, consists of 155,000,000 shares consisting of 149,000,000 shares of Class
A Common Stock, no par value per share, of which 22,524,234 shares are issued
and outstanding; 1,000,000 shares of Class B Common Stock, no par value per
share, of which four shares are issued and outstanding; and 5,000,000 shares of
Preferred Stock, no par value per share, of which none are issued and
outstanding.

IN WITNESS WHEREOF, QAD-Delaware has caused this certificate to be
signed by Pamela M. Lopker, in her capacity as its President, and attested by
Karl F. Lopker, in his capacity as its Secretary, on the 8th day of July, 1997.

QAD Inc., a Delaware corporation

By: /s/ Pamela M. Lopker
------------------------------
Pamela M. Lopker
President
ATTEST:

By: /s/ Karl F. Lopker
-------------------------
Karl F. Lopker
Secretary

<PAGE>

BYLAWS

QAD INC.

<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I

OFFICE AND RECORDS

Section 1.1 DELAWARE OFFICE. . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

STOCKHOLDERS

Section 2.1 ANNUAL MEETING.. . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 SPECIAL MEETINGS.. . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 NOTICE OF MEETINGS.. . . . . . . . . . . . . . . . . . . . 2
Section 2.4 QUORUM.. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5 VOTING.. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.6 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.. . . . . . 4
Section 2.8 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.. . 7
Section 2.9 LIST OF STOCKHOLDERS.. . . . . . . . . . . . . . . . . . . 7
Section 2.10 WRITTEN CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.. . . . 7

ARTICLE III

DIRECTORS

Section 3.1 GENERAL POWERS.. . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 NUMBER, TENURE AND QUALIFICATIONS. . . . . . . . . . . . . 8
Section 3.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. . . . . . . . . 9
Section 3.4 RESIGNATION. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.5 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.6 MEETINGS.. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.7 QUORUM AND VOTING. . . . . . . . . . . . . . . . . . . . . 11
Section 3.8 WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. . . . . 11
Section 3.9 COMPENSATION.. . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.10 COMMITTEES OF THE BOARD OF DIRECTORS. . . . . . . . . . . 11
Section 4.1 ELECTED OFFICERS.. . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 ELECTION AND TERM OF OFFICE. . . . . . . . . . . . . . . . 13
Section 4.3 RESIGNATION AND REMOVAL. . . . . . . . . . . . . . . . . . 13
Section 4.4 COMPENSATION AND BOND. . . . . . . . . . . . . . . . . . . 13

<PAGE>

PAGE

Section 4.5 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . 13
Section 4.6 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.7 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . 14
Section 4.8 TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10 ASSISTANT TREASURERS. . . . . . . . . . . . . . . . . . . 15
Section 4.11 ASSISTANT SECRETARIES.. . . . . . . . . . . . . . . . . . 15
Section 4.12 DELEGATION OF DUTIES. . . . . . . . . . . . . . . . . . . 15

ARTICLE V

INDEMNIFICATION AND INSURANCE

Section 5.1 RIGHT TO INDEMNIFICATION.. . . . . . . . . . . . . . . . . 15
Section 5.2 RIGHT TO ADVANCEMENT OF EXPENSES.. . . . . . . . . . . . . 16
Section 5.3 RIGHT OF INDEMNITEE TO BRING SUIT. . . . . . . . . . . . . 16
Section 5.4 NON-EXCLUSIVITY OF RIGHTS. . . . . . . . . . . . . . . . . 17
Section 5.5 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.7 CONTRACT RIGHTS. . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE VI

COMMON STOCK

Section 6.1 CERTIFICATES.. . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.2 TRANSFERS OF STOCK.. . . . . . . . . . . . . . . . . . . . 18
Section 6.3 LOST, STOLEN OR DESTROYED CERTIFICATES.. . . . . . . . . . 19
Section 6.4 STOCKHOLDER RECORD DATE. . . . . . . . . . . . . . . . . . 19

ARTICLE VII

SEAL

Section 7.1 SEAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE VIII

WAIVER OF NOTICE

<PAGE>

PAGE

Section 8.1 WAIVER OF NOTICE.. . . . . . . . . . . . . . . . . . . . . 20

ARTICLE IX

CHECKS, NOTES, DRAFTS, ETC.

Section 9.1 CHECKS, NOTES, DRAFTS, ETC.. . . . . . . . . . . . . . . . 21

ARTICLE X

AMENDMENTS

Section 10.1 AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 21

iii

<PAGE>

BYLAWS
OF
QAD INC.

ARTICLE I

OFFICE AND RECORDS

SECTION 1.1 DELAWARE OFFICE. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware.

SECTION 1.2 OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.

SECTION 1.3 BOOKS AND RECORDS. The books and records of the
Corporation may be kept at the Corporation's principal executive offices in
Carpinteria, California or at such other locations inside or outside the State
of Delaware as may from time to time be designated by the Board of Directors.
Any stockholder, 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. The demand under oath shall be directed to the
Corporation's Secretary at its registered Delaware office or at its principal
place of business.

ARTICLE II

STOCKHOLDERS

SECTION 2.1 ANNUAL MEETING. The annual meeting of stockholders of
the Corporation shall be held on the date designated by the Board of Directors;
PROVIDED, HOWEVER, that the annual meeting of stockholders of this Corporation
shall be held (i) in the case of the initial annual meeting of stockholders, not
later than 13 months after the date of incorporation of this Corporation or (ii)
in the case of any subsequent annual meeting of stockholders, not later than 13
months after the date of the last annual meeting of stockholders of the
Corporation. The annual meeting in each year shall be held at 10:00 A.M., local
time, at the principal executive offices of the Corporation, or at such other
date, time and/or place within or without the State of Delaware as may be fixed
by the Board of Directors.

<PAGE>

SECTION 2.2 SPECIAL MEETINGS. Subject to the rights of the holders
of any series of preferred stock, par value $.001 per share, of the Corporation
(the "PREFERRED STOCK"), or any other series or class of stock as set forth in
the Certificate of Incorporation of the Corporation (the "CERTIFICATE OF
INCORPORATION") to elect additional directors under specified circumstances, a
special meeting of the holders of stock of the Corporation entitled to vote on
any business to be considered at any such meeting may be called by the President
of the Corporation, the Chief Executive Officer of the Corporation or the
Chairman of the Board of the Corporation, or shall be called by the Secretary of
the Corporation at the request of the Board of Directors pursuant to a
resolution adopted by a majority of the Board of Directors of the Corporation or
at the request of the holders of ten percent (10%) or more of the outstanding
voting stock of the Corporation. The Board of Directors may designate the place
of meeting for any special meeting of the stockholders, and if no such
designation is made, the place of meeting shall be the principal executive
offices of the Corporation.

SECTION 2.3 NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, unless notice is waived as
provided in Section 8.1 of these Bylaws, a written notice of the meeting shall
be given which 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.

Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed given when deposited in the mail, postage prepaid,
directed to the stockholder at his or her address as it appears on the records
of the Corporation. Any previously scheduled meeting of the stockholders may be
postponed by resolution of the Board of Directors upon public notice given prior
to the time previously scheduled for such meeting of stockholders.

When a meeting is adjourned to another time or place, 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 which might have been transacted at the
original meeting. If, however, the adjournment is for more than

<PAGE>

thirty (30) days, or if 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.

SECTION 2.4 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation or by these Bylaws, at any meeting of stockholders
the holders of a majority of the voting power of the outstanding shares of the
Corporation entitled to vote generally in the election of directors (the "VOTING
STOCK"), either present or represented by proxy, shall constitute a quorum for
the transaction of any business at such meeting, except that when specified
business is to be voted on by a class or series voting as a class, the holders
of a majority of the shares of such class or series shall constitute a quorum
for the transaction of such business. The chairman of the meeting or a majority
of the voting power of the shares of Voting Stock so represented may adjourn the
meeting from time to time, whether or not there is such a quorum (or in the case
of specified business to be voted on as a class or series, the chairman or a
majority of the shares of such class or series so represented may adjourn the
meeting with respect to such specified business). No notice of the time and
place of adjourned meetings need be given except as provided in the last
paragraph of Section 2.3 of these Bylaws. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.

SECTION 2.5 VOTING. Except as otherwise set forth in the Certificate
of Incorporation with respect to the right of any holder of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, whenever directors are to be elected at
a meeting, they shall be elected by a plurality of the votes cast at the meeting
by the holders of stock entitled to vote. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall, except as otherwise required by law or by the Certificate of
Incorporation or by these Bylaws, be authorized by a majority of the votes cast
with respect thereto at the meeting (including abstentions) by the holders of
stock entitled to vote thereon.

Except as otherwise provided by law, or by the Certificate of
Incorporation, each holder of record of stock of the Corporation entitled to
vote on any matter at any meeting of stockholders shall be entitled to one vote
for each share of such stock standing in the name of such holder on the stock
ledger of

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the Corporation on the record date for the determination of the stockholders
entitled to vote at the meeting.

Upon the demand of any stockholder entitled to vote, the vote for
directors or the vote on any other matter at a meeting shall be by written
ballot, but otherwise the method of voting and the manner in which votes are
counted shall be discretionary with the presiding officer at the meeting.

SECTION 2.6 PROXIES. Each stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him or her by
proxy, 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. Every proxy shall be
signed by the stockholder or by his duly authorized attorney. Such proxy must
be filed with the Secretary of the Corporation or his or her representative at
or before the time of the meeting.

SECTION 2.7 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.

(A) ANNUAL MEETING OF STOCKHOLDERS.

(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) by or at the
direction of the Chairman of the Board or the Board of Directors pursuant to a
resolution adopted by a majority of the Board of Directors or (b) by any
stockholder of the Corporation who is entitled to vote at the meeting with
respect to the election of directors or the business to be proposed by such
stockholder, as the case may be, who complies with the notice procedures set
forth in clauses (2) and (3) of paragraph (A) of this Section 2.7 and who is a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation as provided below.

(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (b) of paragraph (A)(1) of
this Section 2.7, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such business must be a proper
subject for stockholder action under the Delaware General Corporation Law (the
"GCL"). To be timely, a stockholder's notice shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not less than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that

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the date of the annual meeting is advanced by more than thirty (30) days, or
delayed by more than sixty (60) days, from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the one hundred
and twentieth (120th) day prior to such annual meeting and not later than the
close of business on the later of the sixtieth (60th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.

(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 2.7 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Corporation
at least eighty (80) days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by paragraph (A)(2) of this
Section 2.7 shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.

(B) SPECIAL MEETING OF STOCKHOLDERS. Nominations of persons for
election to the Board of Directors may be made at a

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special meeting of stockholders at which directors are to be elected (i) by or
at the direction of the Chairman of the Board of the Corporation or the Board of
Directors pursuant to a resolution adopted by a majority of the Board of
Directors or (ii) by any stockholder of the Corporation who is entitled to vote
at the meeting with respect to the election of directors, who complies with the
notice procedures set forth in this paragraph (B) and who is a stockholder of
record at the time such notice is delivered to the Secretary of the Corporation
as provided below. Nominations by stockholders of persons for election to the
Board of Directors may be made at such a special meeting of stockholders if the
stockholder's notice as required by paragraph (A)(2) of this Section 2.7 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not later than the ninetieth (90th) day prior to such
special meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.

(C) GENERAL. (1) Only persons who are nominated in accordance with
the procedures set forth in this Section 2.7 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.7.

(2) Except as otherwise provided by law, the Certificate of
Incorporation or this Section 2.7, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.7 and, if any proposed nomination or business is not in
compliance with this Section 2.7, to declare that such defective nomination or
proposal shall be disregarded.

(3) For purposes of this Section 2.7, "PUBLIC ANNOUNCEMENT" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.

(4) Notwithstanding the foregoing provisions of this Section 2.7, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.7. Nothing in this Section 2.7 shall be deemed to

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affect any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy materials with respect to a meeting of stockholders pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in the
Certificate of Incorporation to elect directors under specified circumstances or
to consent to specific actions taken by the Corporation.

SECTION 2.8 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.

(A) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of his or her ability. The
inspectors shall have the duties prescribed by the GCL.

(B) The chairman of the meeting shall fix and announce at the meeting
the time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.

SECTION 2.9 LIST OF STOCKHOLDERS. 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

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meeting during the whole time thereof, and may be inspected by any stockholder
who is present.

The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.

SECTION 2.10 WRITTEN CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action required by the GCL 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 the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt written notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any such written consent may be
given by one or any number of substantially concurrent written instruments of
substantially similar tenor signed by such stockholders, in person or by
attorney or proxy duly appointed in writing, and filed with the Secretary or an
Assistant Secretary of the Corporation. Any such written consent shall be
effective as of the effective date thereof as specified therein, provided that
such date is not more than sixty (60) days prior to the date such written
consent is filed as aforesaid, or, if no such date is so specified, on the date
such written consent is filed as aforesaid.

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ARTICLE III

DIRECTORS

SECTION 3.1 GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon it, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.

SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any series of Preferred Stock or any other series or class of
stock as set forth in the Certificate of Incorporation to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Board of
Directors, but shall consist of not more than nine (9) nor less than three (3)
directors.

The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock as set forth
in the Certificate of Incorporation, shall be classified with respect to the
time for which they severally hold office into three classes, as nearly equal in
number as possible, and designated as Class I, Class II and Class III, at the
first annual meeting of stockholders when the Corporation shall have at least
800 stockholders as determined under Section 2115 of the California Corporations
Code (hereinafter, the "FIRST MEETING"). The Directors first appointed to
Class I at the First Meeting shall hold office for a term expiring at the annual
meeting of the stockholders immediately following the First Meeting; the
Directors first appointed to Class II shall hold office for a term expiring at
the second annual meeting of the stockholders following the First Meeting; and
the Directors first appointed to Class III shall hold office for a term expiring
at the third annual meeting of the stockholders following the First Meeting.
Members of each class shall hold office until their successors are elected and
qualified. Thereafter, at each succeeding annual meeting of the stockholders of
the Corporation, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election, and until their successors are elected and qualified. Notwithstanding
the foregoing, if at the time of any annual

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meeting of stockholders, the corporation is prohibited by applicable law from
having a classified Board of Directors, all of the Directors shall be elected at
such annual meeting for a one year term only. If at the time of any subsequent
annual meeting of stockholders the Corporation is no longer prohibited by
applicable law from having a classified Board of Directors, the Board of
Directors shall again be classified in accordance with the first sentence of
this paragraph, and at such annual meeting Directors initially elected shall be
elected to serve in either Class I, Class II or Class III to hold office for a
term expiring at the first, second or third succeeding annual meeting of the
stockholders, respectively; thereafter successors to each Class shall be elected
in the accordance with the fourth sentence of this paragraph.

SECTION 3.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any series of Preferred Stock or any other series or
class of stock as set forth in the Certificate of Incorporation to elect
additional directors under specified circumstances, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board of Directors shall shorten the term of any
incumbent director.

SECTION 3.4 RESIGNATION. Any director may resign at any time upon
written notice to the Corporation. Any such resignation shall take effect at
the time specified therein or, if the time be not specified, upon receipt
thereof, and the acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make such resignation effective.

SECTION 3.5 REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
the Certificate of Incorporation to elect additional directors under specified
circumstances, any director may be removed from office at any time with or
without cause, by the affirmative vote of the holders of at least a

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majority of the voting power of the then outstanding Voting Stock, voting
together as a single class.

SECTION 3.6 MEETINGS. Meetings of the Board of Directors, regular or
special, may be held at any place within or without the State of Delaware.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting by such means shall constitute presence in person
at such meeting. An annual meeting of the Board of Directors shall be held at
the same place and immediately following each annual meeting of stockholders,
and no further notice thereof need be given other than this Bylaw. The Board of
Directors may fix times and places for additional regular meetings of the Board
of Directors and no further notice of such meetings need be given. A special
meeting of the Board of Directors shall be held whenever called by the President
of the Corporation, the Chief Executive Officer of the Corporation or the
Chairman of the Board of the Corporation, or by a majority of the Board of
Directors, at such time and place as shall be specified in the notice or waiver
thereof. The person or persons authorized to call special meeting of the Board
of Directors may fix the place and time of the meetings. Notice of any special
meeting shall be given to each director at his or her business or residence in
writing or by telegram or by telephone communication. If mailed, such notice
shall be deemed adequately delivered when deposited in the United States mails
so addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph company at least twenty-four hours
before such meeting. If by facsimile transmission, such notice shall be
transmitted at least twenty-four hours before such meeting. If by telephone,
the notice shall be given at least twelve hours prior to the time set for the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these Bylaws as provided under
Section 10.1 of these Bylaws.

SECTION 3.7 QUORUM AND VOTING. A whole number of directors equal to
at least a majority of the Board of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if there
be less than a quorum, a majority of the directors present may adjourn the

<PAGE>

meeting from time to time, and no further notice thereof need be given other
than announcement at the meeting which shall be so adjourned. Except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.

SECTION 3.8 WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or of such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or of such committee.

SECTION 3.9 COMPENSATION. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.

SECTION 3.10 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors may from time to time, by resolution passed by majority of the
Board of Directors, designate one or more committees, each committee to
consist of one or more directors of the Corporation. The Board of Directors
may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The resolution of the Board of Directors may, in addition or
alternatively, provide that in the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it, except as otherwise provided by law. Unless
the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such committee may adopt rules
governing the method of calling and time and place of holding its meetings.
Unless otherwise provided by the Board of Directors, a majority of any such
committee (or the member thereof, if only one) shall

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constitute a quorum for the transaction of business, and the vote of a majority
of the members of such committee present at a meeting at which a quorum is
present shall be the act of such committee. Each such committee shall keep a
record of its acts and proceedings and shall report thereon to the Board of
Directors whenever requested so to do. Any or all members of any such committee
may be removed, with or without cause, by resolution of the Board of Directors,
passed by a majority of the Board of Directors.

ARTICLE IV

OFFICERS

SECTION 4.1 ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer, and may also include one or more Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers. All officers chosen
by the Board of Directors shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of this
Article IV, together with such other powers and duties as from time to time may
be conferred by the Board of Directors or any committee thereof. The Chairman
of the Board shall be chosen from among the directors. Any number of such
offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. The Board of
Directors may appoint, and may delegate power to appoint, such other officers,
agents and employees as it may deem necessary or proper, who shall hold their
offices or positions for such terms, have such authority and perform such duties
as may from time to time be determined by or pursuant to authorization of the
Board of Directors.

SECTION 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to
Section 4.3 of these Bylaws, each officer shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his or
her death or until such officer shall resign.

SECTION 4.3 RESIGNATION AND REMOVAL. Any officer may resign at any
time upon written notice to the Corporation. Any

<PAGE>

elected officer may be removed by a majority of the members of the Board of
Directors, with or without cause, at any time. The Board of Directors may
delegate such power of removal as to officers, agents and employees not elected
by the Board of Directors. Such removal shall be without prejudice to a
person's contract rights, if any, but the appointment of any person as an
officer, agent or employee of the Corporation shall not of itself create
contract rights.

SECTION 4.4 COMPENSATION AND BOND. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but this power may
be delegated to any officer in respect of other officers under his or her
control. The Corporation may secure the fidelity of any or all of its officers,
agents or employees by bond or otherwise.

SECTION 4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation, shall make reports to the Board of Directors and the
stockholders and shall perform all duties incidental to such office which may be
required by law and all such other duties as are properly required by the Board
of Directors. Except where by law the signature of the President is required,
the Chairman of the Board shall possess the same power as the President to sign
all certificates, contracts and other instruments of the Corporation which may
be authorized by the Board of Directors. The Chairman of the Board shall see
that all orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect.

SECTION 4.6 PRESIDENT. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the absence of
or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and of the Board of Directors. The President may sign, alone or with the
Secretary or any other proper officer of the Corporation authorized by the Board
of Directors, certificates, contracts and other instruments of the Corporation
as authorized by the Board of Directors.

SECTION 4.7 VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board of Directors, the Chairman of the
Board or the President may from

<PAGE>

time to time prescribe. In the absence or inability to act of the President,
unless the Board of Directors shall otherwise provide, the Vice President who
has served in that capacity for the longest time and who shall be present and
able to act, shall perform all the duties and may exercise any of the powers of
the President.

SECTION 4.8 TREASURER. The Treasurer shall have charge of all funds
and securities of the Corporation, shall endorse the same for deposit or
collection when necessary and deposit the same to the credit of the Corporation
in such banks or depositaries as the Board of Directors may authorize. He or
she may endorse all commercial documents requiring endorsements for or on behalf
of the Corporation and may sign all receipts and vouchers for payments made to
the Corporation. He or she shall have all such further powers and duties as
generally are incident to the position of Treasurer or as may be assigned to him
or her by the Chairman of the Board, the President or the Board of Directors.

SECTION 4.9 SECRETARY. The Secretary shall record all the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose and shall also record therein all action taken by written
consent of directors in lieu of a meeting. He or she shall attend to the giving
and serving of all notices of the Corporation. He or she shall have custody of
the seal of the Corporation and shall attest the same by his or her signature
whenever required. He or she shall have charge of the stock ledger and such
other books and papers as the Board of Directors may direct, but he or she may
delegate responsibility for maintaining the stock ledger to any transfer agent
appointed by the Board of Directors. He or she shall have all such further
powers and duties as generally are incident to the position of Secretary or as
may be assigned to him or her by the President or the Board of Directors.

SECTION 4.10 ASSISTANT TREASURERS. In the absence or inability to
act of the Treasurer, any Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. An Assistant Treasurer shall also
perform such other duties as the Treasurer or the Board of Directors may assign
to him or her.

SECTION 4.11 ASSISTANT SECRETARIES. In the absence or inability to
act of the Secretary, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. An Assistant Secretary shall also
perform such other

<PAGE>

duties as the Secretary or the Board of Directors may assign to him or her.

SECTION 4.12 DELEGATION OF DUTIES. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.

ARTICLE V

INDEMNIFICATION AND INSURANCE

SECTION 5.1 RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "PROCEEDING"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of any other corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to any employee benefit plan (hereinafter an "INDEMNITEE"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the GCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, excise taxes or penalties under
the Employee Retirement Income Security Act of 1974, as amended, and amounts
paid or to be paid in settlement) actually and reasonably incurred by such
indemnitee in connection therewith; PROVIDED, HOWEVER, that except as provided
in Section 5.3 with respect to proceedings seeking to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors.

<PAGE>

SECTION 5.2 RIGHT TO ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in Section 5.1 shall include the right to be paid by
the Corporation the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"ADVANCEMENT OF EXPENSES"); PROVIDED, HOWEVER, that, if the GCL requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "UNDERTAKING"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"FINAL ADJUDICATION") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 5.2 or otherwise.

SECTION 5.3 RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
Section 5.1 or Section 5.2 is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right of an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the GCL. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the GCL, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel
or stockholders) that the indemnitee has not met such applicable standard of
conduct, shall

<PAGE>

create a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article V or
otherwise shall be on the Corporation.

SECTION 5.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the advancement of expenses conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, provision of
these Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.

SECTION 5.5 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.

SECTION 5.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to the
advancement of expenses, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article V with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.

SECTION 5.7 CONTRACT RIGHTS. The rights to indemnification and to
the advancement of expenses conferred in Section 5.1 and Section 5.2 shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.

<PAGE>

ARTICLE VI

COMMON STOCK

SECTION 6.1 CERTIFICATES. Certificates for stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
be signed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary. Such certificates may be sealed
with the seal of the Corporation or a facsimile thereof. Any of or all the
signatures on a 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 shall have 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.

SECTION 6.2 TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the books of the Corporation by the holder, in person or by duly
authorized attorney, and on the surrender of the certificate or certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require. The
Board of Directors shall have the power to make all such rules and regulations,
not inconsistent with the Certificate of Incorporation and these Bylaws and the
GCL, as the Board of Directors may deem appropriate concerning the issue,
transfer and registration of certificates for stock of the Corporation. The
Board of Directors may appoint one or more transfer agents or registrars of
transfers, or both, and may require all stock certificates to bear the signature
of either or both.

SECTION 6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may issue a new stock certificate in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate
or his or her legal representative to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate. The Board of Directors may require such owner to
satisfy other reasonable requirements as it deems appropriate under the
circumstances.

<PAGE>

SECTION 6.4 STOCKHOLDER RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or 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 a
record date, which record date 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 nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action.

If no record date is fixed by the Board of Directors, (1) 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 day next preceding the
date on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and (2) the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.

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;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.

Only such stockholders as shall be stockholders of record on the date
so fixed shall be entitled to notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend or other
distribution, or to exercise such rights in respect of any such change,
conversion or exchange of stock, or to participate in such action, as the case
may be, notwithstanding any transfer of any stock on the books of the
Corporation after any record date so fixed.

ARTICLE VII

SEAL

SECTION 7.1 SEAL. The seal of the Corporation shall be circular in
form and shall bear, in addition to any other emblem or device approved by the
Board of Directors, the name of the Corporation, the year of its incorporation
and the words "Corporate Seal" and "Delaware". The seal may be used by

<PAGE>

causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.

ARTICLE VIII

WAIVER OF NOTICE

SECTION 8.1 WAIVER OF NOTICE. Whenever notice is required to be
given to any stockholder or director of the Corporation under any provision of
the GCL or the Certificate of Incorporation or these Bylaws, a written waiver
thereof, signed by the person or persons entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. In the case of a stockholder, such waiver of notice may be signed by
such stockholder's attorney or proxy duly appointed in writing. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be specified
in any written waiver of notice.

<PAGE>

ARTICLE IX

CHECKS, NOTES, DRAFTS, ETC.

SECTION 9.1 CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized committee thereof may from time to time
designate.

ARTICLE X

AMENDMENTS

SECTION 10.1 AMENDMENTS. These Bylaws may be amended, added to,
rescinded or repealed at any time by the stockholders by vote at a meeting or by
written consent without a meeting. The Board of Directors shall also have the
power, by a majority vote, to alter or repeal any of these Bylaws, and to adopt
new Bylaws. In the case of amendments by stockholders and notwithstanding the
foregoing or any other provisions of these Bylaws or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of stock
required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 66-2/3 percent of the voting power
of the then outstanding shares of Voting Stock voting together as a single
class, shall be required to alter, amend or repeal Sections 2.2, 2.7, 3.2, 3.3,
3.5 and this Section 10.1 of these Bylaws, unless such amendments are approved
by a majority of the directors of the Corporation not affiliated or associated
with any person, other than Pamela M. Lopker or Karl F. Lopker, holding (or
which has announced an intention to acquire) 20% or more of the voting power of
the Corporation's then outstanding voting capital stock, voting together as a
single class.

<PAGE>

The Bylaws of this Corporation were hereby adopted on May 23, 1997.

/s/ Karl F. Lopker
-----------------------------------------
Secretary

<PAGE>

EXHIBIT 4.1

[LOGO]

NUMBER SHARES

QAD

INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 74727D 10 8

This Certifies that

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF

---------------------- ------------------------
----------------------- QAD INC. ----------------------------
---------------------- ------------------------

transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

[SEAL]

/s/ Pamela M. Lopker /s/ Karl Lopker

CHIEF EXECUTIVE OFFICER AND SECRETARY CHAIRMAN OF THE BOARD AND PRESIDENT

COUNTERSIGNED AND REGISTERED:
FIRSTAR TRUST COMPANY
(MILWAUKEE, WI)

TRANSFER AGENT
AND REGISTRAR

AUTHORIZED SIGNATURE

<PAGE>

The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<S> <C>

TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ......................... Custodian ...................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ..................................................
in common (State)

UNIF TRF MIN ACT -- ................. Custodian (until age ................)
(Cust)
........................ under Uniform Transfers
(Minor)
to Minors Act .........................................
(State)
</TABLE>

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, ____________________________ hereby sell, assign and

transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

_____________________________
/ /
/ /
_____________________________

_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

_______________________________________________________________________________

________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated _____________________________

X ___________________________________________

X ___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By _________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

QAD INC.

INDEMNIFICATION AGREEMENT

This INDEMNIFICATION AGREEMENT, dated as of , is between QAD INC., a
Delaware corporation (the "Company"), and _________________ ("Indemnitee").

RECITALS

A. Indemnitee is a director or officer of the Company and in such
capacity is performing valuable services for the Company.

B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the periodic reduction in the coverage of such insurance.

C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time such liability insurance is being severely limited.

D. The Company has adopted and its stockholders have approved bylaws (the
"Bylaws") providing for the indemnification of the Company's directors and
officers to the full extent permitted by Section 145 of the General Corporation
Law of Delaware (the "Statute").

E. The Bylaws and the Statute specifically provide that they are not
exclusive, and they thereby contemplate that contracts may be entered into
between the Company and its directors and officers with respect to
indemnification of such directors and officers.

F. To induce Indemnitee to serve or continue to serve the Company, the
Company desires to confirm the contract indemnification rights provided in the
Bylaws and agrees to provide Indemnitee with the benefits contemplated by this
Agreement.

AGREEMENTS

1. INDEMNITY OF INDEMNITEE

1.1. SCOPE

The Company agrees to hold harmless and indemnify Indemnitee to the full
extent permitted by law, notwithstanding that the basis for such indemnification
is not specifically enumerated in this Agreement, the Company's Certificate of
Incorporation, the Bylaws, any other statute or otherwise. In the event of any
change, after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its Board
of Directors or an officer, such change, to the extent it would expand
Indemnitee's rights hereunder, shall be included within Indemnitee's rights and
the Company's obligations hereunder, and, to the extent it would narrow
Indemnitee's rights or the Company's obligations hereunder, shall be excluded
from this Agreement; PROVIDED, HOWEVER, that any change required by applicable
laws, statutes or rules to be applied to this Agreement shall be so applied
regardless of whether the effect of such change is to narrow Indemnitee's rights
or the Company's obligations hereunder.

<PAGE>

1.2. NONEXCLUSIVITY

The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Certificate of Incorporation, the Bylaws, any agreement, any vote of
stockholders or disinterested directors, the Statute or otherwise, whether as to
action in Indemnitee's official capacity or otherwise.

1.3. INCLUDED COVERAGE

If Indemnitee was or is made a party, or is threatened to be made a party,
to or is otherwise involved (including, without limitation, as a witness) in any
Proceeding (as defined below), the Company shall hold harmless and indemnify
Indemnitee from and against any and all losses, claims, damages, liabilities or
expenses, including, without limitation, attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, witness fees, amounts paid in settlement and
other expenses incurred in connection with such Proceeding (collectively,
"Damages").

1.4. DEFINITION OF PROCEEDING

For purposes of this Agreement, "Proceeding" shall mean any completed,
actual, pending or threatened action, suit, claim or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Company) and whether formal or informal, in which Indemnitee is,
was or becomes involved by reason of the fact that Indemnitee is or was a
director, officer, employee, trustee or agent of the Company or that, being or
having been such a director, officer, employee, trustee or agent, Indemnitee is
or was serving at the request of the Company as a director, officer, employee,
trustee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise (collectively, a "Related Company"), including service
with respect to an employee benefit plan, whether the basis of such proceeding
is alleged action (or inaction) by Indemnitee in an official capacity as a
director, officer, employee, trustee or agent or in any other capacity while
serving as a director, officer, employee, trustee or agent; provided, however,
that, except with respect to an action to enforce the provisions of this
Agreement, "Proceeding" shall not include any action, suit, claim or proceeding
instituted by or at the direction of Indemnitee, unless such action, suit, claim
or proceeding is or was authorized by the Company's Board of Directors.

1.5. DETERMINATION OF ENTITLEMENT

In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 145(d) of the Statute or a
successor statute or pursuant to other applicable law, the appropriate decision
maker shall make such determination; PROVIDED, HOWEVER, that Indemnitee shall
initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee a written notice that Indemnitee is not entitled to indemnification
within 20 days after the Company's receipt of Indemnitee's initial written
request for indemnification, such determination shall conclusively be deemed to
have been made in favor of the Company's provision of indemnification, and that
the Company hereby agrees not to assert otherwise.

-2-

<PAGE>

1.6. CONTRIBUTION

If the indemnification provided under Section 1.1 is unavailable by reason
of a court decision, based on grounds other than any of those set forth in
paragraphs (b) through (d) of Section 4.1, then, in respect of any Proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in
such Proceeding), the Company shall contribute to the amount of Damages
(including attorneys' fees) actually and reasonably incurred and paid or payable
by Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and Indemnitee on the other
from the transaction from which such Proceeding arose and (ii) the relative
fault of the Company on the one hand and of Indemnitee on the other in
connection with the events that resulted in such Damages as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such Damages.
The Company agrees that it would not be just and equitable if contribution
pursuant to this Section 1.6 were determined by pro rata allocation or any other
method of allocation that does not take account of the foregoing equitable
considerations.

1.7. SURVIVAL

The indemnification and contribution provided under this Agreement shall
apply to any and all Proceedings, notwithstanding that Indemnitee has ceased to
serve the Company or a Related Company, and shall continue so long as Indemnitee
shall be subject to any possible Proceeding, whether civil, criminal or
investigative, by reason of the fact that Indemnitee was a director or officer
of the Company or serving in any other capacity referred to in Section 1.4 of
this Agreement.

2. EXPENSE ADVANCES

2.1. GENERALLY

The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right, an "Expense Advance").

2.2. CONDITIONS TO EXPENSE ADVANCE

The Company's obligation to provide an Expense Advance is subject to the
following conditions:

2.2.1. UNDERTAKING

If the Proceeding arose in connection with Indemnitee's service as a
director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or Indemnitee's representative shall have executed and delivered to
the Company an undertaking, which need not be secured and shall be accepted
without reference to Indemnitee's financial ability to make repayment, by or on
behalf of Indemnitee, to repay all Expense Advances if it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties that Indemnitee is not entitled to be indemnified
by the Company.

-3-

<PAGE>

2.2.2. COOPERATION

Indemnitee shall give the Company such information and cooperation
as it may reasonably request and as shall be within Indemnitee's power.

3. PROCEDURES FOR ENFORCEMENT

3.1. ENFORCEMENT

In the event that any claim for indemnity, whether an Expense Advance or
otherwise, is made hereunder and is not paid in full within 60 days after
written notice of such claim is delivered to the Company, Indemnitee may, but
need not, at any time thereafter bring suit against the Company to recover the
unpaid amount of the claim (an "Enforcement Action").

3.2. PRESUMPTIONS IN ENFORCEMENT ACTION

In any Enforcement Action, the following presumptions (and limitation on
presumptions) shall apply:

(a) The Company expressly affirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on it hereunder to induce
Indemnitee to continue as a director or officer of the Company;

(b) Neither (i) the failure of the Company (including the Company's
Board of Directors, independent or special legal counsel or the Company's
stockholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or stockholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and

(c) If Indemnitee is or was serving as a director or officer of a
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or in an Indemnitee or management
capacity in a partnership, joint venture, trust or other enterprise of which the
Company or a wholly owned subsidiary of the Company is a general partner or has
a majority ownership, then such corporation, partnership, joint venture, trust
or other enterprise shall conclusively be deemed a Related Company and
Indemnitee shall conclusively be deemed to be serving such Related Company at
the Company's request.

3.3. ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION

In the event Indemnitee is required to bring an Enforcement Action, the
Company shall pay all of Indemnitee's fees and expenses in bringing and pursuing
the Enforcement Action (including attorneys' fees at any stage, including on
appeal); PROVIDED, HOWEVER, that the Company shall not be required to provide
such payment for such attorneys' fees or expenses if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such Enforcement Action was not made in good faith.

-4-

<PAGE>

4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT

4.1. LIMITATIONS ON INDEMNITY

No indemnity pursuant to this Agreement shall be provided by the Company:

(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended;

(b) For Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability insurance
maintained by the Company;

(c) With respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;

(d) On account of Indemnitee's conduct which is finally adjudged to have
been intentional misconduct, a knowing violation of law, a violation of Section
174 of the Statute or a transaction from which Indemnitee derived an improper
personal benefit; or

(e) If a final decision by a court having jurisdiction in the matter
shall determine that such indemnification is not lawful.

4.2. SEC UNDERTAKING

Indemnitee understands and acknowledges that the Company may be required in
the future to undertake with the Securities and Exchange Commission (the "SEC")
to submit in certain circumstances the question of indemnification to a court
for a determination of the Company's right under public policy to indemnify
Indemnitee.

5. NOTIFICATION AND DEFENSE OF CLAIM

5.1. NOTIFICATION

Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not, however, relieve
the Company from any liability which it may have to Indemnitee under this
Agreement unless and only to the extent that such omission can be shown to have
prejudiced the Company's ability to defend the Proceeding.

5.2. DEFENSE OF CLAIM

With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:

(a) The Company may participate therein at its own expense;

-5-

<PAGE>

(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, or (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense. The Company shall
not be entitled to assume the defense of any Proceeding brought by or on behalf
of the Company or as to which Indemnitee shall have reasonably made the
conclusion provided for in (ii) above;

(c) The Company shall not be liable to Indemnitee under this Agreement
for any amounts paid in settlement of any Proceeding effected without its
written consent;

(d) The Company shall not settle any action or claim in any manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; and

(e) Neither the Company nor Indemnitee shall unreasonably withhold its
consent to any proposed settlement, provided that Indemnitee may withhold
consent to any settlement that does not provide a complete release of
Indemnitee.

6. SEVERABILITY

Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or to fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6, and if this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.

7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION

(a) This Agreement shall be interpreted and enforced in accordance with
the laws of Delaware.

(b) This Agreement shall be binding on Indemnitee and on the Company and
its successors and assigns (including any transferee of all or substantially all
of its assets and any successor by merger or otherwise by operation of law), and
shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any sale of substantially all of its
assets, merger, consolidation or other reorganization in which it is not the
surviving entity, unless the surviving entity agrees in writing to assume all
such obligations of the Company under this Agreement.

-6-

<PAGE>

unless in writing signed by both parties hereto.

8. NOTICES

All notices, claims and other communications hereunder shall be in writing
and made by hand delivery, registered or certified mail (postage prepaid, return
receipt requested), facsimile or overnight air courier guaranteeing next-day
delivery:

(a) If to the Company, to: with a copies to:

QAD Inc. QAD Inc.
6450 Via Real 10000 Midlantic Drive
Carpinteria, California 93013 Suite 200 East
Attention: Mt. Laurel, New Jersey 08054
Attention: Roland B. Desilets, Esq.

and:

Nida & Maloney
801 Garden Street
Suite 201
Santa Barbara, California 93101
Attention: Joseph E. Nida

(b) If to Indemnitee, to the address specified on the last page of this
Agreement or to such other address as either party may from time to time furnish
to the other party by a notice given in accordance with the provisions of this
Section 8. All such notices, claims and communications shall be deemed to have
been duly given if (i) personally delivered, at the time delivered, (ii) mailed,
five days after dispatched, (iii) sent by facsimile transmission, upon
confirmation of receipt, and (iv) sent by any other means, upon receipt.

-7-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.

QAD INC.,
a Delaware corporation

By:
-------------------------------
Name:
Title:

INDEMNITEE:

-----------------------------------
Name (Please Print)

-----------------------------------
Signature of indemnitee

Address:

with a copy to:

-8-

<PAGE>

EXHIBIT 10.15

OFFICE LEASE
5464 CARPINTERIA AVENUE
SUITES I, K AND L

MATCO ENTERPRISES, INC.
LANDLORD

and

qad. inc
TENANT

<PAGE>

TABLE OF CONTENTS

1. LEASED PREMISES. ..................................................... 1
2. TERM. ................................................................ 2
3. POSSESSION. .......................................................... 2
4. USE OF PREMISES. ..................................................... 3
5. RENT. ................................................................ 3
6. SECURITY DEPOSIT. .................................................... 4
7. PERSONAL PROPERTY TAXES. ............................................. 5
8. REAL PROPERTY TAXES. ................................................. 6
9. OPERATING COSTS. ..................................................... 6
10. REAL ESTATE TAXES AND OPERATING COSTS FOR 1993. ...................... 7
11. PARKING. ............................................................. 8
12. SIGNAGE. ............................................................. 8
13. EXPANSION TO SUITE J. ................................................ 8
14. RIGHT OF FIRST REFUSAL TO LEASE. ..................................... 10
15. RIGHT OF FIRST REFUSAL TO PURCHASE. .................................. 10
16. OPTION TO RENEW. ..................................................... 11
17. CHANGE IN OWNERSHIP OF TENANT. ....................................... 11
18. ALTERATIONS. ......................................................... 12
19. CARE OF PREMISES. .................................................... 12
20. ACCESS. .............................................................. 13
21. DAMAGE TO PROPERTY; INJURY TO PERSONS. ............................... 14
22. ASSIGNMENT AND SUBLETTING. ........................................... 15
23. DAMAGE OR DESTRUCTION. ............................................... 16
24. EMINENT DOMAIN. ...................................................... 17
25. DEFAULTS. ............................................................ 18

(i)
<PAGE>

26. REMEDIES. ............................................................ 20
27. RULES AND REGULATIONS. ............................................... 22
28. CONFLICT OF LAWS. .................................................... 22
29. END OF TERM. ......................................................... 22
30. QUIET POSSESSION. .................................................... 23
31. SUCCESSORS AND ASSIGNS. .............................................. 23
32. NOTICES. ............................................................. 23
33. INSURANCE. ........................................................... 24
34. BROKERS. ............................................................. 25
35. WAIVER. .............................................................. 25
36. ESTOPPEL CERTIFICATE. ................................................ 26
37. INTEREST ON PAST DUE OBLIGATIONS. .................................... 27
38. LATE CHARGES. ........................................................ 27
39. TENANT FINANCIAL STATEMENTS. ......................................... 27
40. TRANSFER OF LANDLORD'S INTEREST. ..................................... 28
41. HOLDING OVER. ........................................................ 28
42. INABILITY TO PERFORM. ................................................ 28
43. SEPARABILITY. ........................................................ 28
44. ATTORNEY'S FEES. ..................................................... 29
45. TIME OF ESSENCE. ..................................................... 29
46. HEADINGS. ............................................................ 29
47. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. ....................... 29
48. GENDER. .............................................................. 30
49. ACCORD AND SATISFACTION. ............................................. 30
50. NO LIENS. ............................................................ 30
51. SUBORDINATION. ....................................................... 31
52. COMMON AREAS. ........................................................ 31

(ii)

<PAGE>

53. SURRENDER OF PREMISES. ............................................... 32
54. EXAMINATION OF LEASE. ................................................ 32
55. RECORDING. ........................................................... 32

(iii)

<PAGE>

OFFICE LEASE
5464 Carpinteria Avenue, Suites I, K and L

THIS LEASE AGREEMENT is dated this 30th day of November, 1992, by and
between MATCO ENTERPRISES, INC., a Washington corporation, hereinafter
referred to as "Landlord", and qad. inc, hereinafter referred to as "Tenant".

WITNESSETH

For and in consideration of the covenants and agreements set forth
herein to be kept and performed by Tenant, Landlord leases to Tenant and
Tenant accepts and hires from Landlord the hereinafter described Premises for
the term, at the rental and subject to the terms and conditions set forth as
follows:

1. LEASED PREMISES.
(a) The Premises leased hereunder are Suites I, K and L located at
5464 Carpinteria Avenue, in the City of Carpinteria, County of Santa Barbara,
State of California, and are identified on the floor plan attached hereto as
Exhibit "A", including exclusive use of the bathrooms between Suites K and L.
Said leased Premises contain 3221 net rentable square feet in Suite I, and
8984 net rentable square feet in Suites K and L.
(b) Tenant has provided to Landlord its space plans and related
specifications for its Tenant improvements for said leased Premises which are
attached hereto as Exhibit "B". Landlord hereby approves these plans and
specifications. Landlord shall cause the construction of the Tenant
improvements pursuant to said plans and specifications.
The Tenant improvement costs for the implementation of the space plans
attached hereto as Exhibit "B" shall not exceed the total sum of $225,000.00
(based on 3,221 square feet for Suite I and 8984 square feet for Suites K and
L).

1.
<PAGE>

These costs are predicated on the attached space plans, their related
specifications and the plans and specifications used to obtain the building
permit for the Tenant Improvements as well as the assumption that the
improvements will be constructed simultaneously for target occupancy date of
February 10, 1993. Said costs shall include all "hard" and "soft" costs
associated with the construction of the tenant improvements. "Soft" cost
shall include the cost of all mechanical, electrical and structural design or
engineering required for preparation of final plans and specifications as
well as the cost of all building permits and/or other licenses or fees
required to construct the same. Any changes, alterations or additions to said
plans and specifications by tenant which cause the cost of same to exceed the
sum of $225,000.00 shall be borne by tenant and paid upon presentation.
Landlord shall complete the Tenant Improvements in a good and workmanlike
manner in accordance with the plans and specifications attached to this
lease. Tenant shall have the right, upon PRIOR NOTIFICATION to property
manager William Pintard, to inspect the progress of the construction of such
improvements at reasonable intervals during the course of construction and
upon their completion, Tenant shall inspect the same and provide Landlord a
final "punch list" for corrective action.

2. TERM.
The term of the lease herein shall be five years commencing February
10, 1993 or the date of issuance of a Certificate of Occupancy for the
Premises, whichever shall last occur, and terminating five years after
commencement. At the time of the issuance of the certificate of occupancy
Landlord and Tenant shall execute a memorandum memorializing the commencement
date for the term of this Lease.

3. POSSESSION.
The issuance of a Certificate of Occupancy shall conclusively
demonstrate the completion of such improvements

2.
<PAGE>

and the availability of the Premises to Tenant and thereafter rent shall
accrue under the terms of the lease. An initial letter detailing the exact
date of expected occupancy shall be transmitted to Tenant no later than
December 10, 1992, provided Landlord has received the building permit for the
Tenant Improvements. Landlord and Tenant shall diligently work and cooperate
so as to assure occupancy by February 10, 1993 or the next earliest possible
date. Notwithstanding the foregoing, should Landlord, for any reason
whatsoever, fail or be unable to deliver the subject premises to Tenant by
July 15, 1993, then in that event, Tenant shall have the right to terminate
the lease in its entirety. In the event of such termination, Landlord shall
promptly return to Tenant all advance rental payments and security deposits
previously transmitted to Landlord by Tenant.

4. USE OF PREMISES.
The premises may be used and occupied by Tenant for office purposes
only to engage in the business of the production, development and marketing
of computer software. Tenant shall in no event use the premises in a
violation of any law, including any Zoning Ordinance.

5. RENT.
(a) Tenant shall pay to Landlord as minimum monthly rent without
deduction, setoff, prior notice, or demand, the sum of $15,256.25 per month
($1.25/per square foot x 12205 square feet of net rentable square footage) in
advance on the first day of each month commencing on the date possession
(Certificate of Occupancy) of the premises is granted to Tenant and
continuing during the term. Minimum monthly rent for any partial month,
including the first month and last month of the lease, shall be prorated at
the rate of 1/30 of the minimum monthly rent per day.

(b) The minimum monthly rent shall be subject to adjustment
effective on the January first following commence-

3.
<PAGE>

ment of the Lease Term and at the beginning of each calendar year thereafter
(the "Adjustment Date") as follows. The base for computing the adjustment is
the Consumer Price Index for All Urban Consumers (base year 1982-1984) for
the Los Angeles-Long Beach-Anaheim Metropolitan Area, published by the United
States Department of Labor, Bureau of Labor Statistics ("Index"), which is in
effect on the Commencement Date ("beginning Index"). The Index published most
immediately preceding the Adjustment Date in question ("Extension Index") is
to be used in determining the amount of the adjustment. If the Extension
Index has increased over the Beginning Index, the fixed minimum rent for the
following year (until the next rent adjustment) shall be set by multiplying
the fixed minimum monthly rent by a fraction, the numerator of which is the
Extension Index and the denominator of which is the Beginning Index. In no
case shall the fixed minimum rent be less than the fixed minimum rent in
effect at the Commencement Date. On adjustment of the minimum monthly rent as
provided in this Lease, the parties shall immediately execute an amendment to
this Lease stating the new fixed minimum rent.

The annual cost of living adjustments shall not exceed 5% per annum
during the term of the lease.

If the Index is changed so that the base year differs from that in
effect when the Term commences, the Index shall be converted in accordance
with the conversion factor published by the United States Department of
Labor, Bureau of Labor Statistics. If the Index is discontinued or revised
during the Term, such other government index or computation of which it is
replaced shall be used in order to obtain substantially the same result as
would be obtained if the Index has not been discontinued or revised.

6. SECURITY DEPOSIT.
Simultaneously with the execution of this lease, Tenant shall deposit
with Landlord $30,512.50, which includes the sum of $15,256.25 representing
the first month's rent and the

4.
<PAGE>

additional sum of $15,256.25 representing the initial deposit of the security
deposit for the performance by Tenant of the provisions of this Lease. Upon
issuance of a Certificate of Occupancy Tenant shall submit to Landlord an
additional check in the amount of $30,512.50. Said additional sum represents
the balance of the security deposit. Landlord shall return $30,512.50 to
Tenant, one year from the date rent commences, provided the lease has
remained in full force and effect and no delinquencies in rental payment have
occurred, and Tenant is not in default of any other terms of the lease. For
the purposes of this paragraph, a delinquency in rental payment shall mean
any monthly rental payments that when made is more than ten days past due. If
Tenant is in default of the payment of rent or any other provision of this
Lease, Landlord may use the security deposit, or any portion of it, to cure
the default or to compensate Landlord for all damage sustained by Landlord
resulting from Tenant's default. Tenant shall immediately on demand pay to
Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord as provided in this paragraph so as to maintain the
security deposit in the sum originally agreed to be deposited with Landlord.
If Tenant is not in default at the expiration or termination of this lease,
Landlord shall return the security deposit to Tenant. Landlord shall have the
right to commingle the security deposit with Landlord's general and other
funds, and Landlord shall not be required to pay Tenant interest on the
security deposit.

7. PERSONAL PROPERTY TAXES.
Tenant shall pay before delinquency all taxes, assessments, license
fees, and other charges that are levied and assessed against Tenant's
personal property installed or located in or on the Premises, and that accrue
during the term. On demand by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of these payments.

5.
<PAGE>

8. REAL PROPERTY TAXES.
(a) Tenant shall pay monthly to Landlord, as additional rent, its
proportionate share of all real property taxes and general and special
assessments levied and assessed against the building, other improvements, and
land of which the Premises are a part.

(b) Tenant's proportionate share shall be equal to the total real
property taxes levied and assessed against the building, other improvements,
and land of which the Premises are a part, times the ratio the numerator of
which shall be the total number of rentable square feet in the leased
Premises, and the denominator of which shall be the total number of rentable
square feet in the building and other improvements in which the Premises are
located, which presently totals 49,456 net rentable square feet.

(c) Each year Landlord shall notify Tenant of Landlord's
calculation of Tenant's proportionate share of the real property taxes and
together with such notice shall furnish Tenant with a copy of the tax bill.

9. OPERATING COSTS.
(a) Tenant shall pay monthly to Landlord, as additional rent, its
proportionate share of all operating costs. Tenants proportionate share shall
be calculated on the same basis as taxes are calculated as provided in
paragraph 8 hereof.

(b) "Operating costs" shall mean Tenant's proportionate share of
the sum of the costs reasonably incurred for all utilities, building
supplies, repairs, and maintenance which includes a management fee not to
exceed ten percent (10%) and insurance maintained by Landlord, and cost of
labor and services of employees and independent contractors incurred by
Landlord in maintaining and operating the building (such labor costs shall
include the cost of compensation, including employment taxes and fringe
benefits, of all persons who perform regular and recurring duties connected
with the

<PAGE>

day-to-day operation, maintenance, repair and overhaul of the Building, its
equipment, and the adjacent walks, parking lot, and landscaped areas,
including but without limitation, administrative and office employees of
Landlord, engineers, elevator starters, janitors, foremen, floor waxers,
window washers, watchmen and gardeners, but excluding other persons
performing services not uniformly available to or performed for substantially
all tenants of the Building); together with the amortized annual cost of
capitalized improvement costs incurred in maintaining the Building.

(c) As part of the operating costs hereunder, Landlord shall
provide the following service: (1) janitorial services for the premises and
common area; (2) common area utilities; (3) all necessary utilities for the
heating, and air conditioning of the premises including gas; (4) trash
removal, fire alarm system, elevator and HVAC maintenance; (5) water; and (6)
maintenance as required under paragraph 19 herein. Tenant shall pay for
electrical service to the premises. During the period Tenant does not occupy
Suite J and in the event Suites I, L, K and J are served using the same
electrical meter then Landlord shall reimburse Tenant for the amount of
electrical usage for Suite J for each electrical bill in an amount equal to
the total electrical bill for Suites I, L, K and J times the ratio the
numerator of which is the net rentable square footage of Suite J and the
denominator of which shall be the total net rental square footage of Suites
I, L, K and J.

10. REAL ESTATE TAXES AND OPERATING COSTS FOR 1993.
It is agreed that for 1993 the total charges to Tenant under paragraphs
8 and 9, above, shall not exceed $.51 per square foot per month times 12205
net rentable square feet of the Premises. For calendar year 1994 and the
remainder of the lease term there shall be no cap on the charges to Tenant
under paragraphs 8 and 9, above.

7.
<PAGE>

11. PARKING.
Tenant shall have the use of 49 parking spaces. In the event a problem
develops during the term of the lease with Tenant having insufficient parking
for its employees, Landlord agrees to designate 49 parking spaces for the
exclusive use of Tenant. Tenant's employees shall not park in areas
designated as visitor parking.

12. SIGNAGE.
Tenant shall have the right to install a corporate signature sign on
the exterior of building, above or around the easterly entrance to the office
building in which the subject premises are located. The size, overall design
and material of said sign shall be mutually agreed upon by the parties hereto
and shall conform to all local government regulations applicable to same.
Tenant shall comply with all local government regulations relating to
installation of such signs. The cost and installation of said exterior sign
shall be borne by Tenant. Upon termination of its tenancy, Tenant shall
remove the exterior sign and repair the exterior surface of the building
where the sign was anchored at Tenant's cost. Tenant shall also be entitled
to interior signage at both the west and east interior lobby areas of the
premises and the cost and installation of same shall be borne by Landlord
providing same is in conformance with Landlord's practice and custom with
existing tenants.

13. EXPANSION TO SUITE J.
Provided Tenant is not in default on any term of this lease, Tenant
shall have the right to expand into and occupy Suite J located at 5464
Carpinteria Avenue, Carpinteria, California, on the following terms and
conditions:

(a) Tenant shall occupy Suite J on or after August 1, 1993, and on
or before July 30, 1994, which time period shall hereinafter be referred to
as the "window period".

8.
<PAGE>

(b) Tenant shall provide Landlord written notice of its election
to occupy Suite J and the desired date of occupancy at least 140 days prior
to its desired date of occupancy.

(c) In the event Tenant notifies Landlord of its exercise of this
right to expand and occupy Suite J, Landlord shall have the right to exclude
Suites 223 and 224 from the portion of Suite J occupied by Tenant. Upon
receipt of Tenant's notice to expand and occupy Suite J, Landlord shall have
seven days to notify Tenant in writing of its exclusion of Suites 223 and 224
from the portion of Suite J to be occupied by Tenant.

(d) The rental rate applicable to the portion of Suite J occupied
by Tenant shall be $1.25 per square foot per month subject to annual C.P.I.
increases commencing January 1, 1994, under the terms of paragraph 5(b),
above.

(e) Within thirty days of Tenant's written notice of its election
to occupy Suite J, Tenant shall provide Landlord with plans and
specifications for the tenant improvements for the portion of Suite J Tenant
will occupy. Landlord shall cause the tenant improvements for Suite J to be
constructed in accordance with such plans and specifications. Landlord shall
bear the cost of such tenant improvements up to an amount equal to $15.00 per
square foot of net rentable space of Suite J to be occupied by Tenant.

(f) Provided that at least four years will remain on the initial
term of this lease at the time of the proposed occupancy of Suite J, the term
of this lease as to Suite J shall be co-extensive with the initial term of
this lease as to Suites I, K and L. In the event less than four years will
remain on the initial term of this lease at the time of the proposed
occupancy of Suite J, then the term of this lease as to Suite J shall be four
years.

(g) All other provisions of this lease shall be applicable to the
portion of Suite J occupied by Tenant.

9.
<PAGE>

14. RIGHT OF FIRST REFUSAL TO LEASE.

Tenant acknowledges that Tri-Counties Regional Center has the first
right of refusal to lease space at 5464 Carpinteria Avenue, Carpinteria. In
the event Tri-Counties waives or fails to exercise its first right of refusal
to lease, and provided Tenant is not in default on any term of this lease,
Tenant shall have the second right of refusal to lease any other available
space at 5464 Carpinteria Avenue, Carpinteria, on the same terms and
conditions contained in a bona fide offer to lease acceptable to Landlord.
Landlord shall notify Tenant in writing of the premises and terms of the
proposed lease of those premises, and Tenant shall have ten days to notify
Landlord in writing of its exercise of its right to lease the premises on the
same terms set out in Landlord's notice. In the event Tenant waives its
second right of refusal to lease or fails to notify of its exercise of that
right within said five day period, Tenant's right to lease such premises
shall cease and Landlord shall be free to lease the premises to a third
party. Landlord hereby acknowledges that Tri-Counties Regional Center's
first right of refusal to lease space is non-operative as to Tenant's
expansion rights for Suite J under paragraph 13 hereof, as Landlord has
obtained Tri-Counties Regional Center's waiver concerning same prior to the
execution of this lease by Landlord and Tenant.

15. RIGHT OF FIRST REFUSAL TO PURCHASE.

Provided Tenant is not in default on any term of this lease, during
the initial term of this lease and any extension thereof, Tenant shall have
the right of first refusal to purchase the premises at 5464 Carpinteria
Avenue, Carpinteria, California, on the same terms and conditions as
contained in a bona fide offer to purchase acceptable to landlord. Landlord
shall notify Tenant in writing of the terms and conditions of the proposed sale
which Landlord intends to accept, and Tenant shall have 15 days to notify
Landlord in writing of its

10.

<PAGE>

exercise of its right to purchase the premises on the same terms set out in
Landlord's notice. In the event Tenant waives its right of first refusal to
purchase or fails to notify Landlord of its exercise of that right within
said 15 day period, Tenant's right of first refusal to purchase shall cease
and Landlord shall be free to sell the property to a third party.

16. OPTION TO RENEW.

Provided that Tenant is not in default on any term of this Lease,
Tenant shall have the option to renew the lease for five (5) renewal periods
of one year each. Tenant shall notify Landlord in writing of its exercise of
the first one year renewal option at lease 120 days prior to the expiration
of the initial lease term, and for each subsequent renewal period Tenant
shall notify Landlord in writing of its exercise of the next renewal option
at least 120 days prior to the expiration of the then current renewal period.
The rental rate for each renewal period shall be at the then current market
rate, or the rental rate of the previous year together with the C.P.I.
adjustment pursuant to paragraph 5(b), above, whichever is greater. All
other terms of this lease shall remain the same during any renewal period.

17. CHANGE IN OWNERSHIP OF TENANT.

Upon the occurrence of a sale, merger or other transfer of corporate
stock of Tenant resulting in Tenant's two principal shareholders/owners of
corporate stock owning, beneficially or otherwise, less than fifty percent
(50%) of the corporate stock of Tenant, Landlord shall have the right to
review the then current financial statement of Tenant. Should Landlord's
review of Tenant's financial statement under the aforesaid circumstances show
that Tenant's stockholder's equity is less than two million seven hundred
thousand dollars ($2,700,000.00), then in that event, there shall arise the
obligation on the part of said Tenant's present two principal

11.

<PAGE>

shareholders/owners of corporate stock to personally guarantee the
performance of Tenant under the lease, from the date of transfer to said
stock to the expiration date of the initial lease term, provided, however,
that said obligation to so personally guarantee Tenant's performance
hereunder shall not, in total, exceed the sum of two hundred twenty-five
thousand dollars ($225,000.00).

18. ALTERATIONS.

Tenant shall make no alterations, additions or improvements to the
Premises without the prior written consent of Landlord, which will not be
unreasonably withheld, and Landlord may impose, as a condition of such
consent, such requirements as Landlord in its sole discretion may deem
reasonable or desirable. Tenant covenants and agrees that all work done by
Tenant shall be performed in full compliance with all laws, rules, orders,
ordinances, directions, regulations and requirements of all government
agencies, offices, departments, bureaus and boards having
jurisdiction, and in full compliance with rules, orders, directions,
regulations and requirements of the Pacific Fire Rating Bureau or any other
organization performing a similar function. Before commencing any work,
Tenant shall give Landlord at least five (5) days' written notice of the
proposed commencement date of such work. All such alterations, additions or
improvements shall become the property of Landlord and shall be surrendered
with the Premises, as a part thereof, at the end of the term hereof, except
that Landlord may, by written notice to Tenant given at least thirty (30)
days prior to the end of the term, require Tenant to remove all improvements
installed by Tenant and to repair any damage to the premises from such
removal.

19. CARE OF PREMISES.

(a) Tenant shall keep the Premises and fixtures therein (excepting
therefrom the bathroom fixtures in the bathrooms between Suites K and L) in
first class condition and

12.

<PAGE>

shall make all repairs thereto which are required to keep the Premises in
first class condition, ordinary wear and tear excepted. Repairs to the
Premises and fixtures therein shall be the sole responsibility of Tenant and
are in addition to the operating costs referred to in paragraph 9, above. All
such repairs shall be at least equal in quality to the original work.
Landlord may make any such repairs which are not promptly made by Tenant and
may charge the cost thereto to Tenant.

(b) Landlord, as part of the operating costs referred to in paragraph 9
hereof, shall maintain and keep in good condition and repair the structural
portions of the Building, including but not limited to, the foundations,
exterior walls, structural condition of interior bearing walls, plumbing and
plumbing fixtures, mechanical systems and fixtures, heating and air
conditioning, elevators, and electrical systems and fixtures installed or
furnished by Landlord in the building. Landlord shall have no obligation to
alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof except for the construction of Tenant Improvements provided for in
paragraph 1(b), and the parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises or the
Building, except as set forth in paragraph 19 hereof. Landlord shall not be
liable for any failure to make any repairs or to perform any maintenance
unless such failure shall persist for an unreasonable time after written
notice of the need for such repairs or maintenance has been given to
Landlord by Tenant. Tenant hereby waives the right, if any, which Tenant may
have to make repairs at Landlord's expense under Section 1942 of the
California Civil Code, or under any law, statute or ordinance now or
hereafter in effect.

20. ACCESS.

Landlord and its agents shall have the right to enter the Premises at
all reasonable times upon four (4) hours oral

13.

<PAGE>

notice for the purpose of examining or inspecting the same, showing the same
to prospective purchasers or tenants of the Building, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building as Landlord may deem necessary or desirable. During the six months
prior to the end of the term of this lease, Landlord may exhibit the Premises
to prospective tenants during reasonable hours. If Tenant shall not be
personally present to open and permit an entry into the Premises at any time
when such an entry by Landlord is necessary or permitted hereunder, Landlord
may enter by means of a master key or may enter forcibly, without liability
to Tenant except for any failure to exercise due care for Tenant's property,
and without affecting Tenant's obligations under this lease.

21. DAMAGE TO PROPERTY; INJURY TO PERSONS.

(a) Tenant shall indemnify and hold Landlord harmless against and
from any and all claims arising or allegedly arising from Tenant's use of the
Premises or the conduct of his business or profession or from any activity,
work, or thing done, permitted or suffered by the Tenant in or about the
Premises, and shall further indemnify and hold harmless Landlord against and
from any and all claims arising or allegedly arising from any breach or
default in the performance of any obligation on Tenant's part to be performed
under the terms of this lease, or arising or allegedly arising from any act
or negligence of the Tenant, or of his agents, contractors, servants,
licensees, invitees or employees, and from and against all cost, attorney's
fees, expenses and liabilities incurred in or about any such claim or any
action or proceeding brought thereon; and in case any action or proceeding
be brought against Landlord by reason of any such claim, Tenant, upon notice
from Landlord, shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to

14.

<PAGE>

persons, in, upon or about the Premises from any cause other than Landlord's
or its agents' willful misconduct or gross negligence, and Tenant hereby
waives all claims in respect thereof against Landlord.

(b) Neither Landlord nor its agents shall be liable for any damage to
property entrusted or allegedly entrusted to Landlord or its agents, nor for
a loss of or damage to any property by theft or otherwise, nor for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any part
of the Building nor from the pipes, appliances or plumbing works therein nor
from the roof, street, or subsurface not from any other place or resulting
from dampness nor from any other cause whatsoever, unless caused by or due to
the gross negligence or willful misconduct of Landlord, its agents, servants
or employees. Neither Landlord nor its agents shall be liable for interference
with the light or other incorporeal hereditaments, nor be liable for any
latent defect in the Premise or in the Building which are unknown to Landlord
at the time this lease is signed by Landlord and Tenant. Tenant shall give
prompt notice to Landlord in case of fire or accidents in the Premises or in
the Building, or of defects therein or the fixtures or equipment.

22. ASSIGNMENT AND SUBLETTING.

Tenant shall not, either voluntarily or by operation of law, sell,
hypothecate, assign, or transfer this lease, or sublet the Premises or any
part thereof, or permit same to be occupied by anyone other than Tenant or
Tenant's employees without the prior written consent of Landlord and any
attempt to do so without such prior written consent shall be void and at
Landlord's option shall terminate this Lease. Landlord agrees not to
unreasonably withhold its consent provided the proposed assignee (a) is
satisfactory to landlord as to credit, character and business or professional
standing,

15.
<PAGE>

(b) will occupy the Premises for office purposes for a similar business not
inconsistent with Landlord's commitment with the other Tenants, and (c)
assumes and agrees to be bound and directly responsible for all of Tenant's
past, present and future obligations hereunder. However, Tenant agrees that
Landlord's consent to any such assignment or sublease shall in no event be
construed as releasing Tenant from its past, present and future liabilities
and obligations hereunder nor as relieving Tenant from the requirement of
obtaining Landlord's prior written consent to any further assignment or
subletting. Consent to one assignment or sublease shall not waive Landlord's
right to approval of any future assignment or sublease.

23. DAMAGE OR DESTRUCTION.
(a) Except as elsewhere provided in this lease, if the Premises or
the Building are damaged by fire or other casualty, the damage shall be
repaired by and at the expense of Landlord, provided such repairs can, in
Landlord's opinion, be made within sixty (60) days after the occurrence of
such damage without the payment of overtime or other premiums, and further
provided the cost of such repairs does not exceed the insurance proceeds
received by Landlord. Rent shall abate as to the portion of the Premises as to
which it is impossible for Tenant to occupy during this sixty (60) day period.
If the damage is due to the fault or neglect of Tenant or his employees, there
shall be no abatement of rent regardless of the period which the Premises are
unusable.
(b) If such repairs cannot, in Landlord's opinion, be made within
sixty (60) days after the occurrences of such damage, or the repairs exceed
the insurance proceeds received by Landlord, Landlord may, at its option,
make them within a reasonable time and in such event this Lease shall
continue in effect and the rent shall be apportioned according to the square
footage of the Premises usable by Tenant during the course of repairs as it
relates to the entire Premises.

16.

<PAGE>

Landlord's election to make such repairs must be evidenced by written notice
to Tenant within thirty (30) days after the occurrence of the damage.
(c) Notwithstanding anything to the contrary contained in this
paragraph 23, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises on account of the damage during the last
twelve (12) months of the term of this Lease (or any extension thereof).
Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacement of any panels, decoration,
office fixtures, railing, ceiling, floor covering, partitions, or any other
property insured in the Premises by Tenant. If Landlord shall elect not to
repair said damage during said last twelve (12) months of the term, then the
rent shall be apportioned according to that part of the premises usable by
Tenant during the remaining term.
(d) If Landlord does not elect to make such repairs which cannot be
made within sixty (60) days, then either party may, by written notice to the
other, cancel this lease as of the date of the occurrence of such damage. A
total destruction of the Building shall automatically terminate this lease. As
used herein the destruction of eighty percent (80%) of the Building shall be
deemed a total destruction.

24. EMINENT DOMAIN.
(a) If the whole of the Premises or so much thereof as to render the
balance unusable by Tenant shall be taken under power of eminent domain, this
lease shall automatically terminate as of the date of such condemnation, or
as of the date possession is taken by the condemning authority, or as
otherwise herein provided, whichever is earlier. No award for any partial or
entire taking shall be apportioned, and Tenant now hereby assigns to Landlord
any award which may be made in such taking or condemnation, together with any
and all rights of Tenant or hereafter aris-

17.

<PAGE>

ing in or to the same or any part thereof. In the event of a partial taking
which does not result in a termination of this Lease, the rent shall be
apportioned according to the part of the premises remaining usable by Tenant.
Landlord may, without any obligation or liability to Tenant, stipulate with
any condemning authority for a judgment of condemnation, and the date of
taking under this clause shall then be deemed the date agreed to under the
terms of said agreement for stipulation.
(b) If an award for partial or entire taking shall be made, then
Landlord shall pay to Tenant, within sixty (60) days after receipt of the
monies provided in such award, a sum equal to the excess costs of
constructing Tenant's improvements over the allowance provided by Landlord,
less depreciation taken by Tenant for tax purposes.

25. DEFAULTS.
The occurrence of any of the following shall constitute a material default
and breach of this lease:
(a) The abandonment of the Premises by Tenant. Abandonment is
herein defined to include, but is not limited to, any absence by Tenant from
the Premises for five (5) consecutive days or longer while in default of
any provision of this lease.
(b) A failure by Tenant to pay the rent, or to make any other
payment required to be made by Tenant hereunder, where such failure continues
until the earlier of (i) ten (10) days after the date such payment was due, or
(ii) a period of three (3) days after written notice thereof from Landlord
to Tenant; provided, however, that any such notice shall be in lieu of and
not in addition to any notice required under Section 1161 of the California
Code of Civil Procedure.
(c) A failure by Tenant to observe and perform any other provision
of this Lease to be observed or performed by Tenant, where such failure
continues for thirty (30) days after written notice thereof by Landlord to
Tenant; provided,

18.

<PAGE>

however, that any such notice shall be in lieu of, and not in addition to,
any notice required under Section 1161 of the California Code of Civil
Procedure; provided, however, that if the nature of such default is such that
the same cannot reasonably be cured within such thirty (30) day period,
Tenant shall not be deemed to be in default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion.
(d) The making by Tenant of any general assignment for the benefit
of creditors; the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or of a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant) the same is dismissed within thirty (30) days; the
appointment of a trustee or receiver to the possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; of
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged within thirty (30) days.
(e) Landlord shall not be deemed to be in default in the performance
of any obligation required to be performed by it hereunder unless and until
it has failed to perform such obligation within thirty (30) days after
written notice by Tenant to Landlord specifying wherein Landlord has failed
to perform such obligation; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.

19.
<PAGE>

26. REMEDIES.

In the event of any such material default or breach by Tenant,
Landlord at any time thereafter, at Landlord's option and without limiting
the Landlord in the exercise of any other right or remedy which Landlord may
have at law in equity by reason of such default or breach, with or without
notice of demand may:

(a) Reenter the premises with or without process of law and
take possession of the same and of all fixtures of Tenant therein, and expel
or remove Tenant and all other parties occupying the Premises, using such
force as may be reasonably necessary to do so, without being liable to any
prosecution for such reentry or for the use of such force, and, without
terminating this Lease, without notice of any kind to Tenant, at any time and
from time to time relet the Premises or any part thereof for the account of
Tenant, for such term, upon such conditions and at such rental as may be
commercially reasonable. In such event Landlord may receive and collect the
rent from such reletting and apply it against any amounts due from Tenant
hereunder (including, but without limitation, such reasonable expenses as
Landlord may have incurred in recovering possession or the repairing the same
for reletting, and all other necessary expenses, commissions and charges,
including attorneys' fees, which Landlord may have paid or incurred in
connection with such repossession and reletting). Landlord may execute any
lease made pursuant hereto in Landlord's name or in the name of Tenant, as
Landlord may see fit, and the Tenant thereunder shall be under no obligation
to see to the application by Landlord of any rent collected by Landlord, nor
shall Tenant have any right to collect any rent thereunder. Whether or not
the Premises are relet, Tenant shall pay Landlord, until the end of the term
hereof, the amount of all rent and other charges required to be paid by
Tenant hereunder, less the proceeds of such reletting during the term hereof,
if any, after payment of Landlord's expense including leasing commission, as
provided

20.

<PAGE>

above. Such payments by Tenant shall be due at such times as are provided
elsewhere in this lease, and Landlord need not wait until the termination of
this lease to recover them by legal action or otherwise. Landlord shall not
by any reentry or other act be deemed to have terminated this Lease or the
liability of Tenant for the total rent hereunder unless Landlord shall give
Tenant written notice of Landlord's election to terminate the Lease.

(b) Give written notice to Tenant of Landlord's election to
terminate this lease, reenter the Premises with or without process of law and
take possession of the same and all fixtures therein, and expel or remove
Tenant and all other parties occupying the Premises, using such force as may
be reasonably necessary to do so, without being liable to any prosecution for
such reentry or for the use of such force. In such event, Landlord shall
thereupon be entitled to recover from Tenant:

(i) The worth at the time of award of any unpaid rent
which had been earned at the time of such termination; plus

(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 Tenant proves could
have been reasonably avoided; plus

(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 Tenant proves could be reasonably
avoided; plus

(iv) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform his
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom including leasing commissions.

As used in Subsection (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the

21.

<PAGE>

rate of ten percent (10%) per annum. As used in Subsection (iii) above, the
"worth at the time of award" is 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%).

(c) Landlord shall have all rights and remedies provided in
Section 1951.4 of the California Civil Code wherein it provides, in part,
that although Tenant has breached this Lease, this Lease continues in effect
for so long as Landlord does not terminate Tenant's right to possession and
Landlord may enforce all his rights and remedies under this lease.
Notwithstanding the above, Landlord will make a reasonable effort to obtain
a substitute tenant.

27. RULES AND REGULATIONS.

Tenant shall fully and faithfully comply with and observe the rules
and regulations for the building of which the Premises are a part and which
are attached hereto as Exhibit "C". Furthermore, Tenant shall fully and
faithfully comply with all additions or amendments to such rules or
regulations hereafter made by Landlord and communicated to Tenant by written
notice given to Tenant by Landlord. Landlord shall not be liable in any way
for failure of any other occupant of the building of which the Premises are a
part to comply with and observe such rules and regulations.

28. CONFLICT OF LAWS.

This Lease shall be governed by and construed pursuant to the laws
of the State of California.

29. END OF TERM.

At the termination of this Lease Tenant shall surrender the
Premises to Landlord in the same condition and repair as Tenant received
possession of the premises, reasonable wear and tear excepted. Provided
Tenant is not in default Tenant may remove, and at Landlord's request shall

22.

<PAGE>

remove, all of its trade fixtures, personal property and signs, provided such
removal will not structurally injure the Premises and Tenant agrees to
restore the Premises to its original condition, reasonable wear and tear
excepted. Any property not so removed within ten (10) days after termination,
Landlord may remove and store, at Tenant's expense. If Tenant shall not remove
same within twenty (20) days thereafter, Landlord may deduct the cost of
removal and storage thereof from any refund due Tenant from its security
deposit. Tenant shall reimburse Landlord for any cost incurred by Landlord in
such removal or disposition or in repairing or restoring the Premises. Tenant
shall further indemnify Landlord against all losses, costs and damages
resulting from Tenant's failure and delay in surrendering the Premises in
good clean condition.

30. QUIET POSSESSION.

Upon Tenant's paying the rent reserved hereunder and observing and
performing all the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have quiet possession of
the Premises for the entire term hereof, subject to all of the provisions of
this Lease.

31. SUCCESSORS AND ASSIGNS.

Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.

32. NOTICES.

(a) Any notice required or permitted to be given hereunder
may be given by personal delivery or by mail, and if by mail shall be deemed
sufficiently given if sent by

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<PAGE>

registered or certified mail, postage prepaid, addressed as follows:

LANDLORD: MATCO ENTERPRISES, INC.
c/o The William Herbert Co.
5464 Carpinteria Avenue
Carpinteria, California 93103

TENANT: qad. inc
6450 Via Real
Carpinteria, California 93013

(b) Either party may by written notice to the other party,
specify a different address for notice purposes except that Landlord may in
any event use the Premises as Tenant's address for notice purpose.

33. INSURANCE.

(a) Tenant shall carry at its own expense during the term
hereof all risk public liability and property damage insurance which shall
have a single limit of $1,000,000.00 (or such higher amounts as Landlord may
reasonably hereafter require) covering injuries to persons and property in or
about the Premises. Said insurance shall be written by companies satisfactory
to Landlord. Tenant shall provide Landlord with satisfactory evidence of such
insurance, and Tenant shall obtain, from its insurance carrier, a waiver of
subrogation against Landlord. Landlord shall obtain, from its insurance
carrier, a waiver of subrogation against Tenant. In the event Tenant fails to
obtain any insurance as provided in this Lease, Landlord may obtain any such
insurance, and the cost thereof shall be paid by Tenant as additional rent
with the first payment of rent which is due subsequent to Landlord's
incurring such cost, and Landlord shall have all remedies to collect the
same as rent as is provided in this lease, and/or as otherwise provided by
law for the collection of rent. Such policy shall name Landlord and
Landlord's lender, if any, and others as may be designated by Landlord as
additional insureds

24.

<PAGE>

and shall provide for at least thirty (30) days' written notice to Landlord
of cancellation. Such policy shall further provide for contractual liability
coverage. Landlord is not obligated to carry insurance on Tenant's
possessions.

(b) Further, Tenant shall carry, at its own expense during
the term hereof, a policy of standard fire and extended coverage insurance
with vandalism and malicious mischief endorsements on all its personal
property and removable fixtures and equipment located in or about the
Premises in a reasonable amount, but not less than 100% of replacement value.

The proceeds of such policy that become payable due to damage, loss
or destruction of such property, shall be used by Tenant for the repair or
replacement thereof.

34. BROKERS.

Tenant warrants that he has had no dealings with any real estate
broker or agent in connection with the negotiation of this Lease, and that he
knows of no other real estate broker or agent who is or might be entitled to
a commission in connection with this lease other than Realco, Inc. or
assignee. In the event of a breach of this warranty, Tenant shall indemnify,
defend and hold Landlord harmless from any and all claims by any real estate
broker arising or alleged to have arisen from dealings by Tenant in
connection with the Premises or the Building.

35. WAIVER.

No waiver by Landlord or Tenant of any provision of this lease
shall be deemed to be a waiver of any other provision hereof or of any
subsequent breach by the other of the same or any other provision. Landlord's
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act of Tenant, whether or
not similar to the act so consented to

25.
<PAGE>

or approved. No act or thing done by Landlord or Landlord's agents during the
term of this lease shall be deemed acceptance of a surrender of the Premises,
and no agreement to accept such a surrender shall be valid unless in writing
and signed by Landlord. No employee of Landlord or of Landlord's agents shall
have any power to accept the keys to the Premises prior to the termination
of this Lease, and the delivery of the keys to any such employee shall not
operate as a termination of this Lease or a surrender of the Premises.

36. ESTOPPEL CERTIFICATE.

(a) Tenant shall at any time and from time to time, upon
not less than ten (10) days' prior written notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing (i) certifying that
this lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which the rental,
security deposits, and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any defaults on the
part of Landlord hereunder, or specifying such defaults if any are claimed.
Any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the real property of which the Premises
are a part.

(b) Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant (i) that this Lease is in full force and
effect, without modification except as may be represented by Landlord, (ii)
that there are no defaults in Landlord's performance, and (iii) that not more
than one month's rental has been paid in advance and security deposits as
described herein. In the event Tenant fails to deliver such statement within
such time, Tenant shall be deemed to have appointed Landlord as Tenant's
attorney-in-fact for the preparation and execution of an Estoppel Certificate
on the terms set forth herein.

26.

<PAGE>

37. INTEREST ON PAST DUE OBLIGATIONS.

Any amount due from Tenant to Landlord hereunder which is not paid
when due shall bear interest at the rate of ten percent (10%) per annum, but
in no event exceeding the maximum amount allowed under California law, from
the due date until paid, unless otherwise specifically provided herein, but
the payment of such interest shall not excuse or cure any default by Tenant
under this Lease.

38. LATE CHARGES.

Tenant shall pay a late charge equal to 5% of any monthly
installment of rent which is more than ten days past due.

39. TENANT FINANCIAL STATEMENTS.

During the term of this lease and any extension thereof, within 120
days after the end of its fiscal year Tenant shall provide Landlord unaudited
Financial Statements for the just concluded fiscal year and audited Financial
Statements for the just concluded fiscal year by June 15 and within 120 days
after the conclusion of the first six months of the current fiscal year
Tenant shall provide Landlord its unaudited Financial Statements for the just
concluded six month period of the current fiscal year.

Landlord acknowledges that Tenant considers the information
contained in its Financial Statements (audited and unaudited) to be
proprietary and confidential. Therefore, Landlord hereby agrees not to copy,
republish, distribute or disclose the information in Tenant's Financial
Statements to any person(s), firm or corporation, or to any unauthorized
person(s) employed by Landlord, without the prior written consent of Tenant.
Landlord's agreement as to nondisclosure of the above-noted financial
information shall extend for a period of two years beyond the date of Landlord's
last receipt of such information. Further, this nondisclosure agreement

27.

<PAGE>

shall also apply to other employees or consultants employed by landlord who
have been designated as authorized to have knowledge of or access to said
Financial Statements. Landlord is authorized to disclose the information to
its attorneys and its accountants engaged to advise Landlord regarding the
property which the premises is a part of.

40. TRANSFER OF LANDLORD'S INTEREST.

In the event of any transfer of Landlord's interest in the Premises
or in the real property of which the Premises are a part, upon the transfer
of the security deposits the transferor shall be automatically relieved of
any and all obligations and liabilities on the part of Landlord accruing from
and after the date of such transfer.

41. HOLDING OVER.

If tenant shall hold over and beyond the term of this Lease with the
consent, express or implied, of Landlord, such holding shall be construed to
be a tenancy only from month to month and Tenant will pay the rent, as above
specified, for such further time as Tenant may continue its occupancy. The
foregoing provisions of this paragraph 41 are in addition to and do not
affect Landlord's right of reentry or any other rights of Landlord hereunder
or as otherwise provided by law.

42. INABILITY TO PERFORM.

This Lease and the obligations of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay
is caused by reason of strike or other labor troubles, or act of God, or any
other cause beyond the control of Landlord.

43. SEPARABILITY.

Any provision of this Lease which shall prove to be invalid, void or
illegal shall in no way affect, impair or

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<PAGE>

invalidate any other provision hereof and such other provisions shall remain
in full force and effect.

44. ATTORNEY'S FEES.

In the event of a default on the part of Tenant of any provision in
this Lease, Landlord shall be entitled to deduct from the security deposit
herein any attorney's fees incurred as a result of said default. In the event
the security deposit is insufficient to satisfy the damages proximately
caused by Tenant's default, including attorney's fees incurred by Landlord,
then the amount of attorney's fees incurred by Landlord, along with all other
damages incurred by Landlord after deduction of the outstanding balance of
the security deposit shall be immediately due and payable by Lessee to
Lessor. Should any litigation be commenced between the parties to this Lease
concerning the premises, this Lease, or the rights and duties of either in
relation thereto, the party, Landlord or Tenant, prevailing in such
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum as and for attorney's fees in the litigation
which shall be determined by the court in such litigation or in a separate
action brought for that purpose.

45. TIME OF ESSENCE.

Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.

46. HEADINGS.

The article captions contained in this Lease are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof.

47. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.

This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in

29.

<PAGE>

this Lease, and no prior agreement or understanding pertaining to any such
matter shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest.

48. GENDER.

Throughout this Lease, the masculine gender shall be deemed to
include the feminine and the neuter and the singular, the plural and vice
versa.

49. ACCORD AND SATISFACTION.

No payment by Tenant or receipt by Landlord of a lesser amount than
that stipulated herein for rent, additional rent or any other charge shall be
deemed to be other than on account of the earliest stipulated rent,
additional rent or other charge then due, nor shall any endorsement or
statement on a check or letter accompanying any check or payment be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to Landlord's rights to recover the balance of such rent,
additional rent, or other charges or pursue any other remedy in this Lease at
law or in equity.

50. NO LIENS.

Tenant shall not permit any lien, encumbrance or charge for
materials or labor claimed to have been furnished to the Premises on Tenant's
behalf or otherwise to be filed against the Premises or the Building. In the
event such a lien, encumbrance or charge is filed against the Premises or the
Building, Tenant shall, within ten (10) days after notice from Landlord,
promptly discharge any such lien, encumbrance or charge.

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<PAGE>

51. SUBORDINATION.

This lease shall be subject and subordinate at all times to all
ground and underlying leases which now exist or may hereafter be executed
affecting the Building or the land upon which the Building is situated or
both, and to the lien of any mortgages or deeds of trust in any amount or
amounts whatsoever now or hereafter placed on or against the land and
Building or either thereof, or on or against any ground or underlying lease
without the necessity of the execution and delivery of any further
instruments on the part of Tenant to effectuate such subordination; provided,
however, that so long as Tenant is not in default, the terms of this Lease
shall not be affected by termination proceedings in respect to such ground or
underlying lease or foreclosure or other proceedings under such mortgages or
deeds of trust. Tenant hereby agreeing, at the written request of the
Landlord under such ground or underlying lease or the purchaser of the
Building, in such foreclosure or other proceedings, to attorn to such
Landlord or to such purchaser or, at such Landlord's or such purchaser's
option, to enter into a new lease for the balance of the term hereof upon
the same terms and provisions as are contained in this Lease. Notwithstanding
the foregoing, Tenant shall execute and deliver upon demand such further
instrument or instruments evidencing such subordination of this lease to the
lien of any such mortgages or deeds of trust as may be required by Landlord.

52. COMMON AREAS.

Tenant shall have the nonexclusive right, in common with others,
to the use of common entrances, lobbies, elevators, ramps, drives, stairs and
similar access and service ways and common areas in and adjacent to the
Building of which the Premises are a part subject to such nondiscriminatory
rules and regulations as may be adopted by Landlord.

31.

<PAGE>

53. SURRENDER OF PREMISES.

The voluntary or other surrender of this lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and shall, at the
option of the Landlord, operate as an assignment to it of any or all
subleases or subtenancies.

54. EXAMINATION OF LEASE.

Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for Lease, and it is not
effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.

55. RECORDING.

Neither Landlord nor Tenant shall record this Lease or a short form
memorandum thereof without the consent of the other.

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

LANDLORD: MATCO ENTERPRISES, INC., a
Washington Corporation

By /s/ Meriko Tamaki Wong
-----------------------------
MERIKO TAMAKI WONG
President

TENANT: qad. inc

By /s/ Pam Lopker
-----------------------------
PAM LOPKER, President

By /s/ Karl Lopker
-----------------------------
KARL LOPKER, Vice-President

32.

<PAGE>
Exhibit 10.16

FIRST AMENDMENT TO OFFICE LEASE

This First Amendment to Office Lease is entered into between Matco
Enterprises, Inc., a Washington Corporation, hereinafter referred to as
"Landlord" and qad. inc, a California Corporation hereinafter referred as to
"Tenant".

This First Amendment To Office Lease is made in reference to the following
facts:

A. Landlord and Tenant entered into an Office Lease, dated November 30,
1992, for Suites I, K and L located at 5464 Carpinteria Avenue, Carpinteria,
California, hereinafter "Office Lease".

B. Tenant desires to lease additional space at 5464 Carpinteria Avenue,
Suites C and H, specifically, and landlord has agreed to lease Suites C and H on
the terms and conditions of this First Amendment To Office Lease.

IT IS AGREED:

1. ADDITIONAL LEASED PREMISES.

The Additional Leased Premises hereunder are Suites C and H located at 5464
Carpinteria Avenue, in the City of Carpinteria, County of Santa Barbara, State
of California, and are identified on the floor plan attached hereto as Exhibit
"A". Said additional lease premises contain 3,113 net rentable square feet in
Suite C and 1394 net rentable square feet in Suite H. The reference to the term
Premises in the Office Lease shall also apply to the Additional Leased Premises
as used in this First Amendment To Office Lease.

2. TERM OF LEASE.

The term of this lease shall commence one day after notification that the
improvements provided for in paragraph 6(a) and required for the Additional
Leased Premises have been substantially completed and shall terminate with the
termination of the Office Lease.

3. RENT

(a) Tenant shall pay to Landlord as minimum monthly rent without
deduction set off, prior notice or demand the sum of $5633.75 ($1.25/per square
foot 4507 square feet of net rentable square footage) in advance on the first
day of each month commencing on date of commencement of the term of the Lease
for the Additional Leased Premises and continuing during the term of the
original Office Lease, which rent shall be in addition to rent provided for in
the Office Lease. Minimum monthly rent for any partial month, including the
first month and last month of the

2-31-8-93

<PAGE>

lease shall be prorated at the rate of 1/30th of the minimum monthly rent per
day.

(b) The minimum monthly rent shall be subject to adjustments as
provided for in Paragraph 5 (b) of the Office Lease.

4. SECURITY DEPOSIT.

Simultaneously with the execution of the First Amendment To Office Lease
Tenant shall deposit with the Landlord $13,566.07 which includes the sum of
$5633.75 representing the first month's rent, $5633.75 representing the
additional security deposit for the Additional Leased Premises and the sum of
$2298.57 representing the payment towards the first month's operating costs and
real property taxes.

5. PROPERTY TAXES AND OPERATING COSTS.

Tenant shall pay monthly to Landlord as additional rent its proportionate
share of property taxes, and operating costs which shall be computed in the
manner provided for the Paragraphs 8, 9 and 10 of the Office Lease taking into
account the additional net rentable square footage occupied by the tenant in the
Additional Leased Premises.

6. TENANT IMPROVEMENTS.

Tenant improvements for the Additional Leased Premises shall be done in two
stages.

(a) Prior to occupancy, landlord at its sole cost and expense shall
cause the Additional Leased Premises to be improved in accordance with Exhibit
"A" which is attached hereto and incorporated herein by reference. Upon the
completion of the work provided for in Exhibit "A", the term of the lease shall
commence as provided for in Paragraph 2 of this First Amendment To Office Lease.

(b) After occupancy, tenant shall supply landlord with its space
plans and related specifications for its tenant improvements for said Additional
Leased Premises. Landlord shall have the right to approve said space plans and
related specifications which approval shall not unreasonably be withheld.
Landlord shall cause the construction of the tenant improvements pursuant to
said approved space plans and related specifications.

(c) The tenant improvement costs for the implementation of the space
plans shall not exceed the sum of $67605.00 (based on 4507 net rentable square
feet for Suites C and H times $15 per square foot) less the cost of performing
the improvements required by paragraph 6(a) herein. Said costs shall include
all "hard" and "soft" costs associated with the construction of the tenant
improvements, as those terms are defined in Paragraph 1 (b) of the Office Lease.
In the event cost of the tenant improvements pursu-

<PAGE>

ant to the approved space plans and related specifications exceeds the sum of
$67605.00, tenant shall reimburse landlord for the excess cost. Landlord
shall complete the tenant improvements in a good and workmanlike manner.
Because the tenant improvements will be installed after occupancy, Tenant
acknowledges there will be disruption due to the work and waives any claim
for reduced rent or any claim for breach of the covenant of quiet enjoyment
as a result thereof. Tenant shall not be entitled to any tenant improvement
allowance if the Tenant improvements are requested after September 1, 1995.

7. PARKING.

Tenant shall have the use of an additional 18 parking spaces. In the event
a problem developes during the term of the lease with tenant having insufficient
parking for its employees, Landlord agrees to designate 18 additional parking
spaces for the exclusive use of Tenant, in additional to those provided for in
Paragraph 11 of the Office Lease.

8. POSSESSION.

The Landlord shall deliver possession of the Additional Leased Premises to
Tenant for occupancy promptly and will use every effort to deliver possession as
soon as possible.

9. OPTION TO RENEW.

Tenant shall have an option to renew the lease of the Additional Leased
Premises for five (5) renewal periods of one year each. Rent for the renewal
periods to be in accordance with Paragraph 16 of the Office Lease.

10. ADDITIONAL TERMS.

Except where inconsistent with this First Amendment To Office Lease, the
terms and conditions of the Office Lease shall apply equally to the Additional
Leased Premises as to Suites I, L and K.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this First Amendment To
Officer Lease on September 9, 1993.

LANDLORD: MATCO ENTERPRISES, INC., a
Washington Corporation

By: /s/ Meriko Tamaki Wong
-------------------------------
MERIKO TAMAKI WONG, President

TENANT: qad. inc

By: /s/ Pam Lopker
-------------------------------
PAM LOPKER, President

By: /s/ Karl Lopker
-------------------------------
KARL LOPKER, Vice-President

APPROVED AS TO FORM AND CONTENT

THE WILLIAM HERBERT COMPANY

By: /s/ William Pintard
--------------------------
WILLIAM PINTARD

<PAGE>

Exhibit 10.17

SECOND AMENDMENT TO OFFICE LEASE

This Second Amendment to Office Lease is entered into between Matco
Enterprises, Inc., a Washington Corporation, hereinafter referred to as
"Landlord" and qad. inc, a California Corporation hereinafter referred as to
"Tenant".

This Second Amendment To Office Lease is made in reference to the
following facts:

A. Landlord and Tenant entered into an Office Lease, dated November 30,
1992, for Suites I,K and L located at 5464 Carpinteria Avenue, Carpinteria,
California, hereinafter "Office Lease".

B. Landlord and Tenant entered into a First Amendment To Office Lease
dated September 9, 1993 whereby Landlord leased Suite C and H to Tenant on
the terms and conditions of the First Amendment To Office Lease.

C. Tenant desires to exercise its right to expand to Suite J provided
for in the Office Lease on the terms and conditions of this Second Amendment
to Office Lease.

IT IS AGREED:

1. ADDITIONAL LEASED PREMISES.

The Additional Leased Premises hereunder is Suite J located at 5464
Carpinteria Avenue, in the City of Carpinteria, County of Santa Barbara,
State of California, and identified on the floor plan attached hereto as
Exhibit "A". Said Additional Leased Premises contain 10,493 net rentable
square feet in Suite J. The reference to the term Premises in the Office
Lease shall also apply to the Additional Leased Premises as used in this
First Amendment To Office Lease. Landlord acknowledges having waived its
right to exclude Suites 223 and 224 of Suite J from the expansion by Tenant
under the terms of Paragraph 13(c) of the Office Lease.

<PAGE>

2. TERM OF LEASE.

The term of this Lease as to Suite J shall commence one (1) day after
notification that the improvements required for the Additional Leased
Premises, Suite J, have been substantially completed and shall terminate with
the termination of the Office Lease.

3. RENT.

(a) Tenant shall pay to Landlord, as minimum monthly rent without
deduction, set off, prior notice or demand, the sum of $13,116.25 ($1.25/per
square foot x 10,493 of net rentable square footage for Suite J) together
with an additional amount due to the annual cost of living adjustment on
January 1, 1994. The rent provided for herein shall be paid in advance on the
first day of each month commencing on date of commencement of the term of the
Lease for the Additional Leased Premises and continuing during the term of
the original Office Lease, which rent shall be in addition to rent provided
for in the Office Lease, and the First Amendment to Office Lease. Minimum
monthly rent for any partial month, including the first month and last month
of the lease as to Suite J shall be prorated at the rate of 1/30th of the
minimum monthly rent per day.

(b) The minimum monthly rent shall be subject to adjustments as
provided for in Paragraph 5(b) of the Office Lease.

4. SECURITY DEPOSIT.

Simultaneously with the execution of the Second Amendment To Office
Lease, Tenant shall deposit with the Landlord $31,583.93 which includes the
sum of $13,116.25 representing the first month's rent, $13,116.25
representing the additional security deposit for the Additional Leased
Premises and the sum of $5,351.43 representing the payment towards the first
month's operating costs and real property taxes.

<PAGE>

5. PROPERTY TAXES AND OPERATING COSTS.

Tenant shall pay monthly to Landlord as additional rent its
proportionate share of property taxes, and operating costs which shall be
computed in the manner provided for the Paragraphs 8, 9, and 10 of the Office
Lease taking into account the additional net rentable square footage occupied
by the Tenant in the Additional Leased Premises.

6. TENANT IMPROVEMENTS.

Tenant improvements for the Additional Leased Premises, Suite J, shall
be completed according to the following terms and conditions:

(a) It is acknowledged by Landlord and Tenant that Tenant gave notice
to Landlord of exercising its right to expand into Suite J on or about
November 9, 1994.

(b) Within thirty (30) days of Tenant's notice, Tenant shall provide
Landlord with plans and specifications for the tenant improvements for Suite
J. Provided Tenant has timely delivered to Landlord its plans and
specifications for the tenant improvements for Suite J, Landlord shall have a
maximum of one hundred forty (140) days from Tenant's notice of exercising
its right to expand into Suite J to construct the tenant improvements in
accordance with the plans and specifications provided by Tenant. Landlord
shall deliver possession of the Additional Leased Premises to Tenant for
occupancy promptly and will use every reasonably effort to deliver possession
as soon as possible.

(c) Landlord shall bear the cost of such tenant improvements up to an
amount equal to $15/per square foot of net rentable space of Suite J of
10,493 square feet for a total tenant improvement allowance of $157,395.00.
The cost of tenant improvements in excess of $157,395.00 shall be borne by
Tenant and shall be paid upon substantial completion of the tenant
improvements. The cost of the tenant improvements shall include all "hard"
and "soft" cost associated with the construction of the tenant improvements
as those terms are defined in Paragraph 1(b) of the Office Lease.

<PAGE>

Landlord shall complete the tenant improvements in a good and workmanlike
manner.

7. ADDITIONAL TERMS.

Except where inconsistent with this Second Amendment To Office Lease,
the terms and conditions of the Office Lease shall apply equally to the
Additional Leased Premises, Suite J, as to Suites I, L, K, C and H.

IN WITNESS WHEREOF, the parties have executed this Second Amendment To
Office Lease on January 14th, 1994.

LANDLORD: MATCO ENTERPRISES, INC., a
Washington Corporation

By: /s/ Meriko Tamaki
----------------------------------
MERIKO TAMAKI, formerly known as
Meriko Tamaki Wong, President

TENANT: qad. inc.

By: /s/ Pam Lopker 1/11/94
----------------------------------
PAM LOPKER, President

By: /s/ Karl Lopker 1/11/94
----------------------------------
KARL LOPKER, Vice-President

APPROVED AS TO FORM AND CONTENT:

THE WILLIAM HERBERT COMPANY

By: /s/ William Pintard
----------------------------
WILLIAM PINTARD

<PAGE>

Exhibit A

FLOOR PLAN

Suite J is leased premises.

<PAGE>

Exhibit 10.18

THIRD AMENDMENT TO OFFICE LEASE

This Third Amendment to Office Lease is entered into between Matco
Enterprises, Inc., a Washington corporation, hereinafter referred to as
"Landlord", and qad. inc, a California corporation, hereinafter referred to
as "Tenant".

This Third Amendment To Office Lease is made in reference to the
following facts:

A. Landlord and Tenant entered into an Office Lease, dated November 30,
1992, for Suites I, K and L located at 5464 Carpinteria Avenue, Carpinteria,
California, hereinafter "Office Lease".

B. Landlord and Tenant entered into a First Amendment To Office Lease
dated September 9, 1993, whereby Landlord leased Suites C and H to Tenant on
the terms and conditions of the First Amendment To Office Lease.

C. Landlord and Tenant entered into a Second Amendment To Office Lease
dated January 14, 1994, whereby Landlord leased Suite J to Tenant on the
terms and conditions of the Second Amendment To Office Lease.

D. Tenant desires to lease additional space at 5464 Carpinteria Avenue,
Rooms B and C of the Basement, specifically, and Landlord has agreed to lease
Rooms B and C of the Basement on the terms and conditions of this Third
Amendment To Office Lease.

IT IS AGREED:

1. TEMPORARY LEASE OF ROOM C.

Landlord hereby leases to Tenant Room C in the Basement located at 5464
Carpinteria Avenue, City of Carpinteria, County of Santa Barbara, State of
California, identified on the floor plan attached hereto as Exhibit "A". The
term of this lease as to Room C shall be ninety (90) days commencing December
15, 1993. Tenant shall pay as rent the sum of $750.00 ($0.75/square foot x
1000 net rental square feet) upon execution of this amendment and in advance
on the 1st of each month during the term of this lease as

<PAGE>

to Room C. Minimum monthly rent for any partial month, including the first
month and last month of the lease as to Room C of the Basement shall be
prorated at the rate of 1/30th of the minimum monthly rent per day. Tenant
shall not be charged any share of property taxes or operating expenses under
Paragraphs 8, 9 and 10 of the Office Lease for the lease of Room C. Landlord
shall not be required to perform any tenant improvements for this space. In
the event any tenant improvements are required, they shall be done at
Tenant's expense.

2. ADDITIONAL LEASED PREMISES.

The Additional Leased Premises hereunder is Room B of the Basement
located at 5464 Carpinteria Avenue, in the City of Carpinteria, County of
Santa Barbara, State of California, and identified on the floor plan attached
hereto as Exhibit "A". Said Additional Leased Premises contain 1214 net
rentable square feet in Room C of the Basement. The reference to the term
Premises in the Office Lease shall also apply to the Additional Leased
Premises as used in this First Amendment To Office Lease.

3. TERM OF LEASE.

The term of this Third Amendment To Office Lease as to Room B of the
Basement shall commence one day after notification that the improvements
required for the Additional Leased Premises have been substantially completed
and shall terminate with the termination of the Office Lease.

4. RENT.

(a) Tenant shall pay Landlord, as minimum monthly rent without
deduction, set off, prior notice or demand, the sum of $910.50 ($0.75/per
square foot x 1214 of net rentable square footage for Room B of the Basement)
in advance on the first day of each month commencing on date of commencement
of term of the Lease for the Additional Leased Premises, Room B of the
Basement, and continuing during the term of the original Office Lease and the
First and Second Amendments To Office Lease, which rent shall be in addition
to the rent provided for in the Office Lease and the

<PAGE>

First and Second Amendments To Office Lease. Minimum monthly rent for any
partial month, including the first month and last month of the lease as to
Room B of the Basement shall be prorated at the rate of 1/30th of the minimum
monthly rent per day.

(b) The rental for Room B shall not be subject to the annual CIP
increase for January 1, 1994; however, for each year thereafter the minimum
monthly rent shall be subject to adjustments as provided for in Paragraph 5(b)
of the Office Lease.

5. SECURITY DEPOSIT.

Simultaneously with the execution of the Third Amendment To Office
Lease, Tenant shall deposit with Landlord $2440.14 which includes the sum of
$910.50 representing the first month's rent, $910.50 representing the
additional security deposit for the Additional Leased Premises and the sum of
$619.14 representing the payment towards the first month's operating costs
and real property taxes.

6. PROPERTY TAXES AND OPERATING COSTS.

Tenant shall pay monthly to Landlord as additional rent its proportionate
share of property taxes, and operating costs which shall be computed in the
manner provided for the Paragraphs 8, 9 and 10 of the Office Lease taking
into account the additional net rentable square footage occupied by Tenant in
the Additional Leased Premises.

7. TENANT IMPROVEMENTS.

Tenant improvements for the Additional Leased Premises, Room B of the
Basement, shall be completed according to the terms and conditions:

(a) Within fifteen (15) days of execution of this Third Amendment To
Office Lease, Tenant shall provide Landlord with plans and specifications for
the tenant improvements for Room B of the Basement. Provided Tenant has
timely delivered to Landlord its plans and specifications for the tenant
improvements for Room B of the Basement, and the requirements for the tenant
improve-

<PAGE>

ments are limited to fresh paint, carpeting, dropped ceiling, supplemental
HVAC, and data communication capability around the parameter of the room,
Landlord shall have a maximum of sixty (60) days from the execution of this
Third Amendment To Office Lease to construct the tenant improvements in
accordance with the plans and specifications provided by Tenant. Landlord
shall deliver possession of the Additional Leased Premises to Tenant for
occupancy promptly and will use every reasonable effort to deliver possession
as soon as possible.

(b) Landlord shall initially pay the cost of the tenant improvements.
Tenant shall reimburse Landlord for the cost of the tenant improvements
amortized over the remaining term of the Office Lease in equal monthly
installments over and above the rent provided for in Paragraph 3 above.

8. ADDITIONAL TERMS.

Except where inconsistent with this Third Amendment To Office Lease, the
terms and conditions of the Office Lease shall apply equally to the
Additional Leased Premises as to Suites I, L, K, C, H and J.

IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Office Lease on January 14, 1994.

LANDLORD: MATCO ENTERPRISES, INC., a
Washington Corporation

By: /s/Meriko Tamaki
-------------------------------------
MERIKO TAMAKI, formerly known as
Meriko Tamaki Wong, President

TENANT: qad, inc.

By: /s/Pamela M[ILLEGIBLE] Lopker
-------------------------------------
PAM LOPKER, President

By: /s/Karl Lopker
-------------------------------------
KARL LOPKER, Vice-President

(Signatures Continued)

<PAGE>

(Continued Signatures)

APPROVED AS TO FORM AND CONTENT:

THE WILLIAM HERBERT COMPANY

By: /s/William Pintard
------------------------------
WILLIAM PINTARD

<PAGE>

EXHIBIT A

[FLOOR PLAN]

5464 Carpinteria Ave.
- Basement -

Room C and B is Leased Premises.

<PAGE>
Exhibit 10.19

FOURTH AMENDMENT TO OFFICE LEASE

This Fourth Amendment To Office Lease is entered into between Matco
Enterprises, Inc., a Washington corporation, hereinafter referred to as
"Landlord", and qad. inc., a California corporation, hereinafter referred to
as "Tenant".
This Fourth Amendment To Office Lease is made in reference to the
following facts:
A. Landlord and Tenant entered into an Office Lease dated November 30,
1992, for Suites I, K and L located at 5464 Carpinteria Avenue, Carpinteria,
California, hereinafter "Office Lease".
B. Landlord and Tenant entered into a First Amendment To Office Lease
dated September 9, 1993, whereby Landlord leased Suites C and H to Tenant on
the terms and conditions of the First Amendment To Office Lease.
C. Landlord and Tenant entered into a Second Amendment To Office Lease
dated January 14, 1994, whereby Landlord leased Suite J to Tenant on the
terms and conditions of the Second Amendment To Office Lease.
D. Landlord and Tenant entered into a Third Amendment To Office Lease
dated January 14, 1994, whereby Landlord leased Room B in the basement and
temporarily leased Room C in the basement on the terms and conditions of the
Third Amendment To Office Lease.
E. With the Tenant expanding into Suite J, Landlord desires to use Suite H
for its own purposes, and Tenant has agreed to terminate the Lease as to
Suite H, and only Suite H.
IT IS AGREED:
1. TERMINATION AS TO SUITE H.
Effective as of February 1, 1994, the Office Lease shall terminate as
to Suite H and Suite H only. Suite H contains 1394 net rentable square feet.
Effective February 1, 1994, the obligation of Tenant to pay rent and a
proportionate share of the operating costs for Suite H shall cease.

<PAGE>

2. ADDITIONAL TERMS.
Except for any terms inconsistent with this Fourth Amendment To Office
Lease, the terms and conditions of the Office Lease, as amended in the First,
Second and Third Amendments To Office Lease, shall remain in full force, and
effect, as to the remaining leased premises, Suites I, L, K, C and J.
In witness whereof, the parties have executed this Fourth Amendment To
Office Lease on Feb. 15th, 1994.

Landlord: MATCO ENTERPRISES, INC., a
Washington corporation

By: /s/ Meriko Tamaki
------------------------------------
MERIKO TAMAKI, formerly
known as Meriko Tamaki Wong,
President

Tenant: qad. inc., a California
corporation

By: /s/ Pam Lopker
------------------------------------
PAM LOPKER, President

By: /s/ Karl Lopker
------------------------------------
KARL LOPKER, Vice-President

Approved as to form
and content:

THE WILLIAM HERBERT COMPANY

By: /s/ William Pintard
------------------------------
WILLIAM PINTARD

<PAGE>

[Letterhead]

February 17, 1994

Mr. Doug Marsh
qad.inc
6450 Via Real Ave.
Carpinteria, CA 93013

Dear Doug:

To memorialize your companies move out of Suite H and keep our leases in order
an amendment to the lease has been prepared for your executive officer's
signature.

Please have the original executed and returned to me. I have enclosed a copy
for your files.

Sincerely,

/s/ William H. Pintard

William H. Pintard
THE WILLIAM HERBERT CO.

<PAGE>

[Letterhead]

March 29, 1994

Mr. Mike Dale
Administration Manager
qad.inc
6450 Via Real
Carpinteria, CA 93013

Dear Mike:

In accordance to your lease, specifically Page 10, Section 14, Right of First
Refusal to lease, Matco Enterprises Inc. formally notifies you of its
intention to offer for lease Suite G.

Suite G is currently under lease with Amvox/Voice-Tel. This lease will
terminate July 9, 1994. This space will be available from Matco Enterprises,
Inc. to qad.inc on July 10, 1994. Matco Enterprises, Inc. will lease to
qad.inc the premises for $.1263 per square foot NNN per month. The term can
be coterminus with other space currently occupied by qad.inc in Suites I,K,L.

Mike, if qad.inc is interested in remaining in Suite G after it's sub-lease
with Amvox/Voice-Tel expires I suggest that we'll formalize negotiations and
proceed.

Thank you very much for your attention to this matter, I look forward to your
response.

Sincerely,

/s/ William H. Pintard

William H. Pintard

<PAGE>

QAD.INC
1994

JANUARY:

Operating Total Total
Suite Rent Cost Due Paid
- ----- ---- ---- --- ----
Suites I, K, L $15,256.25 $6,224.55 $21,480.80 $21,480.80
Suite C & H $5,633.75 $2,298.57 $7,932.32 $7,932.32
---------- --------- ---------- ----------
TOTALS: $21,640.00 $8,523.12 $29,413.12 $29,413.12
---------- ----------
---------- ----------

FEBRUARY:

Operating Total Total
Suite Rent Cost Due Paid
- ----- ---- ---- --- ----
Suites I, K, L $15,256.25 $6,224.55 $21,480.80 $21,480.80
Suite C $3,891.25 $1,587.63 $5,478.88 $7,932.32
Basement Room C $750.00 $750.00 $0.00
---------- --------- ---------- ----------
TOTALS: $19,897.50 $7,812.18 $27,709.68 $29,413.12
---------- ----------
---------- ----------

Amount Due: $27,709.68
Amount Paid: ($29,413.12)
------------
Credit Due: $1,703.44

MARCH:

Operating Totalh Total
Suite Rent Cost Due Paid
- ----- ---- ---- --- ----
Suites I, K, L $15,720.35 $8,421.45 $24,141.80 $21,480.80
Suite C $4,009.63 $2,147.97 $6,157.60 $7,932.32
Basement Room C $750.00 $750.00 $.00
---------- --------- ---------- ----------
TOTALS: $20,479.98 $10,569.42 $31,049.40 $29,413.12
Less Credit: ($1,703.44) ----------
---------- ----------
$29,345.96
----------
----------

Amount Due: $29,345.96
Amount Paid: ($29,413.12)
------------
Credit Due: $67.16

<PAGE>

FIFTH AMENDMENT TO OFFICE LEASE

This Fifth Amendment To Office Lease is entered into between Matco
Enterprises, Inc., a Washington corporation, hereinafter referred to as
"Landlord", and qad. inc., a California corporation, hereinafter referred to
as "Tenant".

This Fifth Amendment To Office Lease is made in reference to the
following facts:

A. Landlord and Tenant entered into an Office Lease dated November 30,
1992, for Suites I, K,and L located at 5464 Carpinteria Avenue, Carpinteria,
California, hereinafter "Office Lease".

D. Landlord and Tenant entered into a Third Amendment To Office Lease
dated January 14, 1994, whereby Landlord leased Room B in the basement and
temporarily leased Room C in the basement on the terms and conditions of the
Third Amendment To Office Lease.

E. Landlord and Tenant entered into a Fourth Amendment to Office Lease
dated February 15, 1994, whereby Landlord and Tenant agreed the office lease
would terminate as to Suite H only.

F. The Tenant desires to lease additional space at 5464 Carpinteria
Avenue, Suites G and E, specifically, and

<PAGE>

Landlord has agreed to lease Suites G and E on the terms and conditions of
this Fifth Amendment to Office Lease.

IT IS AGREED:

1. ADDITIONAL LEASED PREMISES.

The Additional Leased Premises hereunder is Suites E and G located at
5464 Carpinteria Avenue, in the City of Carpinteria, County of Santa Barbara,
State of California, and identified on the floor plan attached hereto as
Exhibit "A". Said Additional Leased Premises contain 1,511 net rentable
square feet in Suite E and 2,283 net rentable square feet in Suite G. The
reference to the term Premises in the Office Lease shall also apply to the
Additional Leased Premises as used in this Fifth Amendment To Office Lease.

2. TERM OF LEASE.

The term of this Lease as to Suites E and G shall commence September 1,
1994 and shall terminate five (5) years after commencement. Tenant
acknowledges that the term of the Office Lease as to Suites E and G shall
extend beyond the term of the Office Lease as to the other suites lease
thereunder.

3. RENT.

(a) Tenant shall pay to Landlord, as minimum monthly rent without
deduction, set off, prior notice or demand, the sum of $4,791.82 ($1.263/per
square foot x 3,794 of net rentable square footage for Suites E and G)
together with an additional amount due to the annual cost of living
adjustment on January 1, 1995. The rent provided for herein shall be paid in
advance on the first day of each month commencing on date of commencement of
the term of the Lease for the Additional Leased Premises and continuing
during the five (5) year term of this lease as to Suites E and G, which rent
shall be in

<PAGE>

addition to rent provided for in the Office Lease, and the First, Second,
Third and Fourth Amendments to Office Lease.

(b) The minimum monthly rent shall be subject to adjustments as provided
for in Paragraph 5 (b) of the Office Lease.

4. SECURITY DEPOSIT.

Simultaneously with the execution of the Fifth Amendment To Office Lease,
Tenant shall deposit with the Landlord $6,954.40 which includes the sum of
$4,791.82 representing the additional security deposit for the Additional
Leased Premises, Suites E and G, and the sum of $2,162.58 representing the
payment towards the first month's operating costs and real property taxes.

5. PROPERTY TAXES AND OPERATING COSTS.

Tenant shall pay monthly to Landlord as additional rent its proportionate
share of property taxes, and operating costs which shall be computed in the
manner provided for the Paragraphs 8, 9 and 10 of the Office Lease taking
into account the additional net rentable square footage occupied by the
Tenant in the Additional Leased Premises.

6. TENANT IMPROVEMENTS.

Tenant improvements for the Additional Leased Premises, Suites E and G,
shall be completed according to the following terms and conditions:

(a) Tenant shall provide Landlord with plans and specifications for the
tenant improvements for Suites E and G. Landlord shall have the right to
approve said plans and related specifications, which approval shall not be
unreasonably withheld. Landlord shall cause the construction of the tenant

<PAGE>

improvements pursuant to said approved plans and related specifications.

(b) Landlord shall bear the cost of such tenant improvements up to an
amount equal to $18/per square foot of net rentable space of Suites E and G
of 3,794 square feet for a total tenant improvement allowance of $68,292.00.
The cost of tenant improvements in excess of $68,292.00 shall be borne by
Tenant and shall be paid upon substantial completion of the tenant
improvements. The cost of the tenant improvements shall include all "hard"
and "soft" cost associated with the construction of the tenant improvements
as those terms are defined in Paragraph 1(b) of the Office Lease. Landlord
shall complete the tenant improvements in a good and workmanlike manner.

(c) Tenant shall not be entitled to any tenant improvement allowance if
the tenant improvements are not requested, and plans and specifications
provided to Landlord after September 1, 1995.

(d) The construction of tenant improvements for Suites E and G shall be
done concurrently with the construction of tenant improvements for Suite C.
In the event the plans and specifications provided to Landlord for approval
do not include all three suites (i.e., Suites E, G and C), the Tenant will be
deemed to have waived the right to have the Landlord construct tenant
improvements for the suites for which plans have not been provided. Nothing
in this amendment shall change the amount of the tenant improvement allowance
for Suite C provided for in the First Amendment to Office Lease.

(e) During the period of construction of tenant improvements, rent shall
be abated for a period not to exceed forty-five (45) days from the date
construction starts on the tenant improvements. Rent on each suite shall
recommence

<PAGE>

forty-five (45) days from the start of construction or upon the written
notice from Landlord to Tenant of the substantial completion of the tenant
improvements for that suite, whichever shall first occur.

7. ADDITIONAL TERMS.

Except where inconsistent with this Fifth Amendment To Office Lease, the
terms and conditions of the Office Lease, Suites E and G as amended in the
First, Second, Third and Fourth Amendments to Office Lease, shall apply
equally to the Additional Leased Premises, as to Suites I, L, K, C and J.

IN WITNESS WHEREOF, the parties have executed this Fifth Amendment To
Office Lease on Sept 12, 1994.

LANDLORD: MATCO ENTERPRISES, INC., a
Washington Corporation

By: /s/ Meriko Tamaki
--------------------------------------
MERIKO TAMAKI, formerly known as
Meriko Tamaki Wong, President

TENANT: qad. inc

By: /s/ Pam Lopker
--------------------------------------
PAM LOPKER, President

By: /s/ Karl Lopker
-----------------------------------
KARL LOPKER, Vice-President

APPROVED AS TO FORM AND CONTENT:
THE WILLIAM HERBERT COMPANY

By: /s/ William Pintard
----------------------------
WILLIAM PINTARD

<PAGE>

Exhibit A [FLOOR PLAN]

<PAGE>

SIXTH AMENDMENT TO OFFICE LEASE

This Sixth Amendment To Office Lease is entered into between Matco
Enterprises, Inc., a Washington corporation, hereinafter referred to as
"Landlord", and qad. inc., a California corporation, hereinafter referred to
as "Tenant".

This Sixth Amendment To Office Lease is made in reference to the
following facts:

A. Landlord and Tenant entered into an Office Lease dated November 30,
1992, for Suites I, K and L located at 5464 Carpinteria Avenue, Carpinteria,
California, hereinafter "Office Lease".

E. Landlord and Tenant entered into a Fourth Amendment to Office Lease
dated February 15, 1994, whereby Landlord and Tenant agreed the Office Lease
would terminate as to Suite H only.

F. Landlord and Tenant entered into a Fifth Amendment to Office Lease
dated September 12, 1994, whereby Landlord leased Suites G and E to Tenant
on the terms and conditions of the Fifth Amendment to Office Lease.

G. The Tenant desires to lease additional space at 5464 Carpinteria
Avenue, Suites A, B, D, F, H, and Basement Room A, specifically, and Landlord
has agreed to lease Suites A, B, D, F, H and Basement Room A on the terms and
conditions of this Sixth Amendment to Office Lease.

<PAGE>

IT IS AGREED:

1. ADDITIONAL LEASED PREMISES.

The Additional Leased Premises hereunder is Suites A, B, D, F, H and
Basement Room A located at 5464 Carpinteria Avenue, in the City of
Carpinteria, County of Santa Barbara, State of California, and identified on
the floor plan attached hereto as Exhibit "A". Said Additional Leased
Premises contain 5,356 net rentable square feet in Suite A, 2,752 net
rentable square feet in Suite B, 3,518 net rentable square feet in Suite D,
3,044 net rentable square feet in Suite F, 1,394 net rentable square feet in
Suite H, and 1920 net rentable square feet in Basement Room A. The reference to
the term Premises in the Office Lease shall also apply to the Additional
Leased Premises as used in this Sixth Amendment To Office Lease.

2. TERM OF LEASE FOR SUITES A, B, D, F, AND H.

The term of this Lease as to Suites A, B, D, F, and H shall commence
January 1, 1997 and shall terminate five (5) years after commencement,
subject to extension pursuant to the provisions of Paragraph 7(g). Tenant
acknowledges that the term of the Office Lease as to Suites A, B, D, F, and H
shall extend beyond the term of the Office Lease as to other suites lease
thereunder.

3. TERM OF LEASE FOR BASEMENT ROOM A.

The term of this Lease as to Basement Room A shall commence December 1,
1996 and shall terminate five (5) years and one (1) month after commencement,
subject to extension pursuant to the provisions of Paragraph 7(g). Tenant
acknowledges that the term of the Office Lease as to Basement Room A shall
extend beyond the term of the Office Lease as to other suites lease
thereunder.

4. RENT FOR SUITES A, B, D, F, AND H.

(a) Tenant shall pay to Landlord, as minimum monthly rent without
deduction, set off, prior notice or demand, an amount equal to the product of
the "Rental Rate", times the "Square Footage - Suite A, B, D, F and H". As
used herein, the term "Rental Rate" is the same as the monthly charge per
square foot of net rentable Square Footage for Suites I, K, L, C, H and J
(currently $1.275 per square foot of net rentable Square Footage which is
subject to cost of living adjustment). As used herein, the term "Square
Footage - Suites A, B, D, F and H" shall mean 16,064 net rentable square
footage in Suites A, B, D, F & H. The rent provided for herein shall be

<PAGE>

paid in advance on the first (1st) day of each month commencing on date of
commencement of the term of the Lease for the Additional Leased Premises and
continuing during the five (5) year term of this Lease as to Suites A, B, D,
F, and H, which rent shall be in addition to rent provided for in the Office
Lease, and the First, Second, Third, Fourth and Fifth Amendments to Office
Lease.

(b) The monthly rent shall be subject to adjustments as provided for in
Paragraph 5(b) of the Office Lease.

5. RENT FOR BASEMENT ROOM A.

(a) Tenant shall pay to Landlord, as minimum monthly rent without
deduction, set off, prior notice or demand, the sum of $1,920.00 (One
Thousand Nine Hundred Twenty Dollars) ($1.00/per square foot x 1920 of net
rentable square footage for Basement Room A) together with an amount to
amortize the cost of leasehold improvements for Basement Room A as set forth
in Paragraph 5(c). The rent provided for herein shall be paid in advance on
the first day of each month commencing on date of commencement of the term of
the Lease for the Additional Leased Premises and continuing during the five
(5) year and one (1) month term of this lease as to Basement Room A, which
rent shall be in addition to rent provided for in the Office Lease, and the
First, Second, Third, Fourth and Fifth Amendments to Office Lease.

(b) The minimum monthly rent shall be subject to adjustments as provided
for in Paragraph 5(b) of the Office Lease commencing with the adjustment
scheduled for January 1, 1998.

(c) Commencing with the first (1st) day of the month following the
substantial completion of the tenant improvements for Basement Room A, the
rent as to Basement Room A shall be increased by an amount equal to the total
cost of the leasehold improvements for Basement Room A divided by the number
of months remaining on the term of the Lease as to Basement Room A as of the
first (1st) of the month following substantial completion of the improvements
for Basement Room A.

6. PAYMENT OF FIRST MONTH'S RENT.

Simultaneously with the execution of the Sixth Amendment To Office
Lease, Tenant shall deposit with the Landlord $33,192.00 (Thirty-Three
Thousand One Hundred Ninety-Two Dollars) representing the first month's rent
for the Additional Leased Premises, Suites A, B, D, F, H and

<PAGE>

Basement Room A, and the sum of $10,790.40 (Ten Thousand Seven Hundred Ninety
Dollars and Forty Cents) representing the payment towards the first (1st)
month's operating costs and real property taxes.

7. PROPERTY TAXES AND OPERATING COSTS.

Tenant shall pay monthly to Landlord as additional rent its
proportionate share of property taxes, and operating costs which shall be
computed in the manner provided for in Paragraphs 8, 9 and 10 of the Office
Lease, taking into account the additional net rentable square footage
occupied by the Tenant in the Additional Leased Premises.

8. TENANT IMPROVEMENTS.

Tenant improvements for the Additional Leased Premises, Suites A, B, D,
F, H, and Basement Room A, shall be completed according to the following
terms and conditions:

(a) Tenant shall provide Landlord with plans and specifications
for the Tenant improvements for Suites A, B, D, F, H, and Basement Room A.
Landlord shall have the right to approve said plans and related
specifications, which approval shall not be unreasonably withheld. Landlord
shall cause the construction of the Tenant improvements pursuant to said
approved plans and related specifications.

(b) Landlord shall bear the cost of such Tenant improvements up to
an amount equal to $10 per square foot of net rentable space of Suites A, B,
D, F, and H, 16,064 square feet, for a total tenant improvement allowance for
Suites A, B, D, F, and H of $160,640.00 (One Hundred Sixty Thousand Six
Hundred Forty Dollars). The cost of tenant improvement for Suites A, B, D, F,
and H in excess of $160,640.00 (One Hundred Sixty Thousand Six Hundred Forty
Dollars) shall be borne by Tenant and shall be paid upon substantial
completion of the Tenant improvements. The cost of the Tenant improvements
shall include all "hard" and "soft" cost associated with the construction of
the Tenant improvements as those terms are defined in Paragraph 1(b) of the
Office Lease. Landlord shall complete the Tenant improvements in a good and
workmanlike manner.

(c) Landlord shall bear the cost of such Tenant improvements for
Basement Room A, subject to amortization of these improvement costs as
additional rent for Basement Room A pursuant to Paragraph 5(c). The cost of
the Tenant improvements shall include all "hard" and

4.
<PAGE>

"soft" cost associated with the construction of the Tenant improvements as
those terms are defined in Paragraph 1(b) of the Office Lease. Landlord shall
complete the Tenant improvements in a good and workmanlike manner.

(d) Tenant shall not be entitled to any Tenant improvement
allowance if the Tenant improvements are not requested, and plans and
specifications provided to Landlord prior to December 31, 1999.

(e) The construction of Tenant improvements for the Additional
Leased Premises pursuant to this Sixth Amendment to Office Lease shall be
done in not more than two phases.

(f) During the period of construction of Tenant improvements, rent
shall be abated on the portion of the Additional Leased Premises, Suites
A,B,D,F,H, and/or Basement Room A for which Tenant improvements are being
constructed, for a period not to exceed sixty (60) days from the date
construction starts on the Tenant improvements. Rent, on the portion of the
Additional Leased Premises for which Tenant improvements are being
constructed, shall recommence sixty (60) days from the start of construction
or upon the written notice from Landlord to Tenant of the substantial
completion of the Tenant improvements for that suite or suites, whichever
shall first occur.

(g) The sum of the number of days of rent abatement for each phase
of construction of Tenant improvements divided by the number of phases in
which Tenant improvements are constructed shall be referred to herein as the
Average Rent Abatement Period. The term of the Lease shall be extended by the
number of days equal to the Average Rent Abatement Period.

9. DELETION OF RIGHT OF FIRST REFUSAL TO LEASE.

The right of first refusal to lease provided for in Paragraph 14 of the
Office Lease dated November 30, 1992, is deleted in its entirety and shall be
of no further force and effect.

10. MODIFIED OPTION TO RENEW.

The option to renew lease provided for in Paragraph 16 of the Office
Lease dated November 30, 1992, is deleted in its entirety and replaced with
the following:

(a) Provided that Tenant is not in default on any term of the
Office Lease dated November 30, 1992, and the Amendments thereto, Tenant
shall have the option to renew the Lease

5.
<PAGE>

as to Suites I,K,L,C,J and Basement Room B for four (4) renewal periods. The
first three (3) renewal periods (which would, if exercised, commence on March
9, 1998, March 9, 1999 and March 9, 2000, respectively) shall be for a period
of one (1) year each. The fourth (Th) renewal period (which would, if
exercised, commence on March 9, 2001) shall be for a period of two (2) years.
Tenant shall notify Landlord in writing of its exercise of the first one (1)
year renewal option at least 180 (one hundred eighty) days prior to the
expiration of the initial Lease term, and for each subsequent renewal period,
Tenant shall notify Landlord in writing of its exercise of the next renewal
option at least 180 (one hundred eighty) days prior to the expiration of the
then current renewal period. The rental rate for each renewal period shall be
at the then current market rate, or the rental rate of the previous year
together with the CPI adjustment, pursuant to Paragraph 5(b) of the Office
Lease, whichever is greater. All other terms of the Lease shall remain the
same during the renewal period.

(b) Provided Tenant is not in default on any term of the Office
Lease dated November 30, 1992, and any Amendments thereto, Tenant shall have
the option to renew the Lease as to Suites E and G for three (3) renewal
periods. The first (1st) renewal period (which would, if exercised, commence
on August 11, 1999 and September 11, 1999 for Suites G and E, respectively)
shall be for a period of one (1) year. The second (2nd) renewal period (which
would, if exercised, commence on August 11, 2000 and September 11, 2000 for
Suites G and E, respectively) shall be for a period of two (2) years. The
third (3rd) renewal period (which would, if exercised, commence on August 11,
2002 and September 11, 2002 for Suites G and E, respectively) shall be for
period of two (2) years.

Tenant shall notify Landlord in writing of its exercise of the
first one (1) year renewal option at least 180 (one hundred eighty) days
prior to the expiration of the initial Lease term, and for each subsequent
renewal period, Tenant shall notify Landlord in writing of its exercise of the
next renewal option at least 180 (one hundred eighty) days prior to the
expiration of the then current renewal period. The rental rate for each
renewal period shall be at the then current market rate, or the rental rate
of the previous year together with the CPI adjustment, pursuant to Paragraph
5(b) of the Office Lease, whichever is greater. All other terms of the Lease
shall remain the same during the renewal period.

6.
<PAGE>

(c) Provided Tenant is not in default on any term of the Office
Lease dated November 30, 1992 and any Amendments thereto, Tenant shall have
the option to renew the Lease, after the expiration of the term including any
extension for rent abatement pursuant to Paragraph 7(g), as to Suites
A,B,D,F,H and Basement Room A for four (4) renewal periods. The first (1st)
renewal period shall be for a period of two (2) years. The last three renewal
periods shall be for one (1) year each.

Tenant shall notify Landlord in writing of its exercise of the
first one (1) year renewal option at least 180 (one hundred eighty) days
prior to the expiration of the initial Lease term, and for each subsequent
renewal period, Tenant shall notify Landlord in writing of its exercise of
the next renewal option at least 180 (one hundred eighty) days prior to the
expiration of the then current renewal period. The rental rate for each
renewal period shall be at the then current market rate, or the rental rate
of the previous year together with the CPI adjustment, pursuant to Paragraph
5(b) of the Office Lease, whichever is greater. All other terms of the Lease
shall remain the same during the renewal period.

11. CONTROL OF BUILDING.

So long as Tenant remains the sole Tenant of the building at 5464
Carpinteria Avenue, Carpinteria, California, Tenant shall have the right to
install, as part of the leasehold improvements, a perimeter security system,
subject to the approval by Landlord pursuant to the Landlord's authority to
approve Tenant improvements. Tenant shall supply access codes or devices to
Landlord's property manager, Landlord's president, and Landlord's janitorial
service in order that they may carry out their rights and obligations of
inspection and maintenance.

12. ADDITIONAL TERMS.

Except where inconsistent with this Sixth Amendment To Office Lease, the
terms and conditions of the Office Lease, as amended in the First, Second,
Third, Fourth, and Fifth Amendments to Office Lease, shall apply equally to
the Additional Leased Premises, as to the remainder of the building.

7.
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Sixth Amendment To
Office Lease on October 30, 1996.

LANDLORD: MATCO ENTERPRISES, INC., a
Washington corporation

By /s/ Meriko Tamaki
----------------------------------
MERIKO TAMAKI, formerly known as
Meriko Tamaki Wong, President

TENANT: qad. inc

By /s/ Karl Lopker
/s/ Douglas Marsh
----------------------------------
KARL LOPKER, CEO

APPROVED AS TO FORM AND CONTENT:

THE WILLIAM HERBERT COMPANY

By /s/ William Pintard
----------------------------------
WILLIAM PINTARD

<PAGE>

STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

1. PARTIES. This Lease, dated, for reference purposes only, November 30,
1993, is made by and between William D & Edna J. Wright dba South Coast
Business Park (herein called "Lessor") and q.a.d., Inc., a California
Corporation (herein called "Lessee").

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phases I & II (46,198
s.f. + 14,000 s.f. = 60,198 s.f) and described as 6430 Via Real, Suite's 3
thru 8 (building C), Carpinteria, CA consisting of approximately 9,500 square
feet (see exhibit "A" attached hereto) herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the
Common Areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building, herein referred to as the "Building."
The Premises, the Building, the Common Areas, the land upon which the same
are located, along with all other buildings and improvements thereon, are
herein collectively referred to as the "Industrial Center."

2.2 VEHICLE PARKING. Lessee shall be entitled to 29 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles." Lessee shall have
the non-exclusive right to use the lot located at 6410 Via Real for parking
until such time that construction commences.

2.2.1 Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.

2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.

2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center that are provided and designated by
the Lessor from time to time for the general non-exclusive use of Lessor,
Lessee and of other lessees of the Industrial Center and their respective
employees, suppliers, shippers, customers and invitees, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways and landscaped areas.

2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by
Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only
by the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time. In the event that any unauthorized
storage shall occur then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.

2.5 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable rules and regulations with
respect thereto. Lessee agrees to abide by and conform to all such rules and
regulations, and to cause its employees, suppliers, shippers, customers, and
invitees to so abide and conform. Lessor shall not be responsible to Lessee
for the non-compliance with said rules and regulations by other lessees of the
Industrial Center.

2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas and walkways; (b) To
close temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c) To designate other
land outside the boundaries of the Industrial Center to be a part of the
Common Areas; (d) To add additional buildings and improvements to the Common
Areas; (e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; (f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor
may, in the exercise of sound business judgment, deem to be appropriate.

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for fifty-six (56) months
commencing on 5/1/94 or upon receipt of final approval from City of Carp. and
ending on in any event December 31, 1998 unless sooner terminated pursuant to
any provision hereof. See Addendum.

3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
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 be
obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease, except as may be otherwise provided in this Lease, until
possession of the Premises is tendered to Lessee.

3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee
shall pay rent for such period at the initial monthly rates set forth below.

4. RENT.

4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise
expressly provided in this Lease, on the 1st day of each month of the term
hereof, monthly payments in advance of $11,875.00. See Addendum for cost of
living adjustments to Base Rent, and determination of rent during Extension
Periods.

Lessee shall pay to Lessor upon execution hereof $11,875.00 as Base Rent for
first months rent. Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the Base Rent. Rent shall
be payable in lawful money of the United States to Lessor at the address
stated herein or to such other persons or at such other places as Lessor may
designate in writing.

4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined,
of all Operating Expenses, as hereinafter defined, during each calendar year
of the term of this Lease, in accordance with the following provisions:

(a) "Lessee's Share" is defined, for purposes of this Lease, as
15.78 percent. guaranteed not to exceed $.22 per s.f. for the first 12 mos.
of occupancy
(b) "Operating Expenses" is defined, for purposes of
this Lease, as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;

Initials: /s/ KL
-------
/s/ PML
-------

MULTI TENANT--MODIFIED NET
- -C- American Industrial Real Estate Association 1981

<PAGE>

(ee) Security services;
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense;"
(gg) Property management expenses;
(ii) Any deductible portion of an insured loss concerning
any of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by
Lessor under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the
Industrial Center already has the same, Lessor already provides the services,
or Lessor has agreed elsewhere in this Lease to provide the same or some of
them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses
is presented to Lessee by Lessor. At Lessor's option, however, an amount may
be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid,
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expenses next falling due. If Lessee's payments under this paragraph during
said preceding year were less than Lessee's share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$11,875.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.1 USE. The Premises shall be used and occupied only for the purpose of
manufacturing, developing and marketing computer software, & training class
and for no other use without Lessor's prior written consent. See Addendum
for additional terms.

6.2 COMPLIANCE WITH LAW.

(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
the use for which Lessee will occupy the Premises, does not violate any
covenants or restrictions of record, or any applicable building code,
regulation or ordinance in effect on such Lease term commencement date. In
the event it is determined that this warranty has been violated, then it
shall be the obligation of the Lessor, after written notice from Lessee, to
promptly, at Lessor's sole cost and expense, rectify any such violation. In
the event Lessee does not give to Lessor written notice of the violation of
this warranty within six months from the date that the Lease term commences,
the correction of same shall be the obligation of the Lessee at Lessee's sole
cost. The warranty contained in this paragraph 6.2(a) shall be of no force
or effect if, prior to the date of this Lease, Lessee was an owner or
occupant of the Premises and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.

(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and use
by Lessee of the Premises and of the Common Areas. Lessee shall not use nor
permit the use of the Premises or the Common Areas in any manner that will
tend to create waste or a nuisance or shall tend to disturb other occupants of
the Industrial Center.

6.3 CONDITION OF PREMISES.

(a) Lessor shall deliver the premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation. Lessee's failure to give such written
notice within thirty (30) days after the Lease commencement date shall cause
the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall
be of no force or effect if prior to the date of this Lease, Lessee was
an owner or occupant of the Premises. SEE ADDENDUM.

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

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in
good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services for which there is an Operating Expense pursuant to paragraph
4.2. Lessor shall not, however, be obligated to paint the exterior or
interior surface of exterior walls, nor shall Lessor be required to maintain,
repair or replace windows, doors or plate glass of the Premises. Lessor
shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for
such repairs. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessor
shall not be liable for damages or loss of any kind or nature by reason of
Lessor's failure to furnish any Common Area services when such failure is
caused by accident, breakage, repairs, strikes, lockout, or other labor
disturbances or disputes of any character, or by any other cause beyond the
reasonable control of Lessor.

7.2 LESSEE'S OBLIGATIONS.

(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense,
shall keep in good order, condition and repair the Premises and every part
thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessible to Lessee) including,
without limiting the generally of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain,
at Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating
and air conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof. Lessee
shall be responsible for clean-up of all hazardous waste occurring in or
about the premises.

(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to lessor together with Lessee's next Base Rent installment.

(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwishstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panel, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.

7.3 ALTERATIONS AND ADDITIONS.

(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs, during
the term of this Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Lessee shall make no change or alteration to the

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exterior of the Premises nor the exterior of the Building nor the Industrial
Center without Lessor's prior written consent. As used in this paragraph 7.3 the
term "Utility Installation" shall mean carpeting, window coverings, air lines,
power panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing, and fencing. Lessor may require that Lessee remove
any or all of said alterations, improvements, additions or Utility Installations
at the expiration of the term, and restore the Premises and the Industrial
Center to their prior condition. Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.

(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee shall desire to
make and which requires the consent of the Lessor shall be presented to Lessor
in written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.

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

(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.

7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.

8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $1,000,000 per occurrence.

8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
In the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the Premises shall be paid by Lessee.

8.4 PAYMENT OF PREMIUM INCREASE.

(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.

(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.

8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, 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 carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.

8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. Lessee and Lessor shall, upon obtaining the policies of insurance
required give notice to the insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.

8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim, 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. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the Industrial Center
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor. See Addendum.

8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Industrial Center, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, 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, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the
Premises or upon other portions of the Industrial Center, or from other
sources or places and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Lessee. Lessor
shall not be liable for any damages arising from any act or neglect of any
other lessee, occupant or user of the Industrial Center, nor from the failure
of Lessor to enforce the provisions of any other lease of the Industrial
Center.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.

(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is fifty percent or more of the then
replacement cost of the Building.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.

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(g) "Insured Loss" shall mean damage or destruction which was covered
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.

(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.

9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Partial
Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's
expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.

(b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's Intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.

9.4 DAMAGE NEAR END OF TERM.

(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.

(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

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

(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.

9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.

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

10. REAL PROPERTY TAXES.

10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Industrial Center subject to reimbursement
by Lessee of Lessee's Share of such taxes in accordance with the provisions of
paragraph 4.2, except as otherwise provided in paragraph 10.2.

10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.

10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Industrial Center or any portion thereof by any
authority having the direct of indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.

10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax 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 assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.

10.5 PERSONAL PROPERTY TAXES.

(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.

(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to 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 and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share of a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.

12. ASSIGNMENT AND SUBLETTING.

12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1. See
Addendum for additional terms.

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12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or alter
the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies
for the breach of any of the terms or conditions of this paragraph 12 or this
Lease. Consent to one assignment shall not be deemed consent to any
subsequent assignment. In the event of default by any assignee of Lessee or
any successor of Lessee, in the performance of any of the terms hereof,
Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments of this Lease or amendments or modifications to this Lease with
assignees of Lessee, without notifying Lessee, or any successor of Lessee,
and without obtaining its or their consent thereto and such action shall not
relieve Lessee of liability under this Lease.

12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included
in subleases:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
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 default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may 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 default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right to rely upon
any such statement and request from Lessor, and that such sublessee shall pay
such rents to Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against such sublessee
or Lessor for any such rents so paid by said sublessee to Lessor.

(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by
reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with
each and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.

(c) If Lessee's obligations under this Lease have been guaranteed
by third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease
and the terms thereof.

(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of Lessee to pay
the rent and perform and comply with all of the obligations of Lessee to be
performed under this Lease.

(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or
modifications thereto without notifying Lessee or anyone else liable on the
Lease or sublease and without obtaining their consent and such action shall
not relieve such persons from liability.

(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible
for the performance of 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.

(g) In the event Lessee shall default 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 Lessee under such sublease
from the time of the exercise of said option to the termination of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.

(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.

(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.

12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable attorneys fees incurred in
connection therewith, such attorneys fees not to exceed $350.00 for each such
request.

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.

(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions
of this Lease to be observed or performed by Lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee; provided,
however, that if the nature of Lessee's noncompliance is such that more than
thirty (30) days are reasonably required for its cure, then Lessee shall not
be deemed to be in default if Lessee commenced such cure within said thirty
(30) day period and thereafter diligently prosecutes such cure to completion.
To the extent permitted by law, such thirty (30) day notice shall constitute
the sole and exclusive notice required to be given to Lessee under applicable
Unlawful Detainer statutes.

(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes 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. In the event that any provision of this paragraph 13.1(d)
is contrary to any applicable law, such provision shall be of no force or
effect.

(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false. See Addendum.

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

(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 all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorney's fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided; that portion of the leasing commission
paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of
this Lease.

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

(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law. Lessor's remedies shall include the
relief set forth in Section 1951.2 of the California Civil Code.

13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such thirty
(30) day period and thereafter diligently prosecutes the same to completion.

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13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Lessor by the terms of any
mortgage or trust deed covering the Property. Accordingly, if any installment
of Base Rent, Operating Expenses, 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 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 with respect to such overdue amount,
nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of any of
the aforesaid monetary obligations of Lessee, then Base Rent shall
automatically become due and payable quarterly in advance, rather than
monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.

14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center 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 title or possession, whichever first
occurs. If more than ten percent of the floor area of the Premises, or more
than twenty-five percent of that portion of the Common Areas designated as
parking for the Industrial Center is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only 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 rent
shall be reduced in the proportion that the floor area of the Premises taken
bears to the total floor area of the Premises. No reduction of rent shall
occur if the only area taken is that which does not have the Premises located
thereon. 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 in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade
fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.

15. BROKER'S FEE.

(a) Upon execution of this Lease by both parties, Lessor shall pay
to___________________________________________________________________________
Licensed real estate broker(s), a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $______________, for
brokerage services rendered by said broker(s) to Lessor in this transaction.

(b) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any 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. Said broker shall be a
third party beneficiary of the provisions of this paragraph 15.

16. ESTOPPEL CERTIFICATE.

(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that there are not, to the responding party's knowledge,
any uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Premises or of the
business of the requesting party.

(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
party, (ii) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more than one
month's rent has been paid in advance.

(c) If Lessor desires to finance, refinance, or sell the Property, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. 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 only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of
all liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the
time of such transfer, in which Lessee has an interest, shall be delivered to
the grantee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.

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

19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall
not excuse or cure any default by Lessee under this Lease; provided, however,
that interest shall not be payable on late charges incurred by Lessee nor on
any amounts upon which late charges are paid by Lessee.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.

22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This lease may be modified in writing only, signed
by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker
on this transaction nor the Lessor or any employee or agents of any of said
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of the Premises or the Property
and Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the
Premises and the compliance thereof with all applicable laws and regulations
in effect during the term of this Lease except as otherwise specifically
stated in this Lease.

23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed
to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may by 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 notice purposes. 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 notice to Lessee.

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

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.

26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, but all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be
of no further effect during said month to month tenancy.

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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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Industrial Center is located and any litigation
concerning this Lease between the parties hereto shall be initiated in the
county in which the Industrial Center is located.

30. SUBORDINATION.

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

(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor
shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact.
Lessee does hereby make, constitute and irrevocably appoint Lessor as
Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute
such documents in accordance with this paragraph 30(b).

31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.

32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the
same, 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 part as Lessor may deem necessary or
desirable. Lessor may at any time place on or about the Premises or the
Building any ordinary "For Sale" signs and Lessor may at any time during the
last 120 days of the term hereof place on or about the Premises any ordinary
"For Lease" signs. All activities of Lessor pursuant to this paragraph shall
be without abatement of rent, nor shall Lessor have any liability to Lessee
for the same.

33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas 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. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Industrial Center.

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

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Property.

39. OPTIONS.

39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (2) the option or 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 space within the Industrial Center or other
property of Lessor or the right of first offer to lease other space within
the Industrial Center or other property of Lessor; (3) the right or option to
purchase the Premises or the Industrial Center, or the right of first refusal
to purchase the Premises or the Industrial Center, or the right of first
offer to purchase the Premises or the Industrial Center, or the right or
option 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. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, that an Option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
by reservation or otherwise.

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 option to extend or renew this Lease has been so 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 time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the date after a monetary obligation to Lessor
is due from Lessee and unpaid (without any necessity for notice thereof to
Lessee) and continuing until the obligation is paid, or (iii) at any time
after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e)
(without any necessity of Lessor to give notice of such default to Lessee),
nor (iv) in the event that Lessor has given to Lessee three or more notices
of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the
defaults are cured, during the 12 month period of time immediately prior to
the time that Lessee attempts to exercise the subject Option.

(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, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(c)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessee commits a default described in paragraph
13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice
of such default to Lessee), or (iv) Lessor gives to Lessee three or more
notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or
not the defaults are cured.

40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Industrial Center or any
part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).

41. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.

42. 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 part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.

Initials: /s/ KL
-------
/s/ PML
-------

MULTI TENANT--MODIFIED NET
- -C- American Industrial Real Estate Association 1981

-7-

<PAGE>

43. AUTHORITY. If Lessee 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 behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.

44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

45. 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. This Lease shall
become binding upon Lessor and Lessee only when fully executed by Lessor and
Lessee.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

47. MODIFICATION FOR LENDER. If in connection with obtaining financing for
the building, the Lender shall request reasonable modifications in this Lease
as a condition to such financing, Lessee will not unreasonably withhold,
delay, or defer its consent thereto, provided that such modifications do not
increase the obligations of Lessee hereunder or materially adverse affect the
leasehold interest hereby created.

48. MORTGAGE PROTECTION. Lessee agrees to give any mortgages and/or trust
deed holders, as to all or a potion of the Premises, by registered mail, a
copy of any notice of default served upon Lessor, provided that prior to such
notice Lessee has been notified in writing (by way of notice or assignment of
rents and leases, or otherwise) of the addresses of such mortgages and/or
trust deed holders. Lessee agrees not to exercise any remedies available by
virtue of a default unless Lessor shall have failed to cure such default
within thirty (30) days after receipt of notice of default or such additional
time as may be reasonably necessary to cure the default in the case of a
default incapable of being cured within thirty (30) days. Lessee further
agrees that the mortgages and/or trust deed holder shall have an additional
thirty (30) days within which to cure such default, or if such default cannot
be cured within that time, then such additional time as may be necessary if
within such thirty (30) days any mortgagee and/or trust deed holder has
commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure proceedings
if necessary to effect such cure), in which event such right, if any, as
Lessee might otherwise have to terminate the Lease shall not be exercised
while such remedies are being so diligently pursued.

8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard
form with Broad Form General Liability Endorsement (GLO404), or equivalent,
in an amount of not less than 1) $1,000,000 per occurrence of Bodily Injury
and Property Damage combined single limit with a $1,000,000 excess liability
policy, or 2) $1,000,000 per occurrence of Bodily Injury and Property Damage
with a $2,000,000 General Aggregate Bodily Injury and Property Damage, and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. The policy
shall insure performance by Lessee of the indemnity provisions of this
paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.

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

THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO: THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

LESSOR LESSEE

William D & Edna J. Wright dba
South Coast Business Park q.a.d., Inc., a California Corporation
- ------------------------------ --------------------------------------

By /s/ William D. Wright By /s/ Pam Lopker
--------------------------- -----------------------------------
Pam Lopker, its President

By By /s/ Karl Lopker
--------------------------- -----------------------------------
Karl Lopker, its Vice President

Executed on June 20 - 94 Executed on 1/13/94
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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

<PAGE>

ADDENDUM TO LEASE

This ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes November 30, 1993, by and between
William D & Edna J. Wright dba South Coast Business Park ("Lessor"), and q.a.d.,
Inc., a California Corporation ("Lessee"). The said Standard Industrial Lease
is hereby modified/supplemented (and as modified/supplemented is hereinafter
referred to as "this Lease") in the following particulars only:

A. OPTION TO EXTEND TERM OF LEASE. Lessee is hereby granted the
option to extend the term of this Lease for two (2) additional successive
periods of three (3) years each. The options shall be exercised by the delivery
of written notice to Lessor no earlier than two hundred seventy (270) days and
no later than one hundred eighty (180) days prior to the expiration of the lease
term then in effect. Any extensions granted hereunder shall be on the same terms
and conditions applicable to the initial term except as to rent, which shall be
increased in accordance with Paragraph B(2) below. Lessee's right to exercise
the options granted herein is subject to the terms and conditions set forth in
Paragraph 39 of this Lease.

B. ADJUSTMENTS TO BASE RENT.
(1) COST OF LIVING ADJUSTMENTS TO BASE RENT. The Base Rent
payable pursuant to Paragraph 4.1 shall be subject to further adjustment as of
lease anniversary date, and as of the same date each year thereafter during the
initial lease term and any extension period. Said date is hereinafter referred
to as the "Adjustment Date." The adjustment shall be made as follows:

The Base Rent for the Premises shall be adjusted by the same
percentage as the change, if any, in the Consumer Price Index (All Items for All
Urban Consumers 1982-84=100 Base), of the United States Department of Labor,
Bureau of Labor Statistics for Los Angeles-Anaheim-Riverside, CA (the "Index").
The adjustment shall be calculated according to the following formula:

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding the
Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

-1-
<PAGE>

If the Index is discontinued or revised during the term of this Lease,
such other government Index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Index had not been discontinued or revised.

(2) DETERMINATION OF BASE RENT DURING EXTENSION PERIODS. In the
event Lessee exercises the option to extend granted in Paragraph (a) above,
the Base Rent payable at the commencement of the applicable Extension Period
shall be the then prevailing market rate for a triple net lease of comparable
lease Premises in the surrounding geographical area. Prevailing market rate
shall be determined by mutual agreement of Lessor and Lessee on the basis of
the value which will be obtained in an arms-length transaction between an
informed and willing tenant (other than a tenant currently in possession of
the demised Premises) and an informed and willing landlord (other than the
then existing landlord of demised Premises) under no compulsion to lease. If
Lessor and Lessee have not agreed upon the prevailing market rental rate by
the date which is thirty (30) days prior to the expiration of the lease term
then in effect, then the option to extend will automatically cease and be
deemed extinguished. The base monthly rent as determined pursuant to this
Paragraph B(2) shall thereafter be subject to further cost of living
adjustments pursuant to the terms of Paragraph B(1) above.

C. CONSTRUCTION OF TENANT IMPROVEMENTS. Lessee understands and
agrees that Lessor is currently in the process of constructing the improvements
which shall comprise the Premises. In the course of such construction, Lessor
hereby agrees to construct the tenant improvements set forth in the plans and
specifications attached hereto as Exhibit "B". Such plans and specifications
are hereby clarified as follows: SEE EXHIBIT "B". Lessee has reviewed and
approved all such plans and specifications. Any changes or additions made by
Lessee to such plans and specifications shall be at Lessee's sole cost and
expense, including a ten percent (10%) administrative payment to Lessor. Such
additional payments shall be paid by Lessee to Lessor as follows: (i) fifty
percent (50%) upon approval of such change by Lessor; and (ii) fifty percent
(50%) prior to occupancy of the Premises by Lessee. All tenant improvements
shall be deemed substantially completed when the City of Carpinteria issues a
Certificate of Occupancy for the Premises. Notwithstanding the issuance of such
Certificate, Lessee shall be provided with a punch list of such tenant
improvements prior to the commencement of the lease term, and shall inspect the
Premises after their substantial completion. Lessee shall set forth any manner
in which Lessee claims that the Premises to do not conform to the plans and
specifications attached hereto as Exhibit "B", as reasonably measured by the
standards of finished, comparably priced industrial space in the Santa Barbara
area (hereinafter the "discrepancy"). Lessor shall cure such discrepancies to
the extent Lessor deems such discrepancies to be reasonably claimed, within
thirty (30) days following commencement of the lease term. Provided however, if
any such discrepancy is incapable of cure within such thirty (30)-day period,
and Lessor has commenced the cure of such discrepancy within such thirty
(30)-day period, this provision shall be satisfied.

-2-

<PAGE>

D. USE. Paragraph 6 of this Lease is hereby supplemented as follows:
(1) PROHIBITED USES. Lessee shall not do or permit anything to
be done in or about the Premises nor bring or keep anything therein which will
in any way increase the existing rate of or affect any fire or other insurance
upon the Premises or any of its contents, or cause a cancellation of any
insurance policy covering the Premises or any part thereof or any of its
contents. Lessee shall not commit or suffer to be committed any nuisance or
waste in or upon the Premises. Lessee shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Lessee shall not keep any animals
or pets on the Premises. Lessee shall not use or store "hazardous materials or
wastes" on the Premises, as such terms are defined by applicable federal and
state law, without Lessor's prior written consent. If such consent is given,
Lessee shall comply with governmental laws, rules and regulations pertaining to
hazardous materials and wastes. Lessor shall have a right of re-entry upon the
Premises on reasonable notice and at reasonable times for purposes of
inspection, contamination testing and remediation.

(2) INSTALLATION OF SPECIALIZED EQUIPMENT AND USE OF LESSEE'S
POSSESSIONS ON THE PREMISES. Lessor shall not be liable to Lessee for damage to
Lessee or Lessee's possessions, including but not limited to furniture,
fixtures, equipment (specialized or otherwise), and inventory, from any cause.
Lessee waives all claims against Lessor for damage to Lessee's possessions
arising for any reason. Lessee shall comply with all laws, regulations and
ordinances relating to the condition and use of any and all of Lessee's
possessions on the Premises, including laws requiring the alteration,
maintenance and restoration of the Premises as a result of Lessee's particular
use. Provided, however, any required alterations to the Premises shall be
conditioned upon Lessor's prior written consent. The Premises shall not be
electrically overloaded. No equipment, machinery, apparatus or other appliance
shall be used or operated on the Premises in such a manner that such equipment
will in any way injure, vibrate or shake the Premises, or place an excessive
burden on power sources installed on the Premises.

F. INDEMNITY. The indemnification of Lessor by Lessee pursuant to
Paragraph 8.7 of this Lease shall also include and extend to any violation by
Lessee of applicable state, federal and local laws pertaining to the use,
storage and discharge of hazardous materials and wastes.

G. DEFAULT. Paragraph 13.1 of this Lease is supplemented to provide
that the release or discharge by Lessee of any hazardous material or wastes in
or about the Premises, or violation of any law or deviation from prescribed

-3-

<PAGE>

procedures in the use or storage of hazardous materials or wastes, shall
constitute a material default of this Lease by Lessee. Wherever used in this
Lease, the terms hazardous wastes and/or hazardous materials shall include all
definitions of hazardous wastes and materials provided by both federal and
California law.

-4-

<PAGE>

IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum
to be executed concurrently with the Lease of which this Addendum forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: /s/ William D. Wright Dated: January 20, 1994
------------------------------ -----------------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: /s/ Pam Lopker Dated: 1/13/94
------------------------------ ----------------------
Pam Lopker, its President

BY: /s/ Karl Lopker Dated: 1/13/94
------------------------------ ----------------------
Karl Lopker, its Vice President

-5-

<PAGE>

Addendum to Lease
Number Two

Building "C"

Lessor shall spend up to $25.00 per square foot of leased space being remodeled
(suites 6, 7 & 8).

Lessee shall pay in cash for any tenant improvements requested by Lessee in
excess of $25.00 per square foot.

LESSOR:

William D. Wright dba
South Coast Business Park

By /s/ William D. Wright January 20, 1994
-----------------------------------------------------------------
Dated

LESSEE:

q.a.d., Inc., a California Corporation

By /s/ Pam Lopker 1/13/94
-----------------------------------------------------------------
Pam Lopker, President Dated

By /s/ Karl Lopker 1/13/94
-----------------------------------------------------------------
Karl Lopker, Vice President Dated

<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

SOUTH COAST BUSINESS PARK

<PAGE>

STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phases I & II (46,198
s.f. + 14,000 s.f. = 60,198 s.f.) and described as 6450 Via Real, (building E),
Carpinteria, California consisting of approximately 12,265 square feet (see
exhibit "A" attached hereto) herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the
Common Areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building, herein referred to as the "Building."
The Premises, the Building, the Common Areas, the land upon which the same
are located, along with all other buildings and improvements thereon, are
herein collectively referred to as the "Industrial Center."

2.2 VEHICLE PARKING. Lessee shall be entitled to 36 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles." Lessee shall have
the non-exclusive right to use the lot located at 6410 Via Real for parking
until such time that construction commences.

2.3 COMMON AREAS -- DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center that are provided and designated by
the Lessor from time to time for the general non-exclusive use of Lessor,
Lessee and of other lessees of the Industrial Center and their respective
employees, suppliers, shippers, customers and invitees, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways and landscaped areas.

2.4 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by
Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only
by the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time. In the event that any unauthorized
storage shall occur then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.

2.5 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable rules and regulations with
respect thereto. Lessee agrees to abide by and conform to all such rules and
regulations, and to cause its employees, suppliers, shippers, customers, and
invitees to so abide and conform. Lessor shall not be responsible to Lessee
for the non-compliance with said rules and regulations by other lessees of the
Industrial Center.

2.6 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for fifty-nine (49) months
commencing on December 1, 1993 and ending on December 31, 1997
unless sooner terminated pursuant to any provision hereof. See Addendum.

4. RENT.

4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise
expressly provided in this Lease, on the 1st day of each month of the term
hereof, monthly payments in advance of $15,331.25. See Addendum for cost of
living adjustments to Base Rent, and determination of rent during Extension
Periods.

Lessee shall pay to Lessor upon execution hereof $15,331.25 as Base Rent for
December 1, 1993 thru December 1, 1993. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such
other places as Lessor may designate in writing.

(a) "Lessee's Share" is defined, for purposes of this Lease, as
20.37 percent. guaranteed not to exceed $.22 per s.f. for the first 12 mos.
of occupancy
(b) "Operating Expenses" is defined, for purposes of
this Lease, as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;

Initials: /s/ KL
-------
/s/ PML
-------

MULTI TENANT--MODIFIED NET
- -C- American Industrial Real Estate Association 1981

<PAGE>

(ee) Security services;
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense;"
(gg) Property management expenses;
(ii) Any deductible portion of an insured loss concerning
any of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by
Lessor under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the
Industrial Center already has the same, Lessor already provides the services,
or Lessor has agreed elsewhere in this Lease to provide the same or some of
them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses
is presented to Lessee by Lessor. At Lessor's option, however, an amount may
be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid,
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expenses next falling due. If Lessee's payments under this paragraph during
said preceding year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$15,331.25 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the Initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.2 COMPLIANCE WITH LAW.

6.3 CONDITION OF PREMISES.

(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation. Lessee's failure to give such written
notice to Lessor within thirty (30) days after the Lease commencement date
shall cause the conclusive presumption that Lessor has complied with all of
Lessor's obligations hereunder. The warranty contained in this paragraph
6.3(a) shall be of no force or effect if prior to the date of this Lease,
Lessee was an owner or occupant of the Premises. See Addendum.

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in
good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services for which there is an Operating Expense pursuant to paragraph
4.2. Lessor shall not, however, be obligated to paint the exterior or
interior surface of exterior walls, nor shall Lessor be required to maintain,
repair or replace windows, doors or plate glass of the Premises. Lessor
shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for
such repairs. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessor
shall not be liable for damages or loss of any kind or nature by reason of
Lessor's failure to furnish any Common Area Services when such failure is
caused by accident, breakage, repairs, strikes, lockout, or other labor
disturbances or disputes of any character, or by any other cause beyond the
reasonable control of Lessor.

7.2 LESSEE'S OBLIGATIONS.

(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense,
shall keep in good order, condition and repair the Premises and every part
thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessible to Lessee) including,
without limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain,
at Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating
and air conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof. Lessee
shall be responsible for clean-up of all hazardous waste occurring in or
about the premises.

(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next Base Rent installment.

(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwishstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.

7.3 ALTERATIONS AND ADDITIONS.

(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs, during
the term of this Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Lessee shall make no change or alteration to the

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8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.4 PAYMENT OF PREMIUM INCREASE.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

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9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's Intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

9.4 DAMAGE NEAR END OF TERM.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

10. REAL PROPERTY TAXES.

10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.

10.5 PERSONAL PROPERTY TAXES.

12. ASSIGNMENT AND SUBLETTING.

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(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

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15. BROKER'S FEE.

16. ESTOPPEL CERTIFICATE.

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.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

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.

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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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

30. SUBORDINATION.

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

39. OPTIONS.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(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).

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44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

49. MORTGAGE PROTECTION. Lessee agrees to give any mortgages and/or trust
deed holders, as to all or a potion of the Premises, by registered mail, a
copy of any notice of default served upon Lessor, provided that prior to such
notice Lessee has been notified in writing (by way of notice or assignment of
rents and leases, or otherwise) of the addresses of such mortgages and/or
trust deed holders. Lessee agrees not to exercise any remedies available by
virtue of a default unless Lessor shall have failed to cure such default
within thirty (30) days after receipt of notice of default or such additional
time as may be reasonably necessary to cure the default in the case of a
default incapable of being cured within thirty (30) days. Lessee further
agrees that the mortgages and/or trust deed holder shall have an additional
thirty (30) days within which to cure such default, or if such default cannot
be cured within that time, then such additional time as may be necessary if
within such thirty (30) days any mortgagee and/or trust deed holder has
commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure proceedings
if necessary to effect such cure), in which event such right, if any, as
Lessee might otherwise have to terminate the Lease shall not be exercised
while such remedies are being so diligently pursued.

LESSOR LESSEE

William D & Edna J. Wright dba
South Coast Business Park q.a.d., Inc., a California Corporation
- ------------------------------ --------------------------------------

By /s/ William D. Wright By /s/ Pam Lopker
--------------------------- -----------------------------------
Pam Lopker, its President

By By /s/ Karl Lopker
--------------------------- -----------------------------------
Karl Lopker, its Vice President

Executed on June 20 - 94 Executed on 1/13/94
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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

<PAGE>

EXHIBIT "B"

[MAP]

<PAGE>
EXHIBIT 10.25

ADDENDUM TO LEASE

This ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes November 30, 1993, by and between
William D & Edna J. Wright dba South Coast Business Park ("Lessor"), and c.a.d.,
Inc., a California Corporation ("Lessee"). The said Standard Industrial Lease
is hereby modified/supplemented (and as modified/supplemented is hereinafter
referred to as "this Lease") in the following particulars only:

B. ADJUSTMENTS TO BASE RENT.
(1) COST OF LIVING ADJUSTMENTS TO BASE RENT. The Base Rent
payable pursuant to Paragraph 4.1 shall be subject to further adjustment as of
December 1, 1994, and as of the same date each year thereafter during the
initial lease term and any extension period. Said date is hereinafter referred
to as the "Adjustment Date." The adjustment shall be made as follows:

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding the
Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

-1-
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<PAGE>

-3-

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IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum
to be executed concurrently with the Lease of which this Addendum forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: /s/ William D. Wright Dated: January 20, 1994
------------------------------ -----------------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: /s/ Pam Lopker Dated:
------------------------------ ----------------------
Pam Lopker, its President

BY: /s/ Karl Lopker Dated: 1/13/94
------------------------------ ----------------------
Karl Lopker, its Vice President

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Addendum to Exhibit "B"
Regarding Change Orders

1. New walls will be metal stud and sheet rock construction, not de
mountable walls as specified on the plans. The one exception to this is
the de mountable walls already in the space, which will be re-used.

2. Substitute the symbol W1 wall covering for the symbol W2 in phase 1
offices, conference room, and waiting area.

3. Sawcut of the floor in two locations (room 601 Reception and room 609
Conference) is deleted.

4. Carpet substitution is Stratton #34450, "China Sea". This will be the
specified carpet for the tenant improvements to Buildings E, F and C.

5. We will use a Zolatone paint for the hallway side of the offices and
restrooms.

<PAGE>

Addendum to Lease
Number Two

Building "E"

Lessor shall spend up to $25.00 per square foot of leased space being remodeled
(suites 3 through 9).

Lessee shall pay in cash for any tenant improvements requested by Lessee in
excess of $25.00 per square foot.

LESSOR:

William D Wright dba
South Coast Business Park

By /s/ William D. Wright January 20, 1994
-----------------------------------------------------------------
Dated

LESSEE:

q.a.d., Inc., a California Corporation

By /s/ Pam Lopker
-----------------------------------------------------------------
Pam Lopker, President Dated

By /s/ Karl Lopker 1/13/94
-----------------------------------------------------------------
Karl Lopker, Vice President Dated

<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

SOUTH COAST BUSINESS PARK

<PAGE>

STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phase II (14,000
square feet) and described as 6460 Via Real, Suite's 1 thru 5 (building F),
Carpinteria, CA consisting of approximately 8,625 square feet (see Exhibit
"A" attached hereto) herein referred to as the "Premises", as may be outlined
on an Exhibit attached hereto, including rights to the Common Areas as
hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a
portion of a building, herein referred to as the "Building." The Premises,
the Building, the Common Areas, the land upon which the same are located,
along with all other buildings and improvements thereon, are herein
collectively referred to as the "Industrial Center."

2.2 VEHICLE PARKING. Lessee shall be entitled to 26 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles." Lessee shall have
the non-exclusive right to use the lot located at 6410 Via Real for parking
until such time that construction commences.

2.6 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for seventy-one (71) months
commencing on 2/1/94 or upon receipt of final approval from City of Carp. and
ending on in any event December 31, 1999 unless sooner terminated pursuant to
any provision hereof. See Addendum.

4. RENT.

4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise
expressly provided in this Lease, on the 1st day of each month of the term
hereof, monthly payments in advance of $10,781.25. See Addendum for cost of
living adjustments to Base Rent, and determination of rent during Extension
Periods.

Lessee shall pay Lessor upon execution hereof $10,781.25 as Base Rent for
first months rent. Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the Base Rent. Rent shall
be payable in lawful money of the United States to Lessor at the address
stated herein or to such other persons or at such other places as Lessor may
designate in writing.

(a) "Lessee's Share" is defined, for purposes of this Lease, as
62.5/Phase II* percent. guaranteed not to exceed $.22 per s.f. for the first
12 mos. of occupancy.
(b) "Operating Expenses" is defined, for purposes of this Lease,
as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
*Lessee's share is defined for purposes of this lease to include Phase I & II
as ___ (46,198 s.f. + 14,000 s.f. = 60,198 s.f.)

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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$10,781.25 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.2 COMPLIANCE WITH LAW.

6.3 CONDITION OF PREMISES.

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.2 LESSEE'S OBLIGATIONS.

7.3 ALTERATIONS AND ADDITIONS.

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8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.4 PAYMENT OF PREMIUM INCREASE.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

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9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

9.4 DAMAGE NEAR END OF TERM.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

10. REAL PROPERTY TAXES.

10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.

10.5 PERSONAL PROPERTY TAXES.

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

12. ASSIGNMENT AND SUBLETTING.

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(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

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15. BROKER'S FEE.

(b) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interests 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. Said broker shall be a
third party beneficiary of the provisions of this paragraph 15.

16. ESTOPPEL CERTIFICATE.

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.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

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.

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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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

30. SUBORDINATION.

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

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

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

39. OPTIONS.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(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).

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44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

LESSOR LESSEE

William D & Edna J. Wright dba
South Coast Business Park q.a.d., Inc., a California Corporation
- ------------------------------ --------------------------------------

By /s/ William D. Wright By /s/ Pam Lopker
--------------------------- -----------------------------------
Pam Lopker, its President

By By /s/ Karl Lopker
--------------------------- -----------------------------------
Karl Lopker, its Vice President

Executed on Jan 20 - 94 Executed on 1/13/94
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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

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ADDENDUM TO LEASE

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding the
Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

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C. Agrees that Lessor is currently in the process of constructing
the improvements which shall comprise the Premises. In the course of such
construction, Lessor hereby agrees to construct the tenant improvements set
forth in the plans and specifications attached hereto as Exhibit "B". Such
plans and specifications are hereby clarified as follows: SEE EXHIBIT "B".
Lessee has reviewed and approved all such plans and specifications. Any
changes or additions made by Lessee to such plans and specifications shall be
at Lessee's sole cost and expense, including a ten percent (10%)
administrative payment to Lessor. Such additional payments shall be paid by
Lessee to Lessor as follows: (i) fifty percent (50%) upon approval of such
change by Lessor; and (ii) fifty percent (50%) prior to occupancy of the
Premises by Lessee. All tenant improvements shall be deemed substantially
completed when the City of Carpinteria issues a Certificate of Occupancy for
the Premises. Notwithstanding the issuance of such Certificate, Lessee shall
be provided with a punch list of such tenant improvements prior to the
commencement of the lease term, and shall inspect the Premises after their
substantial completion. Lessee shall set forth any manner in which Lessee
claims that the Premises to do not conform to the plans and specifications
attached hereto as Exhibit "B", as reasonably measured by the standards of
finished, comparably priced industrial space in the Santa Barbara area
(hereinafter the "discrepancy"). Lessor shall cure such discrepancies to the
extent Lessor deems such discrepancies to be reasonably claimed, within
thirty (30) days following commencement of the lease term. Provided however,
if any such discrepancy is incapable of cure within such thirty (30)-day
period, and Lessor has commenced the cure of such discrepancy within such
thirty (30)-day period, this provision shall be satisfied.

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IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum
to be executed concurrently with the Lease of which this Addendum forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: /s/ William D. Wright Dated: January 20, 1994
------------------------------ -----------------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: /s/ Pam Lopker Dated: 1/13/94
------------------------------ ----------------------
Pam Lopker, its President

BY: /s/ Karl Lopker Dated: 1/13/94
------------------------------ ----------------------
Karl Lopker, its Vice President

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Addendum to Lease
Number Two

Building "F"

Lessor shall spend up to $30.00 per square foot of leased space being remodeled
(suites 6, 7 & 8).

Lessee shall pay in cash for any tenant improvements requested by Lessee in
excess of $30.00 per square foot.

LESSOR:

William D. Wright dba
South Coast Business Park

By /s/ William D. Wright January 20, 1994
-----------------------------------------------------------------
Dated

LESSEE:

q.a.d., Inc., a California Corporation

By /s/ Pam Lopker 1/13/94
-----------------------------------------------------------------
Pam Lopker, President Dated

By /s/ Karl Lopker 1/13/94
-----------------------------------------------------------------
Karl Lopker, Vice President Dated

<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

SOUTH COAST BUSINESS PARK

6410-6460 Via Real, Carpinteria, California

<PAGE>

STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

1. PARTIES. This Lease, dated, for reference purposes only, September 8,
1995, is made by and between William D & Edna J. Wright dba South Coast
Business Park (herein called "Lessor") and q.a.d., Inc., a California
Corporation (herein called "Lessee").

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phase I & II (46,198
s.f. + 14,000 s.f. = 60,198 s.f) and described as 6440 Via Real, Suite's 7
& 8 (building D), Carpinteria, CA consisting of approximately 2,304 square
feet (see exhibit "A" attached hereto) herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the
Common Areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building, herein referred to as the "Building."
The Premises, the Building, the Common Areas, the land upon which the same
are located, along with all other buildings and improvements thereon, are
herein collectively referred to as the "Industrial Center."

2.2 VEHICLE PARKING. Lessee shall be entitled to 4 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles."

2.6 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for Fifteen (15) months
commencing on October 1, 1995 and ending on December 31, 1996
unless sooner terminated pursuant to any provision hereof. See Addendum.

4. RENT.

4.1 BASE RENT. Lessee shall pay Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the 1st day of each month of the term hereof,
monthly payments in advance of $2,880.00. See Addendum for cost of living
adjustments to Base Rent, and determination of rent during Extension Periods.
Lessee shall pay to Lessor upon execution hereof $2,880.00 as Base Rent for
October 1, 1995 thru October 31, 1995. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.

(a) "Lessee's Share" is defined, for purposes of this Lease, as
3.83 percent.
(b) "Operating Expenses" is defined, for purposes of
this Lease, as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;

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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$2,880.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.1 USE. The Premises shall be used and occupied only for the purpose of
manufacturing, developing and marketing computer software, and for no other
use without Lessor's prior written consent. See Addendum for additional
terms.

6.2 COMPLIANCE WITH LAW.

6.3 CONDITION OF PREMISES.

(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation. Lessee's failure to give such written
notice within thirty (30) days after the Lease commencement date shall cause
the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall
be of no force or effect if prior to the date of this Lease, Lessee was
an owner or occupant of the Premises. See Addendum.

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act
or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in
good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services for which there is an Operating Expense pursuant to paragraph
4.2. Lessor shall not, however, be obligated to paint the exterior or
interior surface of exterior walls, nor shall Lessor be required to maintain,
repair or replace windows, doors or plate glass of the Premises. Lessor
shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for
such repairs. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessor
shall not be liable for damages or loss of any kind or nature by reason of
Lessor's failure to furnish any Common Area Services when such failure is
caused by accident, breakage, repairs, strikes, lockout, or other labor
disturbances or disputes of any character, or by any other cause beyond the
reasonable control of Lessor.

7.2 LESSEE'S OBLIGATIONS.

(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense,
shall keep in good order, condition and repair the Premises and every part
thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessible to Lessee) including,
without limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain,
at Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating
and air conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof. Lessee
shall be responsible for clean-up of all hazardous waste occurring in or
about the premises.

(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next Base Rent installment.

(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.

7.3 ALTERATIONS AND ADDITIONS.

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8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.4 PAYMENT OF PREMIUM INCREASE.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

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9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

9.4 DAMAGE NEAR END OF TERM.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

10. REAL PROPERTY TAXES.

10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.

10.5 PERSONAL PROPERTY TAXES.

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

12. ASSIGNMENT AND SUBLETTING.

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(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

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15. BROKER'S FEE.

(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate broker(s), a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of
$ N/A, for brokerage services rendered by said broker(s) to Lessor
in this transaction.

16. ESTOPPEL CERTIFICATE.

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.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

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.

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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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

30. SUBORDINATION.

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

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

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

39. OPTIONS.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(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).

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44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

48. LESSOR OPTION TO RELOCATE LESSEE. At any time after Lessee's execution
of this Lease, Lessor shall have the right, upon providing Lessee thirty (30)
days notice in writing, to provide and furnish Lessee with space elsewhere in
the building of approximately the same size as said Premises, and to move and
place Lessee in such new space at Lessor's expense. In the event Lessor
moves Lessee to such new space, then this Lease and each and all of the terms
and covenants and conditions hereof shall thereupon remain in full force and
effect and be deemed applicable to such new space except that a revised
Exhibit "A" shall become a part of this Lease and shall reflect the location
of the new space and Paragraphs 4.1, 4.2 and 5 shall be amended to show
correct data. Should Lessee refuse to permit Lessor to move Lessee to such
new space at the end of said thirty (30) day period, Lessor shall have
the right to terminate this Lease by notice to such effect given to Lessee in
writing within ten (10) days following the end of said thirty (30) day
period, which termination shall be effective sixty (60) days after the date
of the original relocation by Lessor.

LESSOR LESSEE

William D & Edna J. Wright dba
South Coast Business Park q.a.d., Inc. a California Corporation
- ------------------------------ --------------------------------------

By /s/ Jeanne Wright - [Illegible] By
--------------------------- -----------------------------------
Pam Lopker, President

By By /s/ KL Douglas Marsh
--------------------------- -----------------------------------
Karl Lopker, Vice President

Executed on 10/10/95 Executed on
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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

<PAGE>

ADDENDUM TO LEASE

THIS ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes September 8, 1995, by and between
William D & Edna J. Wright dba South Coast Business Park ("Lessor"), and q.a.d.,
Inc., a California Corporation ("Lessee"). The said Standard Industrial Lease
is hereby modified/supplemented (and as modified/supplemented is hereinafter
referred to as "this Lease") in the following particulars only:

A. OPTION TO EXTEND TERM OF LEASE. Lessee is hereby granted the
option to extend the term of this Lease for three (3) additional successive
periods of one (1) years each. The options shall be exercised by the delivery
of written notice to Lessor no earlier than two hundred seventy (270) days and
no later than one hundred eighty (180) days prior to the expiration of the lease
term then in effect. Any extensions granted hereunder shall be on the same terms
and conditions applicable to the initial term except as to rent, which shall be
increased in accordance with Paragraph B(2) below. Lessee's right to exercise
the options granted herein is subject to the terms and conditions set forth in
Paragraph 39 of this Lease.

B. ADJUSTMENTS TO BASE RENT.
(1) COST OF LIVING ADJUSTMENTS TO BASE RENT. The Base Rent
payable pursuant to Paragraph 4.1 shall be subject to further adjustment as of
October 1, 1996, and as of the same date each year thereafter during the
initial lease term and any extension period. Said date is hereinafter referred
to as the "Adjustment Date." The adjustment shall be made as follows:

The Base Rent for the Premises shall be adjusted by the same
percentage as the increase, if any, in the Consumer Price Index (All Items for
All Urban Consumers 1982-84=100 Base), of the United States Department of
Labor, Bureau of Labor Statistics for Los Angeles-Anaheim-Riverside, CA
(the "Index"). The adjustment shall be calculated according to the following
formula:

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding the
Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

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C. CONSTRUCTION OF TENANT IMPROVEMENTS. Lessee understands and
agrees that Lessor is currently in the process of constructing the improvements
which shall comprise the Premises. In the course of such construction, Lessor
hereby agrees to construct the tenant improvements set forth in the plans and
specifications attached hereto as Exhibit "B". Such plans and specifications
are hereby clarified as follows: SEE EXHIBIT. Lessee has reviewed and
approved all such plans and specifications. Any changes or additions made by
Lessee to such plans and specifications shall be at Lessee's sole cost and
expense, including a ten percent (10%) administrative payment to Lessor. Such
additional payments shall be paid by Lessee to Lessor as follows: (i) fifty
percent (50%) upon approval of such change by Lessor; and (ii) fifty percent
(50%) prior to occupancy of the Premises by Lessee. All tenant improvements
shall be deemed substantially completed when the City of Carpinteria issues a
Certificate of Occupancy for the Premises. Notwithstanding the issuance of such
Certificate, Lessee shall be provided with a punch list of such tenant
improvements prior to the commencement of the lease term, and shall inspect the
Premises after their substantial completion. Lessee shall set forth any manner
in which Lessee claims that the Premises to do not conform to the plans and
specifications attached hereto as Exhibit "B", as reasonably measured by the
standards of finished, comparably priced industrial space in the Santa Barbara
area (hereinafter the "discrepancy"). Lessor shall cure such discrepancies to
the extent Lessor deems such discrepancies to be reasonably claimed, within
thirty (30) days following commencement of the lease term. Provided however, if
any such discrepancy is incapable of cure within such thirty (30)-day period,
and Lessor has commenced the cure of such discrepancy within such thirty
(30)-day period, this provision shall be satisfied.

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(2) INSTALLATION OF SPECIALIZED EQUIPMENT AND USE OF LESSEE'S
POSSESSIONS ON THE PREMISES. Lessee shall not install on the Premises any
specialized equipment requiring the use of a power source (including, but not
limited to, computer hardware or software) without the prior written consent
of Lessor. Lessor shall give its consent to such installation provided
the conditions contained herein are satisfied. Lessor shall not be liable to
Lessee for damage to Lessee or Lessee's possessions, including but not
limited to furniture, fixtures, equipment (specialized or otherwise), and
inventory, from any cause. Lessee waives all claims against Lessor for damage
to Lessee's possessions arising for any reason. Lessee shall comply with all
laws, regulations and ordinances relating to the condition and use of any and
all of Lessee's possessions on the Premises, including laws requiring the
alteration, maintenance and restoration of the Premises as a result of
Lessee's particular use. Provided, however, any required alterations to the
Premises shall be conditioned upon Lessor's prior written consent. The
Premises shall not be electrically overloaded. No equipment, machinery,
apparatus or other appliance shall be used or operated on the Premises in
such a manner that such equipment will in any way injure, vibrate or shake
the Premises, or place an excessive burden on power sources installed on the
Premises.

E. ASSIGNMENT AND SUBLETTING. Lessee hereby understands and agrees
that Lessor may withhold its consent to any requested assignment or subletting,
and such withholding of consent shall be deemed reasonable, in the event that
the proposed assignee or sublessee intends to use or store hazardous wastes or
materials on the Premises. Also, it is a requirement that Lessor receive
seventy five percent (75%) of any consideration or increase in rent received
or to be --- over

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H. ABOVE-STANDARD TENANT IMPROVEMENTS. In addition to the
construction of tenant improvements as set forth in Paragraph C above, Lessor
and Lessee agree that Lessor shall also construct those certain
above-standard tenant improvements set forth in the plans and specifications
attached hereto as Exhibit "C". Lessor and Lessee have estimated to the best
of their ability the total construction costs Lessor shall incur in the
construction of such above-standard improvements and Lessee has approved such
estimate as set forth in Exhibit "C". Provided however, Lessee understands
and agrees that this is an estimate only, and that the total actual
construction costs for such above-standard improvements may exceed the
estimate. Nevertheless, Lessee agrees that the Base Rent payable pursuant to
Paragraph 4 of the Lease shall be adjusted as more particularly set forth
below, based on the total actual construction costs for such above-standard
improvements and not the estimated costs. Lessor shall pay all costs incurred
in connection with the construction of the above-standard improvements
including but not limited to actual material costs, costs of installation,
architectural and/or engineering fees, governmental fees (e.g. building
permit fees), the cost of painting and other finish work, and delivery fees.
Following completion of construction and when such costs are known to Lessor,
Lessor shall provide Lessee with a breakdown of such costs, and a total for
the actual costs of the above-standard improvements. The minimum monthly rent
payable by Lessee over the initial term of this Lease shall then be increased
by the quotient derived by dividing the total actual cost of construction of
the above-standard improvements by the number of months in the initial Lease
Term. Solely as an example, assume:

total cost of construction = $50,000

months in the initial Lease Term = 36

quotient = $1,388.89 ($50,000 + 36)

original Base Rent = $3,500.00

adjusted Base Rent = $4,888.89 ($3,500.00 + $1,388.89).

Lessor shall notify Lessee promptly upon determination of the adjusted Base
Rent. By its execution of this Addendum to Lease, Lessee acknowledges its
liability for payment of such adjusted Base Rent notwithstanding the fact
that such adjusted amount is not capable of determination as of the date of
execution hereof. Lessee shall have the right to request change orders as set
forth in Paragraph C above. Following completion of construction and
installation of the above-standard improvements, Lessee shall also have the
inspection rights set forth in Paragraph C above. Subject to Lessor's duty to
correct defects arising out of improper installation of improvements,
Lessee's sole and exclusive remedy for alleged product defects in such
above-standard improvements shall be a right of action against the
manufacturer guaranteeing the allegedly defective product. Lessor shall assign
to Lessee all warranties and guaranties of the manufacturers of all
above-standard improvements installed in the Premises. Notwithstanding the
adjusted Base Rent as set forth herein, in the event that Lessee is in
default of any of its obligations under this Lease, then in addition to any
other rights or remedies which Lessor may require that Lessee pay the unpaid
balance of the total actual costs of construction of the above standard
improvements immediately upon written notice. Upon receipt by Lessor from
Lessee of such unpaid balance, the Base Rent payable by Lessee shall be
reduced by the quotient described above.

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IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum
to be executed concurrently with the Lease of which this Addendum forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: /s/ Jean Wright-Boutolazs, Agent Dated: 10/10/95
-------------------------------- -----------------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: Dated:
------------------------------ ----------------------
Pam Lopker, President

BY: /s/ Douglas Marsh Dated: Sep. 28, 1995
------------------------------ ----------------------
Karl Lopker, Vice President

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<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

SOUTH COAST BUSINESS PARK
6410-6460 Via Real, Carpinteria, California

<PAGE>

STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phases I & II (46,198
s.f. + 14,000 s.f. = 60,198 s.f) and described as 6440 Via Real, Suite's 9
& 10 (Building D), Carpinteria, CA consisting of approximately 2,304 square
feet (see Exhibit "A" attached hereto) herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the
Common Areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building, herein referred to as the "Building."
The Premises, the Building, the Common Areas, the land upon which the same
are located, along with all other buildings and improvements thereon, are
herein collectively referred to as the "Industrial Center."

2.6 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for Fifteen (15) months
commencing on October 1, 1995 and ending on December 31, 1996 unless sooner
terminated pursuant to any provision hereof. See Addendum.

4. RENT.

4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise
expressly provided in this Lease, on the 1st day of each month of the term
hereof, monthly payments in advance of $1,843.20. See Addendum for cost of
living adjustments to Base Rent, and determination of rent during Extension
Periods.

Lessee shall pay to Lessor upon execution hereof $1,843.20 as Base Rent for
October 1, 1995 thru October 31, 199_. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.

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(ee) Security services;
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense;"
(ii) Any deductible portion of an insured loss concerning
any of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by
Lessor under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the
Industrial Center already has the same, Lessor already provides the services,
or Lessor has agreed elsewhere in this Lease to provide the same or some of
them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses
is presented to Lessee by Lessor. At Lessor's option, however, an amount may
be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid,
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expenses next falling due. If Lessee's payments under this paragraph during
said preceding year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$1,843.20 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.1 USE. The Premises shall be used and occupied only for the purpose of
manufacturing, developing and marketing compute software and for no other
use without Lessor's prior written consent. See Addendum for additional
terms.

6.2 COMPLIANCE WITH LAW.

6.3 CONDITION OF PREMISES.

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.2 LESSEE'S OBLIGATIONS.

(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense,
shall keep in good order, condition and repair the Premises and every part
thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessable to Lessee) including,
without limiting the generally of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain,
at Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating
and air conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof. Lessee
shall be responsible for clean-up of all hazardous waste occurring in or
about the premises.

(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next Base Rent installment.

(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwishstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.

7.3 ALTERATIONS AND ADDITIONS.

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8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.4 PAYMENT OF PREMIUM INCREASE.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

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9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

9.4 DAMAGE NEAR END OF TERM.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

10. REAL PROPERTY TAXES.

10.5 PERSONAL PROPERTY TAXES.

12. ASSIGNMENT AND SUBLETTING.

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(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

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15. BROKER'S FEE.

(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate
broker(s), a fee as set forth in a separate agreement between Lessor and
said broker(s), or in the event there is no separate agreement between Lessor
and said broker(s), the sum of $ N/A , for
brokerage services rendered by said broker(s) to Lessor in this transaction.

16. ESTOPPEL CERTIFICATE.

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.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

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.

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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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

30. SUBORDINATION.

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

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

39. OPTIONS.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(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).

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44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

48. LESSOR OPTION TO RELOCATE LESSEE. At any time after Lessee's execution of
this Lease, Lessor shall have the right, upon providing Lessee thirty (30)
days notice in writing, to provide and furnish Lessee with space elsewhere in
the building of approximately the same size as said Premises, and to move and
place Lessee in such new space at Lessor's expense. In the event Lessor
moves Lessee to such new space, then this Lease and each and all of the terms
and covenants and conditions hereof shall thereupon remain in full force and
effect and be deemed applicable to such new space except that a revised
Exhibit "A" shall become a part of this Lease and shall reflect the
location of the new space and Paragraphs 4.1, 4.2 and 5 shall be amended to
show correct data. Should Lessee refuse to permit Lessor to move Lessee to
such new space at the end of said thirty (30) day period, Lessor shall have
the right to terminate this Lease by notice to such effect given to Lessee in
writing within ten (10) days following the end of said thirty (30) day
period, which termination shall be effective sixty (60) days after the date of
the original relocation by Lessor.

LESSOR LESSEE

William D & Edna J. Wright dba q.a.d., Inc.
South Coast Business Park a California Corporation
- ------------------------------ --------------------------------------

By /s/Jeanne Wright Bartolyn, Agent By
--------------------------- -----------------------------------
Pam Lopker, President

By By /s/ Kl Douglas Marsh
--------------------------- -----------------------------------
Karl Lopker, Vice President

Executed on 10/10/95 Executed on
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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<PAGE>

ADDENDUM TO LEASE

This ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes September 8, 1995, by and
between William D & Edna J. Wright dba South Coast Business Park ("Lessor"),
and q.a.d., Inc., a California Corporation ("Lessee"). The said Standard
Industrial Lease is hereby modified/supplemented (and as
modified/supplemented is hereinafter referred to as "this Lease") in the
following particulars only:

A. OPTION TO EXTEND TERM OF LEASE. Lessee is hereby granted the
option to extend the term of this Lease for three (3) additional successive
periods of one (1) years each. The options shall be exercised by the delivery
of written notice to Lessor no earlier than two hundred seventy (270) days
and no later than one hundred eighty (180) days prior to the expiration of
the lease term then in effect. Any extensions granted hereunder shall be on
the same terms and conditions applicable to the initial term except as to
rent, which shall be increased in accordance with Paragraph B(2) below.
Lessee's right to exercise the options granted herein is subject to the terms
and conditions set forth in Paragraph 39 of this Lease.

B. ADJUSTMENTS TO BASE RENT.
(1) COST OF LIVING ADJUSTMENTS TO BASE RENT. The Base Rent payable
pursuant to Paragraph 4.1 shall be subject to further adjustment as of
October 1, 1996, and as of the same date each year thereafter during the
initial lease term and any extension period. Said date is hereinafter
referred to as the "Adjustment Date." The adjustment shall be made as follows:

The Base Rent for the Premises shall be adjusted by the same
percentage as the increase, if any, in the Consumer Price Index (All Items
for All Urban Consumers 1982-84=100 Base), of the United States Department of
Labor, Bureau of Labor Statistics for Los Angeles-Anaheim-Riverside, CA (the
"Index"). The adjustment shall be calculated according to the following
formula:

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding
the Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

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<PAGE>

If the Index is discontinued or revised during the term of this
Lease, such other government Index or computation with which it is replaced
shall be used in order to obtain substantially the same result as would be
obtained if the Index had not been discontinued or revised.

C. CONSTRUCTION OF TENANT IMPROVEMENTS. Lessee understands and
agrees that Lessor is currently in the process of constructing the
improvements which shall comprise the Premises. In the course of such
construction, Lessor hereby agrees to construct the tenant improvements set
forth in the plans and specifications attached hereto as Exhibit "B". Such
plans and specifications are hereby clarified as follows: SEE EXHIBIT. Lessee
has reviewed and approved all such plans and specifications. Any changes or
additions made by Lessee to such plans and specifications shall be at
Lessee's sole cost and expense, including a ten percent (10%) administrative
payment to Lessor. Such additional payments shall be paid by Lessee to Lessor
as follows: (i) fifty percent (50%) upon approval of such change by Lessor;
and (ii) fifty percent (50%) prior to occupancy of the Premises by Lessee.
All tenant improvements shall be deemed substantially completed when the City
of Carpinteria issues a Certificate of Occupancy for the Premises.
Notwithstanding the issuance of such Certificate, Lessee shall be provided
with a punch list of such tenant improvements prior to the commencement of
the lease term, and shall inspect the Premises after their substantial
completion. Lessee shall set forth any manner in which Lessee claims that the
Premises to do not conform to the plans and specifications attached hereto as
Exhibit "B", as reasonably measured by the standards of finished, comparably
priced industrial space in the Santa Barbara area (hereinafter the
"discrepancy"). Lessor shall cure such discrepancies to the extent Lessor
deems such discrepancies to be reasonably claimed, within thirty (30) days
following commencement of the lease term. Provided however, if any such
discrepancy is incapable of cure within such thirty (30)-day period, and
Lessor has commenced the cure of such discrepancy within such thirty (30)-day
period, this provision shall be satisfied.

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D. USE. Paragraph 6 of this Lease is hereby supplemented as
follows: (1) PROHIBITED USES. Lessee shall not do or permit
anything to be done in or about the Premises nor bring or keep anything
therein which will in any way increase the existing rate of or affect any
fire or other insurance upon the Premises or any of its contents, or cause a
cancellation of any insurance policy covering the Premises or any part
thereof or any of its contents. Lessee shall not commit or suffer to be
committed any nuisance or waste in or upon the Premises. Lessee shall not use
the Premises or permit anything to be done in or about the Premises which
will in any way conflict with any law, statute, ordinance or governmental
rule or regulation now in force or which may hereafter be enacted or
promulgated. Lessee shall not keep any animals or pets on the Premises.
Lessee shall not use or store "hazardous materials or wastes" on the
Premises, as such terms are defined by applicable federal and state law,
without Lessor's prior written consent. If such consent is given, Lessee
shall comply with governmental laws, rules and regulations pertaining to
hazardous materials and wastes. Lessor shall have a right of re-entry upon
the Premises on reasonable notice and at reasonable times for purposes of
inspection, contamination testing and remediation.

(2) INSTALLATION OF SPECIALIZED EQUIPMENT AND USE OF LESSEE'S
POSSESSIONS ON THE PREMISES. Lessee shall not install on the Premises any
specialized equipment requiring the use of a power source (including, but not
limited to, computer hardware or software) without the prior written consent
of Lessor. Lessor shall give its consent to such installation provided the
conditions contained herein are satisfied. Lessor shall not be liable to
Lessee for damage to Lessee or Lessee's possessions, including but not
limited to furniture, fixtures, equipment (specialized or otherwise), and
inventory, from any cause. Lessee waives all claims against Lessor for damage
to Lessee's possessions arising for any reason. Lessee shall comply with all
laws, regulations and ordinances relating to the condition and use of any and
all of Lessee's possessions on the Premises, including laws requiring the
alteration, maintenance and restoration of the Premises as a result of
Lessee's particular use. Provided, however, any required alterations to the
Premises shall be conditioned upon Lessor's prior written consent. The
Premises shall not be electrically overloaded. No equipment, machinery,
apparatus or other appliance shall be used or operated on the Premises in
such a manner that such equipment will in any way injure, vibrate or shake
the Premises, or place an excessive burden on power sources installed on the
Premises.

E. ASSIGNMENT AND SUBLETTING. Lessee hereby understands and
agrees that Lessor may withhold its consent to any requested assignment or
subletting, and such withholding of consent shall be deemed reasonable, in
the event that the proposed assignee or sublessee intends to use or store
hazardous wastes or materials on the Premises. Also, it is a requirement that
Lessor receive seventy-five percent (75%) of any consideration or increase in
rent received or to be --- over

F. INDEMNITY. The indemnification of Lessor by Lessee pursuant
to Paragraph 8.7 of this Lease shall also include and extend to any violation
by Lessee of applicable state, federal and local laws pertaining to the use,
storage and discharge of hazardous materials and wastes.

G. DEFAULT. Paragraph 13.1 of this Lease is supplemented to
provide that the release or discharge by Lessee of any hazardous material or
wastes in or about the Premises, or violation of any law or deviation from
prescribed

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procedures in the use or storage of hazardous materials or wastes, shall
constitute a material default of this Lease by Lessee. Wherever used in this
Lease, the terms hazardous wastes and/or hazardous materials shall include
all definitions of hazardous wastes and materials provided by both federal
and California law.

E. ABOVE STANDARD TENANT IMPROVEMENTS. In addition to the
construction of tenant improvements as set forth in Paragraph C above, Lessor
and Lessee agree that Lessor shall also construct those certain
above-standard tenant improvements set forth in the plans and specifications
attached hereto as Exhibit "C". Lessor and Lessee have estimated to the best
of their ability the total construction costs Lessor shall incur in the
construction of such above-standard improvements and Lessee has approved such
estimate as set forth in Exhibit "C". Provided however, Lessee understands
and agrees that this is an estimate only, and that the total actual
construction costs for such above-standard improvements may exceed the
estimate. Nevertheless, Lessee agrees that the Base Rent payable pursuant to
Paragraph 4 of the Lease shall be adjusted as more particularly set forth
below, based on the total actual construction costs for such above-standard
improvements and not the estimated costs. Lessor shall pay all costs incurred
in connection with the construction of the above-standard improvements
including but not limited to actual material costs, costs of installation,
architectural and/or engineering fees, governmental fees (e.g. building
permit fees), the cost of painting and other finish work, and delivery fees.
Following completion of construction and when such costs are known to Lessor,
Lessor shall provide Lessee with a breakdown of such costs, and a total for
the actual costs of the above-standard improvements. The minimum monthly rent
payable by Lessee over the initial term of this Lease shall then be increased
by the quotient derived by dividing the total actual cost of construction of
the above standard improvements by the number of months in the initial Lease
Term. Solely as an example, assume:

total cost of construction = $50,000

months in the initial Lease Term = 36

quotient = $1,388.89 ($50,000 DIVIDED BY 36)

original Base Rent = $3,500,00

adjusted Base Rent - $4,888.89 ($3,500.00 + $1,388.89).

Lessor shall notify Lessee promptly upon determination of the adjusted Base
Rent. By its execution of this Addendum to Lease, Lessee acknowledges its
liability for payment of such adjusted Base Rent notwithstanding the fact
that such adjusted amount is not capable of determination as of the date of
execution hereof. Lessee shall have the right to request change orders as set
forth in Paragraph C above. Following completion of construction and
installation of the above-standard improvements, Lessee shall also have the
inspection rights set forth in Paragraph C above. Subject to Lessor's duty to
correct defects arising out of improper installation of improvements,
Lessee's sole and exclusive remedy for alleged product defects in such
above-standard improvements shall be a right of action against the
manufacturer guaranteeing the allegedly defective product. Lessor shall
assign to Lessee all warranties and guaranties of the manufacturers of all
above-standard improvements installed in the Premises. Notwithstanding the
adjusted Base Rent as set forth herein, in the event that Lessee is in

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default of any of its obligations under this Lease, then in addition to any
other rights or remedies which Lessor may require that Lessee pay the unpaid
balance of the total actual costs of construction of the above standard
improvements immediately upon written notice. Upon receipt by Lessor from
Lessee of such unpaid balance, the Base Rent payable by Lessee shall be
reduced by the quotient described above.

IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Addendum to be executed concurrently with the Lease of which this Addendum
forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: /s/ Jeanne Wright-Bortolay, Agent Dated: 10/10/95
---------------------------------- -----------------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: Dated:
------------------------------ ----------------------
Pam Lopker, President

BY: /s/ Douglas Marsh Dated: Sep 28, 1995
------------------------------ ----------------------
Karl Lopker, Vice President

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<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

SOUTH COAST BUSINESS PARK

<PAGE>

STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phases I & II (46,198
s.f. + 14,000 s.f. = 60,198 s.f) and described as 6430 Via Real, Suite's 1
& 2 (Building C), Carpinteria, CA consisting of approximately 2,760 square
feet (see Exhibit "A" attached hereto) herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the
Common Areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building, herein referred to as the "Building."
The Premises, the Building, the Common Areas, the land upon which the same
are located, along with all other buildings and improvements thereon, are
herein collectively referred to as the "Industrial Center."

2.2 VEHICLE PARKING. Lessee shall be entitled to 9 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles."

2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for Fifty (50) months
commencing on November 1, 1995 ending on December 31, 1999 unless sooner
terminated pursuant to any provision hereof. See Addendum.

4. RENT.

4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise
expressly provided in this Lease, on the 1st day of each month of the term
hereof, monthly payments in advance of $3,450.00. See Addendum for cost of
living adjustments to Base Rent, and determination of rent during Extension
Periods.

Lessee shall pay to Lessor upon execution hereof $3,450.00 as Base Rent for
November 1, 1995 thru November 30. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.

(a) "Lessee's Share" is defined, for purposes of this Lease, as
4.58 percent.
(b) "Operating Expenses" is defined, for purposes of
this Lease, as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;

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(ee) Security services;
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense;"
(gg) Property management expenses;
(ii) Any deductible portion of an insured loss concerning
any of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by
Lessor under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the
Industrial Center already has the same, Lessor already provides the services,
or Lessor has agreed elsewhere in this Lease to provide the same or some of
them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses
is presented to Lessee by Lessor. At Lessor's option, however, an amount may
be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid,
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expenses next falling due. If Lessee's payments under this paragraph during
said preceding year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$3,450.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.1 USE. The Premises shall be used and occupied only for purpose of
manufacturing, developing and marketing computer software and for no other
use without Lessor's prior written consent. See Addendum for additional
terms.

6.2 COMPLIANCE WITH LAW.

6.3 CONDITION OF PREMISES.

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act
or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in
good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services for which there is an Operating Expense pursuant to paragraph
4.2. Lessor shall not, however, be obligated to paint the exterior or
interior surface of exterior walls, nor shall Lessor be required to maintain,
repair or replace windows, doors or plate glass of the Premises. Lessor
shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for
such repairs. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessor
shall not be liable for damages or loss of any kind or nature by reason of
Lessor's failure to furnish any Common Area Services when such failure is
caused by accident, breakage, repairs, strikes, lockout, or other labor
disturbances or disputes of any character, or by any other cause beyond the
reasonable control of Lessor.

7.2 LESSEE'S OBLIGATIONS.

(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense,
shall keep in good order, condition and repair the Premises and every part
thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessable to Lessee) including,
without limiting the generally of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain,
at Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating
and air conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof. Lessee
shall be responsible for clean-up of all hazardous waste occurring in or
about the premises.

(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next Base Rent installment.

(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.

7.3 ALTERATIONS AND ADDITIONS.

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8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.4 PAYMENT OF PREMIUM INCREASE.

8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, 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 carried by Lessor. Lessee shall deliver to Lessor copies
of liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the commencement date of this Lease. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor
with renewals or "binders" thereof.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

(f) "Industrial Center Buildings Total Destruction" shall mean if
the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent or more of the then replacement cost of
the Industrial Center Buildings.

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9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which
is not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), which damage prevents Lessee from using the
Premises, Lessor may at Lessor's option either (i) repair such damage as soon
as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of the occurrence of such damage of
Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such
repairs as soon as reasonably possible. If Lessee does not give such notice
within such 10-day period this Lease shall be cancelled and terminated as of
the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

9.4 DAMAGE NEAR END OF TERM.

(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of
Premises Partial Damage during the last six months of the term of this Lease.
If Lessee duly exercises such option during said twenty (20) day period,
Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option during said twenty (20) day period, then Lessor may at
Lessor's option terminate and cancel this Lease as of the expiration of said
twenty (20) day period by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of said twenty
(20) day period, notwithstanding any term or provision in the grant of option
to the contrary.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

10. REAL PROPERTY TAXES.

10.5 PERSONAL PROPERTY TAXES.

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

12. ASSIGNMENT AND SUBLETTING.

12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
withouzt Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1. See
Addendum for additional terms.

INITIALS: /s/ DM
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/s/ JWB
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MULTI TENANT--MODIFIED NET
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<PAGE>

(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

Initials: /s/ DM
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/s/ JWB
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MULTI TENANT--MODIFIED NET
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<PAGE>

15. BROKER'S FEE.

(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate broker(s), a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ N/A, for
brokerage services rendered by said broker(s) to Lessor in this transaction.

(b) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interests 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. Said broker shall be a
third party beneficiary of the provisions of this paragraph 15.

16. ESTOPPEL CERTIFICATE.

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.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

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.

Initials: /s/ DM
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/s/ JWB
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<PAGE>

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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

30. SUBORDINATION.

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

39. OPTIONS.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(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).

Initials: /s/ DM
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/s/ JWB
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MULTI TENANT--MODIFIED NET
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<PAGE>

44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

48. LESSOR OPTION TO RELOCATE LESSEE. At any time after Lessee's execution
of this Lease, Lessor shall have the right, upon providing Lessee thirty (30)
days notice in writing, to provide and furnish Lessee with space elsewhere in
the building of approximately the same size as said Premises, and to move and
place Lessee in such new space at Lessor's expense. In the event Lessor
moves Lessee to such new space, then this Lease and each and all of the terms
and covenants and conditions hereof shall thereupon remain in full force and
effect and be deemed applicable to such new space except that a revised
Exhibit "A" shall become a part of this Lease and shall reflect the location
of the new space and Paragraphs 4.1, 4.2 and 5 shall be amended to show
correct data. Should Lessee refuse to permit Lessor to move Lessee to such
new space at the end of said thirty (30) day period, Lessor shall have the
right to terminate this Lease by notice to such effect given to Lessee in
writing within ten (10) days following the end of said thirty (30) day
period, which termination shall be effective sixty (60) days after the date
of the original relocation by Lessor.

LESSOR LESSEE

William D & Edna J. Wright dba q.a.d., Inc.
South Coast Business Park a California Corporation
- ------------------------------ --------------------------------------

By /s/ Jeanne Wright-Bortolay, Agent By /s/ Pam Lopker
--------------------------- -----------------------------------
Pam Lopker, President

By By /s/ KL Douglas Marsh
--------------------------- -----------------------------------
Karl Lopker, Vice President

Executed on 10/10/95 Executed on
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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

<PAGE>

ADDENDUM TO LEASE

This ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes September 8, 1995, by and between
William D & Edna J. Wright dba South Coast Business Park ("Lessor"), and q.a.d.,
Inc., a California Corporation ("Lessee"). The said Standard Industrial Lease
is hereby modified/supplemented (and as modified/supplemented is hereinafter
referred to as "this Lease") in the following particulars only:

A. OPTION TO EXTEND TERM OF LEASE. Lessee is hereby granted the
option to extend the term of this Lease for two (2) additional successive
periods of two (2) years each. The options shall be exercised by the delivery
of written notice to Lessor no earlier than two hundred seventy (270) days and
no later than one hundred eighty (180) days prior to the expiration of the lease
term then in effect. Any extensions granted hereunder shall be on the same terms
and conditions applicable to the initial term except as to rent, which shall be
increased in accordance with Paragraph B(2) below. Lessee's right to exercise
the options granted herein is subject to the terms and conditions set forth in
Paragraph 39 of this Lease.

B. ADJUSTMENTS TO BASE RENT.
(1) COST OF LIVING ADJUSTMENTS TO BASE RENT. The Base Rent
payable pursuant to Paragraph 4.1 shall be subject to further adjustment as of
November 1, 1996, and as of the same date each year thereafter during the
initial lease term and any extension period. Said date is hereinafter referred
to as the "Adjustment Date." The adjustment shall be made as follows:

The Base Rent for the Premises shall be adjusted by the same
percentage as the increase, if any, in the Consumer Price Index (All Items for
All Urban Consumers 1982-84=100 Base), of the United States Department of Labor,
Bureau of Labor Statistics for Los Angeles-Anaheim-Riverside, CA (the "Index").
The adjustment shall be calculated according to the following formula:

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding the
Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

-1-
<PAGE>

(2) DETERMINATION OF BASE RENT DURING EXTENSION PERIODS. In
the event Lessee exercises the option to extend granted in Paragraph (a)
above, the Base Rent payable at the commencement of the applicable Extension
Period shall be the then prevailing market rate for a triple net lease of
comparable lease Premises in the surrounding geographical area. Prevailing
market rate shall be determined by mutual agreement of Lessor and Lessee on
the basis of the value which will be obtained in an arms-length transaction
between an informed and willing tenant (other than a tenant currently in
possession of the demised Premises) and an informed and willing landlord
(other than the then existing landlord of demised Premises) under no
compulsion to lease. If Lessor and Lessee have not agreed upon the prevailing
market rental rate by the date which is thirty (30) days prior to the
expiration of the lease term then in effect, then the option to extend will
automatically cease and be deemed extinguished. The base monthly rent as
determined pursuant to this Paragraph B(2) shall thereafter be subject to
further cost of living adjustments pursuant to the terms of Paragraph B(1)
above.

C. CONSTRUCTION OF TENANT IMPROVEMENTS. Lessee understands and
agrees that Lessor is currently in the process of constructing the improvements
which shall comprise the Premises. In the course of such construction, Lessor
hereby agrees to construct the tenant improvements set forth in the plans and
specifications attached hereto as Exhibit "B". Such plans and specifications
are hereby clarified as follows: SEE EXHIBIT. Lessee has reviewed and
approved all such plans and specifications. Any changes or additions made by
Lessee to such plans and specifications shall be at Lessee's sole cost and
expense, including a ten percent (10%) administrative payment to Lessor. Such
additional payments shall be paid by Lessee to Lessor as follows: (i) fifty
percent (50%) upon approval of such change by Lessor; and (ii) fifty percent
(50%) prior to occupancy of the Premises by Lessee. All tenant improvements
shall be deemed substantially completed when the City of Carpinteria issues a
Certificate of Occupancy for the Premises. Notwithstanding the issuance of such
Certificate, Lessee shall be provided with a punch list of such tenant
improvements prior to the commencement of the lease term, and shall inspect the
Premises after their substantial completion. Lessee shall set forth any manner
in which Lessee claims that the Premises to do not conform to the plans and
specifications attached hereto as Exhibit "B", as reasonably measured by the
standards of finished, comparably priced industrial space in the Santa Barbara
area (hereinafter the "discrepancy"). Lessor shall cure such discrepancies to
the extent Lessor deems such discrepancies to be reasonably claimed, within
thirty (30) days following commencement of the lease term. Provided however, if
any such discrepancy is incapable of cure within such thirty (30)-day period,
and Lessor has commenced the cure of such discrepancy within such thirty
(30)-day period, this provision shall be satisfied.

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<PAGE>

(2) INSTALLATION OF SPECIALIZED EQUIPMENT AND USE OF LESSEE'S
POSSESSIONS ON THE PREMISES. Lessee shall not install on the Premises any
specialized equipment requiring the use of a power source (including, but not
limited to, computer hardware or software) without the prior written consent
of Lessor. Lessor shall give its consent to such installation provided the
conditions contained herein are satisfied. Lessor shall not be liable to
Lessee for damage to Lessee or Lessee's possessions, including but not
limited to furniture, fixtures, equipment (specialized or otherwise), and
inventory, from any cause. Lessee waives all claims against Lessor for damage
to Lessee's possessions arising for any reason. Lessee shall comply with all
laws, regulations and ordinances relating to the condition and use of any and
all of Lessee's possessions on the Premises, including laws requiring the
alteration, maintenance and restoration of the Premises as a result of
Lessee's particular use. Provided, however, any required alterations to the
Premises shall be conditioned upon Lessor's prior written consent. The
Premises shall not be electrically overloaded. No equipment, machinery,
apparatus or other appliance shall be used or operated on the Premises in
such a manner that such equipment will in any way injure, vibrate or shake
the Premises, or place an excessive burden on power sources installed on the
Premises.

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<PAGE>

total cost of construction = $50,000

months in the initial Lease Term = 36

quotient = $1,388.89 ($50,000 DIVIDED BY 36)

original Base Rent = $3,500.00

adjusted Base Rent = $4,888.89 ($3,500.00 PLUS
$1,388.89).

Lessor shall notify Lessee promptly upon determination of the adjusted Base
Rent. By its execution of this Addendum to Lease, Lessee acknowledges its
liability for payment of such adjusted Base Rent notwithstanding the fact
that such adjusted amount is not capable of determination as of the date of
execution hereof. Lessee shall have the right to request change orders as set
forth in Paragraph C above. Following completion of construction and
installation of the above-standard improvements, Lessee shall also have the
inspection rights set forth in Paragraph C above. Subject to Lessor's duty to
correct defects arising out of improper installation of improvements,
Lessee's sole and exclusive remedy for alleged product defects in such
above-standard improvements shall be a right of action against the
manufacturer guaranteeing the allegedly defective product. Lessor shall
assign to Lessee all waranties and guaranties of the manufacturers of all
above-standard improvements installed in the Premises. Notwithstanding the
adjusted Base Rent as set forth herein, in the event that Lessee is in

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<PAGE>

IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum
to be executed concurrently with the Lease of which this Addendum forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: /s/ Jeanne Wright-Bortolajo, Agent Dated: 10/10/95
---------------------------------- -------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: Dated:
------------------------------ ----------------------
Pam Lopker, President

BY: /s/ Douglas Marsh Dated: Sep 28, 1995
------------------------------ ----------------------
Karl Lopker, Vice President

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<PAGE>

S EXHIBIT "A"

[FLOOR PLAN]

[MAP]

SOUTH COAST BUSINESS PARK

6410-6460 Via Real, Carpinteria, California

<PAGE>

STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]

1. PARTIES. This Lease, dated, for reference purposes only, January 27,
1997, is made by and between William D & Edna J. Wright dba South Coast
Business Park (herein called "Lessor") and q.a.d., Inc., a California
Corporation (herein called "Lessee").

2. PREMISES, PARKING AND COMMON AREAS.

2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Santa Barbara, State of
California commonly known as South Coast Business Park, Phases I & II (46,198
+ 14,000 = 60,198 s.f) and described as 6430 Via Real, Suite 1, 2,
3, 4, 5, 6, 7 & 10 (Building B), Carpinteria, CA consisting of
approximately 8,188 square feet (See Exhibit "A" attached) herein
referred to as the "Premises", as may be outlined on an Exhibit attached
hereto, including rights to the Common Areas as hereinafter specified but not
including any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of a building, herein referred
to as the "Building." The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center."

2.2 VEHICLE PARKING. Lessee shall be entitled to 21 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles."

2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:

2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.

3. TERM.

3.1 TERM. The term of this Lease shall be for Thirty (30) months
commencing on January 1, 1997 and ending on June 30, 1999 unless sooner
terminated pursuant to any provision hereof. See Addendum.

4. RENT.

4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise
expressly provided in this Lease, on the 1st day of each month of the term
hereof, monthly payments in advance of $10,396,61. See Addendum for cost of
living adjustments to Base Rent, and determination of rent during Extension
Periods.

Lessee shall pay to Lessor upon execution hereof $10,396,61 as Base Rent for
1/1/97 thur 1/31/97. Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the Base Rent. Rent shall
be payable in lawful money of the United States to Lessor at the address
stated herein or to such other persons or at such other places as Lessor may
designate in writing.

(a) "Lessee's Share" is defined, for purposes of this Lease, as
13.60 percent.
(b) "Operating Expenses" is defined, for purposes of
this Lease, as all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;

Initials:
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MULTI TENANT--MODIFIED NET
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<PAGE>

(ee) Security services;
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense;"
(gg) Property management expenses;
(ii) Any deductible portion of an insured loss concerning
any of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by
Lessor under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the
Industrial Center already has the same, Lessor already provides the services,
or Lessor has agreed elsewhere in this Lease to provide the same or some of
them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses
is presented to Lessee by Lessor. At Lessor's option, however, an amount may
be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each twelve-month period of the Lease term, on
the same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid,
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expenses next falling due. If Lessee's payments under this paragraph during
said preceding year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$10,396.61 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.

6. USE.

6.1 USE. The Premises shall be used and occupied only for the purpose of
manufacturing, developing & marketing of computer software and for no other
use without Lessor's prior written consent. See Addendum for additional
terms.

6.2 COMPLIANCE WITH LAW.

6.3 CONDITION OF PREMISES.

(a) Lessor shall deliver the premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation. Lessee's failure to give such written
notice to Lessor within thirty (30) days after the Lease commencement date
shall cause the conclusive presumption that Lessor has complied with all of
Lessor's obligations hereunder. The warranty contained in this paragraph
6.3(a) shall be of no force or effect if prior to the date of this Lease,
Lessee was an owner or occupant of the Premises. See Addendum.

7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in
good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof, as well as providing
the services for which there is an Operating Expense pursuant to paragraph
4.2. Lessor shall not, however, be obligated to paint the exterior or
interior surface of exterior walls, nor shall Lessor be required to maintain,
repair or replace windows, doors or plate glass of the Premises. Lessor
shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for
such repairs. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessor
shall not be liable for damages or loss of any kind or nature by reason of
Lessor's failure to furnish any Common Area Services when such failure is
caused by accident, breakage, repairs, strikes, lockout, or other labor
disturbances or disputes of any character, or by any other cause beyond the
reasonable control of Lessor.

7.2 LESSEE'S OBLIGATIONS.

(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense,
shall keep in good order, condition and repair the Premises and every part
thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessible to Lessee) including,
without limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain,
at Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating
and air conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof. Lessee
shall be responsible for clean-up of all hazardous waste occurring in or
about the premises.

(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next Base Rent installment.

(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwishstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.

7.3 ALTERATIONS AND ADDITIONS.

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<PAGE>

8. INSURANCE; INDEMNITY.

8.1 LIABILITY INSURANCE -- LESSEE.

SEE PAGE 8 AFTER ARTICLE NUMBER 49

8.4 PAYMENT OF PREMIUM INCREASE.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.

(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.

(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.

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<PAGE>

9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.

(b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.

9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.

9.4 DAMAGE NEAR END OF TERM.

9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

10. REAL PROPERTY TAXES.

10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.

10.5 PERSONAL PROPERTY TAXES.

12. ASSIGNMENT AND SUBLETTING.

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<PAGE>

(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.

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

13. DEFAULT; REMEDIES.

13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:

(a) The vacating or abandonment of the Premises by Lessee.

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<PAGE>

15. BROKER'S FEE.

(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate broker(s), a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ N/A, for
brokerage services rendered by said broker(s) to Lessor in this transaction.

(b) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interests 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. Said broker shall be a
third party beneficiary of the provisions of this paragraph 15.

16. ESTOPPEL CERTIFICATE.

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.

20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.

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.

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<PAGE>

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.

28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.

30. SUBORDINATION.

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

36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.

37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

39. OPTIONS.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(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).

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<PAGE>

44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.

46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitute a part of this Lease.

48. LESSOR OPTION TO RELOCATE LESSEE. At any time after Lessee's execution
of this Lease, Lessor shall have the right, upon providing Lessee thirty (30)
days notice in writing, to provide and furnish Lessee with space elsewhere in
the building of approximately the same size as said Premises, and to move and
place Lessee in such new space at Lessor's expense. In the event Lessor moves
Lessee to such new space, then this Lease and each and all of the terms and
covenants and conditions hereof shall thereupon remain in full force and
effect and be deemed applicable to such new space except that a revised
Exhibit "A" shall become a part of this Lease and shall reflect the location
of the new space and Paragraphs 4.1, 4.2 and 5 shall be amended to show
correct data. Should Lessee refuse to permit Lessor to move Lessee to such
new space at the end of said thirty (30) day period, Lessor shall have the
right to terminate this Lease by notice to such effect given to Lessee in
writing within ten (10) days following the end of said thirty (30) day
period, which termination shall be effective sixty (60) days after the date
of the original relocation by Lessor.

8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard
form with Broad Form General Liability Endorsement (GLO404), or equivalent,
in an amount of not less than 1) $1,000,000 per occurrence of Bodily Injury
and Property Damage combined single limit with a $1,000,000 excess liability
policy, or 2) $1,000,000 per occurrence of Bodily Injury and Property Damage
with a $2,000,000 General Aggregate Bodily Injury and Property Damage, and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. The policy
shall insure performance by Lessee of the indemnity provisions of this
paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.

LESSOR LESSEE

William D & Edna J. Wright dba q.a.d., Inc.
South Coast Business Park a California Corporation
- ------------------------------ --------------------------------------

By By
--------------------------- -----------------------------------
Pam Lopker, its President

By By
--------------------------- -----------------------------------
Karl Lopker, its Vice President

Executed on Executed on
------------------ ---------------------------
(Corporate Seal) (Corporate Seal)

ADDRESS FOR NOTICES AND RENT ADDRESS

130 Garden Street
- ------------------------------ --------------------------------------

Santa Barbara, California 93101
- ------------------------------ --------------------------------------

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

<PAGE>

ADDENDUM TO LEASE

This ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes January 27, 1997, by and between
William D & Edna J. Wright dba South Coast Business Park ("Lessor"), and q.a.d.,
Inc., a California Corporation ("Lessee"). The said Standard Industrial Lease
is hereby modified/supplemented (and as modified/supplemented is hereinafter
referred to as "this Lease") in the following particulars only:

B. ADJUSTMENTS TO BASE RENT.
(1) COST OF LIVING ADJUSTMENTS TO BASE RENT. The Base Rent
payable pursuant to Paragraph 4.1 shall be subject to further adjustment as of
January 1, 1998, and as of the same date each year thereafter during the
initial lease term and any extension period. Said date is hereinafter referred
to as the "Adjustment Date." The adjustment shall be made as follows:

The Base Rent for the Premises shall be adjusted by the same
percentage as the increase, if any, in the Consumer Price Index (All Items
for All Urban Consumers 1982-84=100 Base), of the United States Department of
Labor, Bureau of Labor Statistics for Los Angeles-Anaheim-Riverside, CA (the
"Index"). The adjustment shall be calculated according to the following
formula:

X = A x B
-
C

X = Adjusted rent

A = Base Rent as of the first month of the term then in effect.

B = The monthly index for the third month immediately preceding the
Adjustment Date.

C = The monthly index for the third month immediately preceding the
first month of the term then in effect.

The monthly rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.

-1-
<PAGE>

-2-

<PAGE>

(2) INSTALLATION OF SPECIALIZED EQUIPMENT AND USE OF LESSEE'S
POSSESSIONS ON THE PREMISES. Lessee shall not install on the Premises any
specialized equipment requiring the use of a power source (including, but not
limited to, computer hardware or software) without the prior written consent
of Lessor. Lessor shall give its consent to such installation provided the
conditions contained herein are satisfied. Lessor shall not be liable to
Lessee for damage to Lessee or Lessee's possessions, including but not
limited to furniture, fixtures, equipment (specialized or otherwise), and
inventory, from any cause. Lessee waives all claims against Lessor for damage
to Lessee's possessions arising for any reason. Lessee shall comply with all
laws, regulations and ordinances relating to the condition and use of any and
all of Lessee's possessions on the Premises, including laws requiring the
alteration, maintenance and restoration of the Premises as a result of
Lessee's particular use. Provided, however, any required alterations to the
Premises shall be conditioned upon Lessor's prior written consent. The
Premises shall not be electrically overloaded. No equipment, machinery,
apparatus or other appliance shall be used or operated on the Premises in
such a manner that such equipment will in any way injure, vibrate or shake
the Premises, or place an excessive burden on power sources installed on the
Premises.

-3-

<PAGE>

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<PAGE>

IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum
to be executed concurrently with the Lease of which this Addendum forms a part.

LESSOR:

WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK

BY: Dated:
------------------------------ -----------------------

LESSEE:

q.a.d., Inc., a California Corporation

BY: Dated:
------------------------------ ----------------------
Pam Lopker, its President

BY: Dated:
------------------------------ ----------------------
Karl Lopker, its Vice President

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<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

SOUTH COAST BUSINESS PARK

6410-6460 Via Real, Carpinteria, California

<PAGE>

EXHIBIT 10.36A

LANDLORD: LAUREL LARCHMONT OFFICE, INC.

TENANT: qad, inc.

PREMISES: 10000 MIDLANTIC DRIVE, SUITE
MOUNT LAUREL, NEW JERSEY

INDEX TO MULTI-TENANT OFFICE LEASE
----------------------------------

DESCRIPTION PAGE
- ----------- ----

1. DATE OF LEASE 1

2. LANDLORD 1

3. TENANT 1

4. NOTICES 1

5. PREMISES 2

6. USE OF PREMISES 2

7. TERM 3

8. RENT 4

9. LATE PAYMENT 8

10. SECURITY DEPOSIT 9

11. SIGNS 9

12. EXCESS USE OF ELECTRICITY 9

13. CONDITION OF PREMISES 9

14. REPAIRS AND MAINTENANCE 12

15. ALTERATIONS AND TRADE FIXTURES 14

16. ACCESS TO PREMISES 16

17. ECRA COMPLIANCE 16

18. BUILDING SERVICES 18

19. ASSIGNMENT AND SUBLETTING 21

20. MECHANICS' LIENS 23

<PAGE>

21. INDEMNIFICATION AND LIABILITY INSURANCE 24

22. WAIVER OF SUBROGATION 27

23. WAIVER OF CLAIMS 27

24. FIRE OR OTHER CASUALTY 28

25. SUBORDINATION AND NON-DISTURBANCE 30

26. CONDEMNATION 31

27. ESTOPPEL CERTIFICATE 32

28. DEFAULT 33

29. REMEDIES 35

30. REQUIREMENT OF STRICT PERFORMANCE 39

31. RELOCATION OF TENANT 40

32. LANDLORD'S OBLIGATIONS 40

33. LANDLORD'S LIABILITY 40

34. SUCCESSORS 40

35. GOVERNING LAW 41

36. SEVERABILITY 41

37. CAPTIONS 41

38. GENDER 41

39. WARRANTIES OF TENANT 41

40. ENTIRE AGREEMENT 42

41. WAIVER OF TRIAL BY JURY 43

42. CONSENT OF THE PARTIES 43

43. ADDITIONAL SCHEDULES 43

44. BINDING EFFECT 43

<PAGE>

MULTI-TENANT OFFICE LEASE

1. DATE OF LEASE:

2. LANDLORD: Laurel Larchmont Office, Inc.

Address of Landlord: c/o Midlantic National Bank
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818

3. TENANT: qad, inc.

Address of Tenant: 6450 Via Real
Carpinteria, California 93013

Tenant's SIC Number: 7757

4. NOTICES

Wherever in this Lease it shall be required or permitted that notice
or demand be given or served by either party to this Lease to or on the
other party, such notice or demand shall be deemed to have been duly
given or served if in writing and either personally served or forwarded
by Registered or Certified Mail, Return Receipt Requested postage
prepaid, and addressed as follows:

LANDLORD: Laurel Larchmont Office, Inc.
c/o Midlantic National Bank
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818

TENANT: qad, inc.
10000 Midlantic Drive
Suites 103 East, 105 East, 200 East and 200 West
Mount Laurel, New Jersey 08054

Each such mailed notice shall be deemed to have been given to or
served upon the party to which addressed two (2) days after the date the
same is deposited in the United States Registered or Certified Mail,
postage prepaid, and

<PAGE>

properly addressed in the manner above provided. Either party hereto may
change its address to which said notices shall be delivered or mailed by
giving written notice of such change to the other party hereto as herein
provided.

5. PREMISES

(Include street address, approximate square footage, suite number, and
lot & block number)

10000 Midlantic Drive
Suites 105 East, 200 East and 200 West
Mount Laurel, New Jersey 08054

R.S.F. Suite 103 East 3,384 sf.
Suite 105 East 9,412 sf.
Suite 200 East 22,287 sf.
Suite 200 West 22,188 sf.
----------
Total: 57,271 sf.

Block #513, Lot #3

As identified on Exhibit "A" ("Premises") in the building known as
10000 MIDLANTIC DRIVE ("Building").

Landlord, for and in consideration of the rent to be paid and the
covenants and agreements to be performed by Tenant, as hereinafter set
forth, does hereby lease, demise and let unto Tenant the Premises,
together with the right to use in common with the other tenants in the
Building, six (6) parking spaces per 1,000 square feet located adjacent
to the Building and non-exclusive use of the walks, access roads and land
surrounding the Building and the common areas in the Building.

6. USE OF PREMISES

The Tenant covenants and agrees to use the Premises as OFFICE AND
RELATED PURPOSES. Tenant agrees not to use or permit the Premises to be
used for any other purpose without

<PAGE>

the prior written consent of the Landlord endorsed hereon. No machinery,
equipment or other thing that could cause unusual vibration, noise, odor
or fumes shall be installed or placed therein. Tenant shall not use or
occupy the Premises for any other purpose or business without the prior
written consent of Landlord which consent Landlord agrees shall not be
unreasonably withheld. Tenant shall not subject any portion of the floor
to greater loading than that portion of the Premises is designed to carry.

Tenant shall observe and comply with the rules and regulations
attached hereto, as Exhibit "B", as well as applicable laws and
governmental regulations as currently or hereinafter enacted and to all
reasonable requirements of the insurer of the Premises or the Building
which the Premises are a part. Tenant agrees to promptly furnish Landlord
with a copy of any notice that it receives that it is in violation of any
applicable law or governmental regulations.

7. TERM

The term of this Lease shall be SEVEN (7) YEARS, ZERO (0) MONTHS
commencing on June 1, 1994 ("Commencement Date") and ending at 12:00 noon
on May 31, 2001. In no event shall Landlord be liable to Tenant for any
actual or consequential damages in the event that Landlord is unable to
deliver possession on the date indicated due to the failure of any prior
Tenant to vacate the Premises at the termination of its Lease or if any
work necessary to make

<PAGE>

the Premises ready for Lessee's occupancy is not accomplished due to
shortages or unavailability of material, labor or other causes beyond
Landlord's control. In the event that the Landlord is delayed in giving
possession as provided herein, the termination date of the Lease shall be
extended accordingly.

If the Lease term does not commence upon the date indicated above,
Landlord and Tenant shall, by separate writing, set forth the date that the
Lease term commenced and will terminate.

8. RENT

(a) Tenant shall pay to Landlord, without set off or deduction, at
its offices, P.O. Box 600, Edison, New Jersey 08818 or such other place
as Landlord directs, rental as setforth below:

<TABLE>

TERM PSF RATE MONTHLY RENT ANNUAL RENT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>

Year 1 $12.00 (x $45,271.00 $543,252.00
45,271sf)

Year 2 $12.00 $57,271.00 $687,252.00

Years 3 thru 5 $12.50 $59,657.29 $715,887.50

Years 6 and 7 $13.00 $62,043.58 $744,523.00

</TABLE>

Payable on the first business day of each month during the term of this
Lease except that the first month's rent shall be payable upon the
execution of this Lease.

(b) In addition to the minimum annual rental, Tenant shall pay to
Landlord its proportionate share of all operating costs incurred during
each calendar year (pro rated where appropriate) during the term of this
Lease.

<PAGE>

This operating cost shall be estimated by Landlord at the commencement
of the rental term and Tenant shall pay to Landlord in addition to the
basic rent and on the same day provided in paragraph 8(a) 1/12 thereof.
The estimated operating cost for the year in which this Lease commences
is $7.00 per R.S.F. As an inducement to Tenant, Landlord shall fix the
operating expenses during the first twelve (12) months at a rate of $6.27
per square foot or $29,924.10 per month. The Tenant's proportionate
share is 32.62 percent (57,271 sf divided by 175,573 sf = 32.62%). The
operating expenses shall include all costs normally incurred in the
maintenance and operation of an Office Building, less any charges
invoiced directly to other tenants in the Building and shall include:

(i) Real estate taxes assessed on the Building, land underlying
same, parking areas or other common elements including any assessments or
municipal improvements;

(ii) All costs and expense directly related to the operation of the
Building including preparing units for rental, lighting, cleaning,
insuring, removing snow, ice and debris, policing and regulating traffic
in the area immediately adjacent to the Building and depreciation of
machinery and equipment used for such operation;

(iii) All costs and expense, other than those of a capital nature,
of replacing paving, curbs, walkways, landscaping and replacing flowers
and

<PAGE>

other planting), drainage and lighting facilities in the Building and
areas immediately adjacent thereto;

(iv) Electricity and fuel used in lighting, heating, ventilating,
and air conditioning of the Premises;

(v) Maintenance of mechanical and electrical equipment including
heating, ventilating and air conditioning in the Premises;

(vi) Window cleaning and janitorial service, including janitorial
equipment and supplies;

(vii) Maintenance of elevators, rest rooms, lobbies, hallways and
other common areas of the Building;

(viii) Wages for personnel directly involved in the building
management and operation, including all taxes payable by Landlord thereon
and fringe benefits;

(ix) Water and sewer rents, charges and standby fees; and

(x) Accounting fees, management fees and legal fees which
directly benefit the overall operation of the Building, it is expressly
agreed that legal fees incurred in an action against an individual
tenant shall not be deemed includable as an operating expense pursuant to
this provision.

(xi) All costs associated with maintaining, operating and
monitoring any security system or sprinkler system.

<PAGE>

(xii) Any other expense or charge which would be considered an
expense of maintaining, operating or repairing the Premises under sound
accounting principles.

The operating expense increases shall not exceed five percent (5%)
cumulatively per year except for the first year's fixed rate as it
affects the second year's adjustment, not including those items outside of
Landlord's direct control such as taxes and utilities, which shall not
be capped.

Notwithstanding anything to the contrary contained herein, capital
expenditures and the costs of preparing any other unit for rental shall
not be included as operating costs. However, if Landlord incurs any
capital expense for an improvement required by virtue of any governmental
statute, ordinance or regulation then Landlord shall be permitted to
recover on an amortized basis the portion of the capital costs applicable
to the term of this Lease including any renewal or extension. Similarly,
should Landlord make any capital improvement which reduces the operating
costs payable hereunder then Landlord shall be permitted to recover the
amortized costs as aforesaid but in no case shall the expense allocated
to Tenant exceed the cost savings achieved by the capital improvement.

Within sixty (60) days after the expiration of each calendar year,
Landlord shall furnish Tenant with an accounting of the actual operating
expenses. If the actual operating expenses are less than the estimated
expenses paid

<PAGE>

by the tenant the difference will be credited against all rental payments
immediately due following the issuance of credit. In the event that the
operating expenses exceed the estimates then Tenant shall pay to Landlord
the difference within twenty (20) days of receipt of the accounting. The
estimated payment for the current year shall then be adjusted to reflect
the actual operating costs of the prior year.

(c) When used in this Lease pro rata shall be a percentage obtained
by dividing the square footage of the Premises by the square footage of
the Building in which the Premises are located. The percentage for the
Premises is 32.62 percent.

(d) In determining Operating Expenses, if less than 95% of the
rentable area of the Building have been occupied by tenants for more than
thirty (30) days during such year, operating expenses shall be deemed
for such year to be an amount equal to the like expenses which would
normally be expected to be incurred had such occupancy of the Building
been 95% throughout such year, as reasonably determined by Landlord.

9. LATE PAYMENT

Rent is due and payable on or before the first day of each month.
Rent received after the tenth (10th) of the month is subject to a late
charge of six percent (6%) of the monthly payment which charge must
accompany rent. An

<PAGE>

additional charge will be made for checks returned for insufficient funds.

10. SECURITY DEPOSIT - DELETED

11. SIGNS

Landlord shall place a building standard sign upon the Tenant's door and
a listing in the directory on the first floor. Tenant shall not post any sign
or other listing in the windows or upon the exterior of the Building.

12. EXCESS USE OF ELECTRICITY

Landlord shall bill Tenant separately and Tenant shall pay to Landlord,
at its then prevailing rate, an hourly fee for excess costs incurred for
electricity, heating and air conditioning beyond the Building's normal
operating hours. These hours are defined as follows:

Weekly business days: 8:00 AM to 7:00 PM
Customer Service Area: 8:00 AM to 9:00 PM

(All Areas) Saturday: 8:00 AM to 1:00 PM

Tenant shall have direct control of lighting at all hours.

13. CONDITION OF PREMISES

(a) Before the Commencement Date, Landlord will substantially complete
the construction of the Building or any improvements to the Premises (if not
substantially completed as of the date of this Lease) to the stage that the
Building is operable for Tenant's purposes, which shall be defined as
occurring when the public entrances of the Building, including ground floor
lobbies and public hallways of the floor containing the Premises (or portions
of said lobbies and hallways necessary to provide reasonable and

<PAGE>

safe access to the Premises) are substantially completed and elevators
necessary to provide services to the Premises, the heating and air
conditioning system (as required for the season and then prevailing climate)
and all other mechanical systems required for service to the Premises are in
regular operation.

(b) The Premises shall be deemed to be substantially completed when all
work specified to be done in Exhibit "C" ("Tenant Finish") have been
substantially completed, except for: (i) minor items of finishing and
construction of a nature which are not necessary to make the Premises
reasonably tenantable for the permitted use, and; (ii) items not then
completed because of delay by Tenant in furnishing any drawings, plans or
approvals (collectively, "Plans") required by Exhibit "C" or because of
approved requests made by Tenant subsequent to delivery of Plans, or changes
or additions therein.

(c) If Tenant fails to furnish or approve space plans by January 31,
1994, or makes any changes in such plans after said date, Tenant shall bear
any additional construction or other expense to Landlord caused directly by
any delay in furnishing the Plans or by any such changes and shall pay
Landlord as a portion of rent, at the Commencement Date, an amount equal to
the aggregate number of days lapsed between the delivery date set forth in
Exhibit "C" and the actual delivery dates, multiplied by 1/365th of the
annual base rent, plus an amount of additional rent attributed to such

<PAGE>

period as reasonably estimated by Landlord. Landlord and Tenant,
understanding the difficulty in determining or estimating the actual damages
that will result from Tenant's lateness in delivering Plans, have agreed upon
the foregoing as an appropriate method of liquidating such damages.

(d) Landlord shall have the Premises substantially completed by the
Commencement Date, except for delays due to Force Majeure or Tenant's failure
to timely furnish or approve the Plans, any of which shall extend the
Commencement Date for a period equal to a total of the duration of each such
delay. If the Premises is not substantially completed within one (1) month of
the Commencement Date, Landlord shall credit Tenant one (1) day of "free"
rent for each late day as penalty, or if not completed within THREE (3)
months following the Commencement Date, as the same may be extended in
accordance herewith, Tenant, as Tenant's sole right thereby arising, may
terminate this Lease by notice to Landlord given thereafter, provided that
the terms shall not have commenced within thirty (30) days after the giving
of such notice by Tenant. This Lease shall terminate in such case upon
expiration of thirty (30) days after Landlord's receipt of such notice
without substantial completion having occurred, whereupon Landlord shall
return all rent and the security deposit paid by Tenant to Landlord in
advance, and all further obligations of the parties hereunder shall end. It
is understood that in the event of such termination by Tenant,

<PAGE>

Landlord shall have no responsibility to reimburse Tenant for any cost or
expense which Tenant may have directly or indirectly incurred with respect to
this Lease or the projected occupancy of the Premises, whether arranging for
or terminating of arrangements for other space, or any alterations to the
Premises of otherwise except for reasonable legal fees.

(e) The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Building were at such time
in satisfactory condition, order and repair, subject only to a punch list
which will be prepared prior to the time the Tenant takes possession.

(f) The Tenant shall quit and surrender the Premises at the end of the
term in as good condition as received except for reasonable wear and tear.

14. REPAIRS AND MAINTENANCE

(a) Except as specifically otherwise provided in paragraph (b) and (c)
of this paragraph, Tenant, at its sole cost and expense and throughout the
term of this Lease, shall keep and maintain the Premises including carpeting
in good order and condition, free of accumulation of dirt and rubbish, and
shall promptly make all repairs necessary to keep and maintain such good
order and condition reasonable wear and tear excepted, whether such repairs
are interior or exterior, ordinary or extraordinary, foreseen or unforeseen.
When used in this Article 14, the term "repairs" shall include replacements
and renewals when necessary. All

<PAGE>

repairs made by Tenant shall utilize materials and equipment which are at
least equal to quality and usefulness to those originally used in constructing
the Building and the Premises.

(b) Landlord, throughout the term of this Lease and at Landlord's sole
cost and expense, shall make all necessary repairs to the footings and
foundations and the structural steel columns and girders forming a part of
the Premises, providing however, that Landlord shall have no responsibility
to make any repair unless and until Landlord receives written notice of the
need for such repair. Tenant shall pay the cost of any repairs made pursuant
to this paragraph if same are occasioned by the act, omission or negligence
of Tenant, its employees or invitees.

(c) Landlord shall make all necessary repairs to the roof, walls,
exterior portions of the Premises and the Building, utility lines, equipment
and other utility facilities in the Building, which serve more than one
tenant of the Building, and to any driveways, sidewalks, curbs, loading,
parking and landscaped areas, and other exterior improvements on the
property; provided, however, that Landlord shall have no responsibility to
make any repairs unless and until Landlord received written notice of the
need for such repair. Tenant shall pay its proportionate share of the cost of
all repairs to be performed by Landlord pursuant to this subparagraph (c) as
additional rent promptly upon being billed therefore.

<PAGE>

(d) Landlord shall not be liable by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations, additions or improvements in or to the Premises or the Building
or to any appurtenances or equipment therein. There shall be no abatement of
rent because of such repairs, alterations, additions or improvements, except
as set forth in the "Fire or Other Casualty" Section 24 hereof.

15. ALTERATIONS AND TRADE FIXTURES

Tenant shall have the right to make any reasonable alterations,
additions, or improvements with Landlord's prior written consent and all
alterations, additions or improvements made by either of the parties hereto
upon the Premises, except moveable and detached or detachable office
furniture, and moveable partitions, and moveable machinery and equipment put
in at Tenant's expense, shall be the property of Landlord, and shall remain
upon and be surrendered with the Premises, as part thereof at the termination
of this Lease.

Any property or fixtures which remain upon the Premises after the
expiration of the Lease shall be deemed abandoned by Tenant and Landlord may
take possession of same and dispose of in any reasonable manner without any
further liability of Landlord to Tenant. Any costs associated with the
removal of such property shall be payable by Tenant.

All labor and materials furnished by or on behalf of Tenant under or
pursuant to this Lease shall be first class,

<PAGE>

no less than the caliber and quality which exists in the Premises and by
contractors approved in writing by Landlord and shall be accomplished at
times so as not to disturb the activities of other tenants. Tenant shall not
install any alterations, additions or improvements in such a manner as to
compromise the structural integrity of the Premises or any part thereof. The
labor and materials shall be installed in complete conformity to all
applicable statutes, codes, ordinances and regulations.

Landlord agrees that it will not unreasonably withhold or delay its
consent to any proposed addition, alteration or improvement. Tenant agrees
that it will submit to Landlord sealed plans and specifications along with
the name and address of the proposed contractor and all subcontractors as
part of any request made hereunder. Prior to commencing the work, Tenant will
furnish Landlord with copies of all governmental permits and certificates
establishing that its contractor and subcontractors have adequate insurance
coverages. Upon completion of the work, Tenant will submit to Landlord
as-built drawings and certificates of inspection certifying the satisfactory
completion of the alteration, addition or improvement.

Landlord either has or is in the process of installing a master key
system. Tenant therefore agrees that under no circumstances will it change
any of the exterior locks thereby making it impossible for the Landlord to
gain access with its master key.

<PAGE>

16. ACCESS TO PREMISES

Landlord, its employees and agents shall have the right to enter the
Premises at all reasonable times upon twenty-four (24) hour notice except in
the case of emergency, for the purpose of examining or inspecting the same,
showing the same to prospective purchasers, mortgagees or tenants of the
Building, and making such alterations, repairs, improvements or additions to
the Premises or to the Building as may be necessary. If representatives of
Tenant shall not be present to open and permit entry into the Premises at any
time when such entry by Landlord is necessary or permitted hereunder,
Landlord may enter by means of a master key (or forcibly in the event of an
emergency) without liability to Tenant and without such entry constituting an
eviction of Tenant or termination of this Lease. Tenant shall not change any
lock leading into the Premises whereby Landlord would not be able to enter
with a master key.

17. ECRA COMPLIANCE

Tenant shall, at Tenant's own expense, comply with the Environmental
Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq. and the regulations
promulgated thereunder ("ECRA"). Tenant shall, at Tenant's own expense, make
all submission to, provide all information to, and comply with all
requirements of, the Bureau of Industrial Site Evaluation ("the Bureau") of
the New Jersey Department of Environmental Protection ("NJDEPE). Should the
Bureau or any other division of NJDEPE determine that a cleanup plan be
prepared

<PAGE>

and that a cleanup be undertaken because of any spills or discharges of
hazardous substances or wastes at the Premises which occur during the term of
this Lease, then Tenant shall, at Tenant's own expense, prepare and submit
the required plans and financial assurances, and carry out the approved
plans. Tenant's obligations under this paragraph shall arise if there is any
closing, terminating or transferring of operations of an industrial
establishment at the Premises pursuant to ECRA. At no expense to Landlord,
Tenant shall promptly provide all information requested by Landlord for
preparation of non-applicability affidavits and shall promptly sign such
affidavits when requested by Landlord. Tenant shall be required to pay for
only one (1) such affidavit during the term of this lease. Tenant shall
indemnify, defend and save harmless Landlord from all fines, suits,
procedures, claims and actions of any kind arising out of or in any way
connected with any spills or discharges of hazardous substances or wastes at
the Premises which occur during the term of this Lease; and from all fines,
suites, procedures, claims and actions of any kind arising out of Tenant's
failure to provide all information, make all submissions and take all actions
required by ECRA Bureau or any other division of NJDEPE. Tenant's obligations
and liabilities under this paragraph shall continue so long as Landlord
remains responsible for any spills or discharges of hazardous substances or
wastes at the Premises which occur during the term of this Lease. Tenant's
failure to abide by

<PAGE>

the terms of this paragraph shall be restrainable by injunction.

Nothing herein is intended nor shall be it construed as imposing any
environmental liability upon the Tenant for any spill or discharge occurring
prior to the date that the Tenant takes possession nor shall the Tenant be
required to comply with the NJDEPE closure requirements in the event that the
Landlord determines to sell the Building or otherwise engages in a
reorganization of some other act which triggers the NJDEPE closure
requirements.

Landlord warrants to the best of it's knowledge that there exists no
discharges of hazardous substances or waste, or the existence of PCB's and
Asbestos on the Premises and further indemnifies Tenant from such condition
if in existence before Tenant's lease commencement.

18. BUILDING SERVICES

(a) Landlord shall provide within the following standards consistent
with the operation of a first class office building in the Philadelphia
metropolitan area:

(1) Air conditioning, ventilating and heating, at comfortable
levels through the system of the Building, Monday to Friday, from 8:00AM to
7:00PM except as modified in Paragraph 12 and on Saturdays from 8:00AM to
1:00PM, excluding holidays so as to heat the Tenant's Premises to a minimum of
68 degrees F. between October 1 and May 1 and cooled to a maximum of 74 degrees
F. between May 1 and October 1, subject to revision due to mandatory or
voluntary

<PAGE>

compliance with Federal, State or Municipal laws, orders, rulings, statutes
or guidelines from time to time in effect during the term of this Lease, and
any renewals thereof.

(2) Electric current controllable by Tenant at all hours in such
reasonable quantity as may be required by Tenant for the operation of the
lighting fixtures and electrical outlets existing upon the Premises as of the
date of the commencement of the Lease. If Tenant's use of electricity, in
Landlord's judgement reasonably exercised, exceeds normal office use levels,
Landlord may, at Tenant's expense install a submeter in the leased space to
measure the electricity consumed and bill Tenant the cost thereof. In the
event a meter cannot be used, a mutually agreed upon load count may be used
to determine the amount of electricity used which exceeds normal levels.

(3) Landlord, at the inception of this Lease, will furnish light
bulbs or fluorescent tubes for each lighting fixture then installed on the
Premises at Landlord's expense and during the term of this Lease or any
renewals or extensions thereof, replace the same from time to time as needed,
the labor and material of which replacements shall be billed to Tenant if
overused or abused, otherwise the cost shall be included in the normal
operating expense budget.

(4) Maintenance of service of the public toilet rooms in the Building.

<PAGE>

(5) Cleaning of outside and inside of exterior window panes.

(6) Cleaning and maintenance of common areas in the Building.

(7) Elevator service during the normal business hours set forth in
subparagraph 1 above, except that a minimum of one (1) elevator shall be
operational at all times;

(8) Janitor service - Exhibit "D".

Tenant shall have the right but not the obligation to contract
directly for janitorial service and the cost normally included in the
operating expenses shall be adjusted accordingly to reflect only the Tenant's
pro rata share of building common areas. Landlord shall charge only for
services customarily provided in similar buildings at rates reasonably
acceptable to the industry.

Landlord does not warrant that these services shall be free from any
slowdown, interruption or stoppage pursuant to voluntary agreement by and
between Landlord and governmental bodies and regulatory agencies or caused by
the maintenance, repair, substitution, renewal, replacement or improvement of
any of the equipment involved in the furnishing of any such services, or
caused by changes of services, alterations, strikes, lockouts, labor
controversies, fuel shortages, accidents, acts of God or the elements or any
other cause beyond the reasonable control of Landlord; and specifically no
such slowdown, interruption or stoppage of any such

<PAGE>
21

services shall ever by construed as an eviction, actual or constructive, of
Tenant nor shall same cause any abatement of annual basic rent or additional
rent payable hereunder.

19. ASSIGNMENT AND SUBLETTING

(a) Tenant shall have no right to sublet all or any part of the
Premises without the prior written approval of Landlord, except to an
affiliate or subsidiary which shall not require Landlord's approval. Approval
by Landlord will not be unreasonably withheld. On any approved subletting of
all or any part of the Premises, (a) Landlord shall receive from Tenant fifty
percent (50%) of all profit direct or indirect derived by Tenant from the
subletting* and (b) Tenant shall remain liable under all terms and conditions
of this Lease. In the event of default by Tenant under the terms and
conditions of this Lease at such time that all or part of the Premises are
then sublet, Landlord may collect directly from the subtenant(s) all rents
becoming due to Tenant under the Sublease(s) and apply such rents against any
sums due to Landlord by Tenant under this Lease, and Tenant hereby authorizes
and directs such Subtenant(s) to make such payment of rent to Landlord upon
receipt of notice from Landlord. Such collection of rent by Landlord shall
not constitute a novation or a release of Tenant from its liability under the
terms and conditions or this Lease.

(b) Tenant shall have no right to make an assignment of this Lease
without the prior written approval of Landlord. Approval by Landlord will not
be unreasonably

* excluding the sale of furniture, fixtures and equipment in the premises

<PAGE>

withheld. On any approved assignment of this Lease, (a) Landlord shall have
the right to approve the assignee and the assignment documents (the assignee
must agree therein to assume all terms, conditions, and obligations of the
Lease), (b) Landlord shall receive from Tenant all profit derived by Tenant
from the assignment, and (c) Tenant shall be relieved of all subsequent
liability under the terms and conditions of this Lease upon the approval and
completion of the assignment.

(c) The written approval of Landlord to one or more sublettings or
assignments shall not operate as a waiver of Landlord's right to approve any
further sublettings and assignments.

(d) Tenant shall not (a) mortgage, pledge or otherwise encumber its
interest in this Lease or (b) grant any license, concession or other right of
occupancy of any portion of the Premises, without the prior written consent
of Landlord.

(e) As a condition precedent to Tenant's right to sublease the
Premises or to assign this Lease, Tenant shall, at Tenant's own expense,
comply with ECRA.

(f) Tenant shall promptly furnish to Landlord true and complete
copies of all documents, submissions and correspondence provided by Tenant to
the Bureau and all documents, reports, directives and correspondence provided
by the Bureau to Tenant. Tenant shall also promptly furnish to Landlord true
and complete copies of all sampling and

<PAGE>

test results obtained from samples and tests taken at and around the Premises.

(g) As a condition precedent to Tenant's right to sublease the
Premises or to assign the Lease, Tenant shall have received from the Bureau
either (i) a non-qualified approval of Tenant's negative declaration or (ii)
a non-applicability letter, for which Tenant shall promptly apply pursuant to
ECRA. If this condition shall not be satisfied, then Landlord shall have the
right to withhold consent to sublease or assignment.

(h) Nothing herein to the contrary withstanding, Landlord's written
consent shall not be required for any sublease or assignment of this Lease to
any other entity which controls or is controlled by Tenant provided that
Tenant shall continue to remain liable in such instance. Tenant shall be
required to give Landlord thirty (30) days written notice in advance of any
such subleasing or assignment.

(i) Tenant agrees that any subleasing or assignment to any person,
firm, partnership or corporation which is not an actual user of the Premises
is absolutely prohibited and nothing herein shall require Landlord to consent
to any such subleasing or assignment.

20. MECHANICS' LIENS

If any mechanics' or other lien shall be filed against the Premises or
the Building for labor or material furnished or to be furnished at the
request of the Tenant, then Tenant

<PAGE>

shall at its expense cause such lien to be discharged of record by payment,
bond or otherwise, within thirty (30) days after Tenant receives written
notice. If Tenant shall fail to cause such lien to be discharged of record
within such thirty (30) day period, Landlord may cause such lien to be
discharged by payment, bond or otherwise, without investigation as to the
validity thereof or as to any offsets or defenses thereto. The cost to
Landlord for removal of such lien will be charged to Tenant as additional
rent and payable on the first day of the month next following the payment by
Landlord. Tenant shall indemnify and hold Landlord harmless against any and
all claims, costs, damages, liabilities and expenses (including reasonable
attorney fees) which may be brought or imposed against or incurred by
Landlord by reason of any such lien or its discharge.

21. INDEMNIFICATION AND LIABILITY INSURANCE

(a) Tenant shall indemnify hold Landlord harmless against and from
liability and claims of any kind for liabilities, losses, damages, suits,
actions, fines, penalties, claims or demands of any kind and asserted by or
on behalf of any person, entity, independent contractor or governmental
authority, arising out of or in any way connected with, (i) Tenant's use and
occupancy of the Premises or any work, activity or other things allowed or
suffered by Tenant to be done in, on or about the Premises; (ii) any breach
or default by Tenant of any of Tenant's

<PAGE>

obligations under this Lease; (iii) any negligent or otherwise tortious act
or omission of Tenant, its agents, employees, invitees or contractors; or
(iv) any failure by Tenant to comply with any statutes, ordinances,
regulations, guidelines, or orders of any governmental authority. Tenant
shall, at Tenant's expense, defend Landlord in any action or proceeding
arising from any such claim and shall indemnify Landlord against all costs,
attorney fees,

(b) During the term of this Lease or any renewal thereof, Tenant shall
obtain and maintain and promptly pay all premiums for comprehensive general
liability insurance with respect to the demised Premises, the Buildings and
land on which it is situated, covering at least the hazards of "premises
operations" and "independent contractors" in the amount of not less than
$1,000,000.00 with respect to injuries to or death or any one person and in
the amount of not less than $1,000,000.00 with respect to injuries to or
death of more than one person in any one occurrence and in the amount of not
less than $100,000.00 per occurrence with respect to damaged property, such
coverage to also include a contractual liability endorsement with such
insurance company or companies as shall be satisfactory to Landlord from time
to time, and all such policies and renewals thereof shall name the Landlord
as an additional insured. On or before the commencement date of the term of
this Lease, and thereafter not less than fifteen (15) days prior to the
expiration dates of said policy or policies, Tenant

<PAGE>

shall provide copies of policies or certificates of insurance evidencing
coverage required by this Lease.

(c) All Tenant's policies of insurance shall provide (i) that no
material change or cancellation of said policies shall be made without thirty
(30) days prior written notice to Landlord and (ii),
(iii) that the insurance company issuing the same shall
have no right of subrogation against the Landlord, and (iv) that as to the
interest of Landlord, the insurance afforded by the policy shall not be
invalidated by any breach or violation by Tenant of any of the warranties,
declarations or conditions in the policy.

(d) Landlord shall insure the Building of which the demised Premises
are a part and Tenant shall insure the fixtures, equipment, machinery, tenant
improvement and betterments and contents against loss or damage by fire and
such other risks as may be included in the broadest form of extended coverage
insurance including sprinkler leakage and rent insurance where applicable
from time to time available. Tenant shall not engage in any activity or store
any product or material in the demised Premises which will either cause an
increase in the insurance on the entire Building or which will make the
Building uninsurable.

<PAGE>

22. WAIVER OF SUBROGATION

Tenant and Landlord, respectively, hereby release each other from any
and all liability or responsibility to the other for anyone claiming by,
through or under it or them by way of subrogation or otherwise for any loss
or damage to property covered by any insurance then in force, even if such
loss or damage shall have been caused by the fault or negligence of the other
party or anyone for whom such party may be responsible; provided, however,
that this release shall be applicable and in force and effect only with
respect to any loss or damage occurring during such time as the policy or
policies of insurance covering said loss shall contain a clause or
endorsement to the effect that this release shall not adversely affect or
impair such insurance or prejudice the right of the insured to recover
thereunder.

23. WAIVER OF CLAIMS

Except as otherwise in this Lease provided, Landlord and Landlord's
agents, servants and employees shall not be liable for, and Tenant hereby
releases and relieves Landlord, its agents, servants, employees from, all
liability in connection with any and all loss of life, personal injury,
damage to or loss of property, or loss or interruption of business occurring
to Tenant, its agents, servants, employees, invitees, licensees, visitors, or
any other person, firm, corporation or entity, in or about or arising out of
the Premises, from, without limitation, (a) any fire, other casualty,
accident, occurrence or condition

<PAGE>

in or upon the Premises or the Building; (b) any defect in or failure of (i)
plumbing, sprinkling, electrical, heating or air conditioning systems or
equipment, telecommunication conduit, lines and equipment or any other
systems and equipment of the Premises and the Building, and (ii) the
elevators, stairways, railings or walkways of the Building; (c) any steam,
gas, oil, water, rain or snow that may leak into, issue or flow from any part
of the Premises or the Building from the drains, pipes, roof, or plumbing,
sewer or other installation of same, or from any other place or quarter; (d)
the breaking or disrepair of any installations and equipment; (e) the falling
of any fixture or any wall or ceiling material; (f) damaged or broken
interior or exterior glass; (g) latent or patent defects; (h) the exercise of
any rights by Landlord under the terms and conditions of this Lease; (i) any
acts or omissions of the other tenants or occupants of the Building or of
nearby buildings; (j) any acts or omissions of other persons; (k) any acts or
omissions of Landlord, its agents, servants and employees, except those
involving gross negligence; and (l) theft, acts of God, public enemy,
injunction, riot, strike, insurrection, war, court order or any order of any
governmental authorities having jurisdiction over the Premises.

24. FIRE OR OTHER CASUALTY

(a) If the Premises are damaged by fire or other casualty, the damages
shall be repaired by and at the

<PAGE>

expense of Landlord and the rent until such repairs shall be made shall be
apportioned from the date of such fire or other casualty according to the
part of the Premises which is usable by Tenant. Landlord agrees to repair
such damage within a reasonable period of time after receipt from Tenant of
written notice of such damage, except that Tenant may agree to repair and
replace its own furniture, furnishings, equipment and any alteration or
improvement installed by Tenant. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting from such damage or the repair thereof.

(b) If the Premises, in the opinion of Landlord's licensed architect
or engineer, are (i) rendered substantially untenantable by reason of such
fire or other casualty, or (ii) twenty percent (20%) or more of the Premises
is damaged by said fire or other casualty and less than six (6) months would
remain on the Lease term or any renewal thereof upon completion of the
repairs or reconstruction, or (iii) fifty percent (50%) or more of the
Premises is damaged by said fire or other casualty, then Landlord shall have
the right to be exercised by notice in writing delivered to the Tenant within
thirty (30) days from and after said occurrence, to elect to terminate this
Lease, and, in such event, this Lease and the tenancy hereby created shall
cease as of the date of said occurrence, the rent to be adjusted as of said
date.

<PAGE>

(c) If the Building, in the sole opinion of Landlord, shall be
substantially damaged by fire or other casualty, regardless of whether or not
the Premises were damaged by such occurrence, Landlord shall have the right,
to be exercised by notice in writing delivered to the Tenant within thirty
(30) days from and after said occurrence, to terminate this Lease; and in
such event, this Lease and the tenancy hereby created shall cease as of the
date of said termination unless terminated as of the date of said occurrence
in accordance with Paragraph 24(b) hereof, the rent to be adjusted as of the
date of such termination.

25. SUBORDINATION AND NON-DISTURBANCE

This Lease is subject and subordinate to any mortgage now or hereafter
affecting or covering the Premises. Notwithstanding the aforesaid
subordination, in the event of the foreclosure of any such mortgage, (a)
this Lease shall not terminate, and (b) the peaceful possession of Tenant
shall not be disturbed, provided that Tenant is not in default under any of
the terms and conditions of this Lease. Tenant agrees to attorn to and to
recognize the mortgagee or the purchaser at foreclosure sale as Tenant's
landlord for the balance of the term of this Lease. Tenant hereby agrees,
however, that such mortgage or the purchaser at foreclosure sale shall not be
(i) liable for any act or omission of Landlord and (ii) subject to any
offsets or defenses which Tenant might have against Landlord; (iii) bound by
any amendment or modification of this Lease made

<PAGE>

without its consent. The aforesaid subordination, non-disturbance and
attornment provisions shall be self-operative; however, Tenant agrees to
promptly execute any other agreement submitted by Landlord in confirmation or
acknowledgement of same. Tenant hereby authorizes and empowers Landlord as
its attorney-in-fact to execute an instrument in confirmation or
acknowledgement of the provisions of this paragraph in the event that Tenant
fails to execute any document within ten (10) days of its presentation.

26. CONDEMNATION

(a) If the whole of the Premises shall be condemned or taken either
permanently or temporarily for any public or quasi-public use of purpose,
under any statute or by right of eminent domain, or by private purchase in
lieu thereof, then in that event the term of this Lease shall cease and
terminate from the date when possession is taken thereunder pursuant to such
proceeding or purchase. The rent shall be adjusted as of the time of such
termination and any rent paid for a period thereafter shall be refunded. In
the event more than fifteen percent (15%) of the Building containing same
shall be so taken (or if more than fifty percent (50%) of the parking areas
are taken and not promptly replaced with contiguous parking areas) then
Landlord may elect to terminate this Lease from the date when possession is
taken thereunder pursuant to such proceeding or purchase or, upon mutual
agreement of the

<PAGE>

parties, Landlord shall repair and restore, at its own expense, the portion
not taken and thereafter the rent shall be reduced proportionately to the
portion of the Premises taken.

(b) In the event of any total or partial taking of the Premises or
the Building, Landlord shall be entitled to receive the entire award in such
proceeding of the Building and land and Tenant shall make a separate
application for Tenant's fixtures, equipment and moving expenses under the
then applicable New Jersey eminent domain code.

(c) If the Premises or the Building are declared unsafe by any duly
constituted authority having the power to make such determination, or are the
subject of a violation notice or notice requiring repair or reconstruction
which cannot be repaired by Landlord at its sole cost and expense within
thirty (30) days, then Landlord at its option, may terminate this Lease,
unless Tenant chooses to make such repair at it's own cost, and in such
event, Tenant shall immediately surrender said Premises to Landlord and
thereupon this Lease shall terminate and the rent shall be apportioned as of
the date of such termination.

27. ESTOPPEL CERTIFICATE

Tenant shall, at any time and from time to time, within ten (10) days
after written request by Landlord, execute, acknowledge and deliver to
Landlord, or its mortgagee or trustee, a statement in writing duly executed
by Tenant (i) certifying that this Lease is in full force and effect (if

<PAGE>
33

that be the case) without modification or amendment (or, if there have
been any modifications or amendments, that this Lease is in full force
and effect as modified and amended and setting forth the modifications
or amendments), (ii) certifying the dates to which annual basic rental
and Additional Rent have been paid, and (iii) either certifying that to
the knowledge of the Tenant no default exists under this Lease or
specifying each such default; it being the intention and agreement of
Landlord and Tenant that any such statement by Tenant may be relied upon
by a prospective purchaser or a prospective or current mortgagee of the
Building, or by others, in any matter affecting the Premises.

28. DEFAULT
The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:
(a) Failure of Tenant to accept possession of the Premises within
thirty (30) days after the date of issuance of a certificate of
occupancy;
(b) The vacation or abandonment of the Premises by Tenant, which
shall be defined as Tenant's non-use of the premises for a contiguous
period of greater than fourteen (14) calendar days;
(c) A failure by Tenant to pay, when due or no later than the tenth
(10th) day of the month, any installment of rent hereunder or any
Additional Rent or any such other sum herein required to be paid by
Tenant where such failure

<PAGE>
34

continues for thirty (30) days after written notice thereof from Landlord
to Tenant. No default shall exist until ten (10) days after Landlord has
sent to Tenant a written notice that the rent has not been received except
that Landlord shall not be required to send Tenant notice of nonreceipt
of rental more than three (3) times during any twelve (12) consecutive
months;
(d) A failure by Tenant to observe and perform any other
provisions or covenants of this Lease to be observed or performed by
Tenant, where such failure continues for thirty (30) days after written
notice thereof from Landlord to Tenant provided, however, that if the
nature of the default is such that the same cannot reasonably be cured
within such thirty (30) day period, Tenant shall not be deemed to be in
default if Tenant shall within such period commence such cure and
thereafter diligently prosecute the same to completion;
(e) The filing of a petition by or against Tenant for adjudication
as a bankrupt or insolvent or for its reorganization or for the
appointment pursuant to any local, state or federal bankruptcy or
insolvency laws of a receiver or trustee of Tenant's property; or an
assignment by Tenant for the benefit of creditors; or the taking of
possession of the property of Tenant by any local, state or federal
governmental officer or agency or court appointed official for the
dissolution or liquidation of Tenant or for the operating, either
temporary or permanent, of Tenant's

<PAGE>

business; provided, however, that if any such action is commenced
against Tenant the same shall not constitute a default if Tenant causes
the same to be dismissed within sixty (60) days after the filing of same.

29. REMEDIES
Upon the occurrence of any such default set forth above:
(a) Landlord may (but shall not be required to) perform for the
account of Tenant any such default of Tenant and immediately recover as
Additional Rent any expenditure made and the amount of any obligations
incurred in connection therewith, plus interest at the rate of two
percent (2%) per annum over the Midlantic National Bank prime rate from
the date of such expenditure;
(b) Landlord may accelerate all rent and additional rent due for
the balance of the term of this Lease and declare the same to be
immediately due and payable; in the case of bankruptcy, insolvent by law
or reorganization, Tenant agrees to vacate premises and accelerate rent
for a period of two (2) months. This Lease and the unexpired term hereof
shall cease and expire.
(c) In determining the amount of any future payments due Landlord
due to increase as an operating cost and/or for costs of living
increases, Landlord may make such determinations based upon the amount
of increases in operating costs and costs of living increase for the
full year immediately prior to such default;

<PAGE>

(d) Landlord, at its option, may serve notice upon Tenant that
this Lease and the then unexpired term hereof and all renewal options
shall cease and expire and become absolutely void on the date specified
in such notice, to be not less than five (5) days after the date of such
notice without any right on the part of the Tenant to save the
forfeiture of payment of any sum due or by the performance of any terms,
provision, covenant, agreement or condition broken; and, thereupon and
at the expiration of the time limit in such notice, this Lease and the
term hereof granted, as well as the right, title and interest of the
Tenant hereunder, shall wholly cease and expire and become void in the
same manner and with the same force and effect (except as to Tenant's
liability) as if the date fixed in such notice were the date herein
granted for expiration of the term of this Lease. Thereupon, Tenant
shall immediately quit and surrender to Landlord the Premises, and
Landlord may enter into and repossess the Premises by summary
proceedings, detainer, ejectment or otherwise and remove all occupants
thereof and, at Landlord's option, any property thereon without being
liable to indictment, prosecution or damages therefor. No such
expiration or termination of this Lease shall relieve Tenant of its
liability and obligations under this Lease, whether or not the Premises
shall be relet;
(e) Landlord may, at any time after the occurrence of any event of
default, re-enter and repossesses the Premises

<PAGE>

and any part thereof and attempt in its own name, as agent for Tenant if
this Lease not be terminated or in its own behalf if this Lease be
terminated, to relet all or any part of such Premises for and upon such
terms and to such persons, firms or corporations and for such period or
periods as Landlord, in its sole discretion, shall determine, including
the term beyond the termination of this Lease; and Landlord shall not be
required to accept any tenant offered by Tenant or observe any
instruction given by Tenant about such reletting or do any act or
exercise any care or diligence with respect to such reletting or to the
mitigation of damages. For the purpose of such reletting, Landlord may
decorate or make repairs, changes, alterations or additions in or to the
Premises to the extent deemed by Landlord desirable or convenient; and
the cost of such decoration, repairs, changes, alterations or additions
shall be charged to and be payable by Tenant as Additional Rent
hereunder, as well as any reasonable brokerage and legal fees expended
by Landlord; and any sums collected by Landlord from any new tenant
obtained on account of the Tenant shall be credited against the balance
of the rent due hereunder as aforesaid. Tenant shall pay to Landlord
monthly, on the days when the rent would have been payable under this
Lease, the amount due hereunder less the amount obtained by Landlord
from such new tenant;
(f) Landlord shall have the right of injunction, in the event of a
breach by Tenant of any of the agreements,

<PAGE>

conditions, covenants or terms hereof, including the actual vacation of
the Premises at the end of the term, to restrain the same and the right
to invoke any remedy allowed by law or in equity, whether or not other
remedies, indemnity or reimbursements are herein provided. Landlord
shall have the right of distraint upon Tenant's goods pursuant to
N.J.S.A. 2A:33-1 et seq. upon adequate notice consistent with due
process. The right and remedies given to Landlord in this Lease are
distinct, separate and cumulative remedies; and no one of them, whether
or not exercised by Landlord, shall be deemed to be in exclusion of any
of the others.
(g) In the event Tenant fails to vacate the premises upon the
expiration of this or any extended term hereunder or upon termination of
this Lease, Tenant shall pay to the Landlord one hundred fifty percent
(150%) the monthly rental payment for the month in which this Lease
expired or terminated and for each succeeding month as liquidated
damages.
This lease may only be extended beyond the expiration date by the
parties executing a new lease on Landlord's then current lease form or
by an extension agreement signed by both parties making specific
reference to this Lease. No proposals, offers, correspondence or the
like shall be legally binding upon Landlord until and unless the terms
are incorporated in either a new lease or a formal amendment to this
Lease as provided in paragraph 40.

<PAGE>

(h) In addition to all remedies provided herein or by law, Tenant
shall pay to Landlord reasonable attorneys fees and court costs incurred
as a result of such breach.

30. REQUIREMENT OF STRICT PERFORMANCE

The failure or delay on the part of either party to enforce or
exercise at any time any of the provisions, rights or remedies in the
Lease shall in no way be construed to be a waiver thereof, nor in any
way to affect the validity of this Lease or any part hereof, or the
right of the party to thereafter enforce each and every such provision,
right or remedy. No waiver of any breach of this Lease shall be held to
be a waiver of any other of subsequent breach. The receipt by Landlord
of rent at a time when the rent is in default under this Lease shall not
be construed as a waiver of such default. The receipt by Landlord of a
lesser amount than the rent due shall not be construed to be other than
a payment on account of the rent then due, nor shall any statement on
Tenant's check or any letter accompanying Tenant's check be deemed an
accord and satisfaction, and Landlord may accept such payment without
prejudice to Landlord's right to recover the balance of the rent due or
to pursue any other remedies provided in this Lease. No act or thing
done by Landlord or Landlord's agents or employees during the term of
this Lease shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such a surrender shall be valid unless in
writing and signed by Landlord.

<PAGE>

31. RELOCATION OF TENANT -- DELETED

32. LANDLORD'S OBLIGATIONS

Landlord's obligations hereunder shall be binding upon Landlord only
for the period of time that Landlord is in ownership of the Building;
and, upon termination of that ownership, Tenant, except as to any
obligations which have then matured; shall look solely to Landlord's
successor in interest in the Building for the satisfaction of each and
every obligation of Landlord hereunder.

33. LANDLORD'S LIABILITY

Landlord shall have no liability under any of the terms, conditions
or covenants of this Lease and Tenant shall look solely to the equity of
the Landlord in the Building of which the Premises form a part for the
satisfaction of any claim, remedy or cause of action accruing to Tenant
as a result of the breach of any action of this Lease by Landlord.

34. SUCCESSORS

The respective rights and obligations provided in this Lease shall
bind and inure to the benefit of the parties hereto, their legal
representatives, heirs, successors and assigns; provided, however, that
no rights shall inure to the benefit of any successors of Tenant unless
Landlord's written consent for the transfer to such successor has first
been obtained as provided in paragraph 19 hereof.

<PAGE>

35. GOVERNING LAW

This Lease shall be construed, governed and enforced in accordance
with the laws of the state in which the Premises are located.

36. SEVERABILITY

If any provisions of this Lease shall be held to be invalid, void
or unenforceable, the remaining provisions hereof shall in no way be
affected or impaired and such remaining provisions shall remain in full
force and effect.

37. CAPTIONS

Marginal captions, titles or exhibits and riders and the table of
contents in this Lease are for convenience and reference only, and are
in no way to be construed as defining, limiting or modifying the scope
of intent of the various provisions of this Lease.

38. GENDER

As used in this Lease, the word "person" shall mean and include,
where appropriate, an individual, corporation, partnership or other
entity; the plural shall be substituted for the singular, and the
singular for the plural, where appropriate; and the words of any gender
shall mean to include any other gender.

39. WARRANTIES OF TENANT

Tenant warrants to Landlord that Tenant dealt and negotiated solely
and only with Landlord for this Lease and with no other broker, firm,
company or person, other than JACKSON-CROSS COMPANY. Tenant further
warrants that it is a

<PAGE>

corporation it is in good standing organized and existing under the laws
of the State of California, that all corporate action necessary to
authorize the execution of this Lease has been taken by the Board of
Directors and that the Regional Manager, DONALD R. CAST, has been
authorized to execute and attest respectively this Lease.
Tenant for good and valuable consideration shall indemnify and hold
Landlord harmless from and against any and all claims, suits,
proceedings, damages, obligations, liabilities, counsel fees, costs,
losses, expenses, orders and judgements imposed upon, incurred by or
asserted against Landlord by reason of the falsity or error of this
aforesaid warranty.

40. ENTIRE AGREEMENT

This Lease, including the Exhibits and any Riders hereto, contains
all the agreements, conditions, understandings, representations and
warranties made between the parties hereto with respect to the subject
matter hereof, and may not be modified orally or in any manner other
than by an agreement in writing signed by both parties hereto or their
respective successors in interest. Without in any way limiting the
generality of the foregoing, this Lease can only be extended pursuant to
the due exercise of an option (if any) contained herein and/or otherwise
formal agreement signed by both Landlord and Tenant specifically
extending the terms. No negotiations, correspondence by Landlord or
offers to extend the terms shall be deemed an

<PAGE>

extension of the termination date for any period whatsoever without such
formal agreement.

41. WAIVER OF TRIAL BY JURY

Landlord and Tenant each hereby waive the right to a trial by jury
in the event any claim is made concerning the construction,
interpretation or enforcement of this Lease.

42. CONSENT OF THE PARTIES

Wherever the consent of either party is required, it shall be
deemed to be written consent and shall not be unreasonably withheld or
delayed.

43. ADDITIONAL SCHEDULES

The following additional schedules are attached hereto and made a
part of this Lease:

Exhibit "A" -- Plan
Exhibit "B" -- Rules and Regulations
Exhibit "C" -- Tenant Work Letter
Exhibit "D" -- Janitorial Specifications
Exhibit "E" -- Renewal Option
Exhibit "F" -- Fees
Exhibit "G" -- Right of First Offer
Exhibit "H" -- Amended Agreement

44. BINDING EFFECT

This Lease shall be effective only when it is signed by both the
Landlord and Tenant and a fully executed copy delivered to the Tenant.
The Tenant's submission of a signed Lease for review by the Landlord
does not give the Tenant any interest, right or option to the Premises.

<PAGE>

45. CESSATION OF EXISTING LEASE

Landlord and Tenant agree that, upon the Commencement Date (as
defined and, potentially, amended in Paragraph 7) the existing Lease
dated July 13, 1990 (and subsequently amended by various and numerous
Lease Amendments) between the Landlord's predecessor and Tenant shall
cease, and Tenant shall be entitled to a refund of any prepaid rent, as
well as a return of Tenant's deposit monies paid to Landlord's
predecessor pursuant to the July 13, 1990 Lease.

IN WITNESS WHEREOF, the parties hereto have duly executed this Lease and have
initialed the Exhibits and Riders hereto in seven (7) counterparts the day
and year first above written.

TENANT: qad.inc

BY /s/ Donald R. Cest
------------------
Title Regional Manager
------------------

LANDLORD: LAUREL LARCHMONT OFFICE INC.

BY /s/ James R. Lanne
------------------
Title Vice President
------------------

jp:/11/17/93
Revised 12/07/93

<PAGE>

EXHIBIT "A"

[FLOOR PLAN]

<PAGE>

[FLOOR PLAN]

FIRST FLOOR PLAN (EAST)

<PAGE>

[FLOOR PLAN]

SECOND FLOOR PLAN (EAST)

<PAGE>

[FLOOR PLAN]

SECOND FLOOR PLAN (WEST)

<PAGE>

EXHIBIT "B"
RULES AND REGULATIONS

1. No part or the whole of the sidewalks, plaza areas, entrances, passages,
courts, stairways, corridors or halls of the building or the real property shall
be obstructed or encumbered by any tenant or used for any purpose other than
ingress and egress to and from the space demised to such Tenant.

2. No awnings or other projections shall be attached to the outside walls or
windows of the building. No curtains, blinds, shades, or screens shall be
attached to or hung in, or used in connection with, any window or door of the
space demised to any tenant other than those specified or supplied by landlord,
removal of same at any time will be prohibited.

3. No sign, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted, or affixed on any part of the outside or inside
of tenant's premises, so as to be visable from the exterior without prior
written consent of landlord.

4. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the building.

5. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances (including, without limitation,
coffee grounds) shall be thrown therein. All repairs necessitated by damage
resulting from any misuse of the plumbing fixtures shall be borne by the tenant.

6. No tenant, nor any of its agents, employees, visitors, licensees,
contractors, or suppliers shall at any time bring or keep upon the leased
premises any flammable, combustible or explosive fluid, chemical or substance
without landlord's prior approval, and tenant shall obey fire regulations and
procedures governing said leased space and building.

7. No tenant shall mark, paper, paint, bore into, make any alterations or
additions to, or in any way deface any part, including equipment and fixtures,
of the leased space

<PAGE>

or the building of which it forms a part, without the prior written consent of
landlord. No wires shall be installed except in conduits, ducts or outlets
established for that purpose, unless prior written consent of landlord has been
obtained. No tenant shall lay carpeting, so that the same shall come in direct
contact with the floor of the leased space, and, if tenant desires to install
carpeting, an underlayment shall be first laid, without the use of cement or
other similar adhesive material. If any tenant desires to install any floor
covering other than carpeting, subject to the prior written consent of landlord,
such floor covering shall be installed in accordance with the manufacturer's
specifications.

8. No cooking shall be done or permitted by any tenant in the leased space,
without the prior written consent of landlord, provided, however, that the
heating, refrigeration and preparing of beverages and light snacks for employees
shall be permitted if there are appropriate facilities and equipment for such
purposes. No tenant shall cause to permit any unusual or objectionable odors to
be produced upon or emanate from the leased space.

9. Neither the whole nor any part of the space demised to any tenant shall be
used for manufacturing, without prior written approval from the landlord, or for
the sale at auction of merchandise, goods, or property.

10. No tenant shall make or permit to be made, any unseemly or disturbing
noises or disturb or interfere with other tenants or occupants of the building
or neighboring buildings or premises.

11. All moving of safes, freight, furniture or bulky matter of any description
to and from the leased space, shall only take place within the confines of
specified passageways or stairs, and during the hours designated by landlord.
There shall not be used in any space, or in the public walkways of the building,
either by the tenant or by jobbers or others, in the delivery or receipt of
merchandise, and hand trucks, except those equipped with rubber tires.

12. No tenant shall use or occupy or permit any portion of the space demised to
such tenant to be used or occupied as an employment bureau or for the storage,
manufacture or sale of liquor, narcotics or illegal drugs.

<PAGE>

13. Landlord shall have the right to prohibit any advertising by any tenant
which in landlord's opinion, tends to impair the reputation of the building, and
upon notice from landlord, such tenant shall refrain from or discontinue such
advertising.

14. No space demised to any tenant shall be used, or permitted to be used, for
lodging or sleeping or for any immoral or illegal purposes.

15. The requirements of tenants will be attended to only upon application at
the office of landlord. Building employees shall not be required to perform,
and shall not be requested by any tenant to perform, any work outside of their
regular duties, unless under specific instructions from the office of landlord
or the building management.

16. Canvassing, soliciting, and peddling in the buildings are prohibited, and
each tenant shall cooperate to prevent the same.

17. No animals of any kind shall be brought into or kept about the building by
any tenant.

18. No tenant shall install or permit or allow installation of a television,
radio, or two-way radio antenna, or any other similar antenna, on the roof, in
the windows or upon the exterior of the leased space of the building, without
the prior written consent of landlord.

19. No tenant shall tie in, or permit other to tie into the water supply on the
premises without prior written consent of the building management.

20. No tenant shall remove, alter or replace the building standard ceiling
light diffusers in any portion of the leased space without the prior written
consent of landlord.

21. Except for purposes of emergency, notices, posters, or advertising media
will not be permitted to be affixed on the exterior of the building.

22. Business machines and mechanical equipment belonging to tenant which cause
noise or vibration that may be transmitted to the structure of the building or
to any space therein to such a degree to be objectionable to landlord or

<PAGE>

to any tenant in the building shall be installed and maintained by tenant, at
tenant's expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibration.

23. Tenant shall immediately notify the building management of any serious
breakage, or fire or disorder, which comes to its attention in its premises or
any of the common areas of the building.

24. Tenant shall apply, at tenant's costs, such reasonable pest extermination
measures as tenant deems reasonably necessary.

25. Tenant shall not burn any trash or garbage of any kind in or about the
demised premises.

26. Tenant shall not permit the use or placement of door mats or the like on
the exterior of any entrance door to the demised premises.

27. For purposes of these Rules and Regulations, the "building management"
shall mean the duly designated representative of landlord to manage the
building.

28. Landlord reserves the right to recind, amend, alter or waive any of the
foregoing Rules and Regulations at any time when, in its judgement, it deems it
necessary, desirable or proper for its best interest and for the best interest
of the tenants, and no such recission, amendment, alteration or waiver of any
rule or regulation in favor of one tenant shall operate as an alteration or
waiver in favor of any other tenant. Landlord shall not be responsible to any
tenant for the non-observance or violation by any other tenant of any of these
Rules and Regulations at any time.

ACCEPTED BY: [illegible]
---------------------

ACCEPTED BY: [illegible]
---------------------
[illegible]

<PAGE>

EXHIBIT "C"
TENANT WORK LETTER

Tenant acknowledges and agrees that the entire cost and expense of tenant
improvement work to be performed for the leased premises is to be at the
Tenant's sole cost and expense, except that the Landlord will contribute to such
expense the amount of $25 per square foot of the leased premises.

Lessor shall be responsible for preparing all necessary construction drawings
based on the floor plans submitted by the Lessee. Lessee shall have fourteen
(14) days in which to review and approve final construction drawings prepared by
lessor.

The lessor shall be responsible for having work shown on the final construction
plans completed in good and workmanlike manner as expeditiously as possible and
shall give Lessee an allowance against the cost to construct said improvements
shown on the final construction plans of up to $25.00 per rentable square foot
for Lessee improvements. In the event the cost to construct said Lessee
improvements exceeds $25.00 per rentable square foot, Lessee shall be
responsible for the payment of all costs in excess of said $25.00 per rentable
square foot allowance within fifteen (15) days of submission of an invoice from
Lessor.

In the event, the cost to construct Lessee improvements is less than $25.00 per
rentable square foot, Lessor shall apply the remaining value of the construction
allowance as a credit against Base Rent due from Lessee. Such credit shall be
applied in twelve (12) equal monthly installments beginning as of the
Commencement Date.

The plans and specifications for these improvements shall be mutually agreed to
by both Landlord and Tenant. Landlord will not unreasonably withhold its'
approval.

Landlord is responsible to provide renovations which are required by the
Americans with Disabilities Act which are not part of the above improvements, at
no additional cost to Tenant.

Tenant requires the Landlord employ the design and construction services of
Whitesell Services, Inc. for the purpose of continuity and expediency since
time is of the essence.

If the cost of such service, in the reasonable opinion of Tenant, is not in
keeping with industry standards in the region, then Tenant shall have the right
to contract directly for the services. If Tenant chooses to contract directly
for the services, then Tenant shall have no claim to penalties or termination
defined in Paragraph 13(d) unless such delay is caused directly by Landlord.

<PAGE>

EXHIBIT "D"
JANITORIAL SPECIFICATIONS

A. NIGHTLY - (Monday through Friday)

1. OFFICES AND COMMON AREAS
a. Empty waste receptacles and replace liner as needed.
b. Boxes of trash will also be removed if clearly labeled "trash".
c. Empty and wipe all ash trays.
d. Vacuum all carpeted areas.
e. Dust mop all tiled floors, baseboards and damp mop any spillages.
f. Dust and/or damp wipe clean the following:
Desks (if cleared), chairs, file cabinets, tables, lamps,
pictures and frames, window sills, doors, push and switch
plates and telephones.
g. Wash clean all water coolers and/or fountains.
h. Clean all glazed entrance and elevator doors.
i. Spot clean carpeting.
j. Sweep stair towers.

2. BATHROOMS
a. Empty and clean waste receptacles (replace liner if applicable)
and wash dispensers.
b. Sweep and wet mop all floors using disinfectant.
c. Spot clean all tiled walls and partitions.
d. Scour, wash and disinfect all basins, bowls and urinals.
e. Wash and polish all mirrors, shelves and bright work including
plumbing fixtures.
f. Refill all paper products and soap dispensers.

B. WEEKLY

1. OFFICES AND COMMON AREAS.
a. Render high dusting of all pictures, frames, doors, partitions
pipes, louvers, etc.

2. BATHROOMS.
a. Spray buff tiled floors.

C. MONTHLY

1. OFFICES AND COMMON AREAS.
a. Clean all interior partition glass, diffusers and grills.

2. BATHROOMS.
a. Machine wash and refinish floors.

<PAGE>

D. EVERY THREE MONTHS

1. OFFICES AND COMMON AREAS.
a. Strip and refinish all tiled flooring as appropriate.

2. STAIR TOWERS.
a. Damp mop all floors.

E. EVERY SIX MONTHS

1. WINDOWS.
a. Wash clean all interior and exterior windows.

F. ANNUALLY

1. COMMON AREAS AND TENANT SPACES.
a. Carpet cleaning.

Revised:11/12/93

<PAGE>

EXHIBIT "E"
RENEWAL OPTION

(A) So long as Tenant is not in default under this Lease, Landlord grants to
Tenant the option to extend the term of this Lease from the date of
termination of the initial term for an additional term of five (5) years (the
"First Renewal Term") upon all of the terms, conditions and provisions set
forth in this Lease, except that the yearly Minimum Rent payable under
Section 8(A) of this Lease for each Lease Year (hereinafter defined) of the
Renewal Term shall be as set forth below in this Exhibit "E". To exercise the
option to renew, Tenant shall give Landlord written notice of such exercise
not less than one hundred eighty (180) days prior to the expiration of the
initial term.

(B) The Minimum Rent payable under Section 8(A) of this Lease for the Lease
Year of the Renewal Term shall be calculated on a fixed rental rate of $14.00
per square foot, $801,794.00 per year, $66,816.17 per month.

(i) The term "Lease Year" as used in this Exhibit "E" shall mean the
twelve (12) calendar months commencing with the first day of the
first full calendar month of the initial term or the Renewal Term of
this Lease, as applicable and the succeeding twelve (12) calendar
month periods.

Upon execution of the Renewal Option, Landlord shall provide Tenant
within a reasonable time, and at no additional cost to the Tenant,
refurbishment of the Premises including repainting all painted
surfaces and new carpet installation in a quality equivalent to the
initial carpet.

LANDLORD: TENANT:

BY /s/ James P. Lanno BY /s/
- --------------------------------- ----------------------------------
James P. Lanno

<PAGE>

EXHIBIT "F"

FEES

In the event of suit or other proceeding between the partners hereto with
respect to this Lease, the prevailing party shall, in addition to other such
relief as the Court may award, be entitled to recover reasonable attorney's
fees, expenses and costs of investigations.

/s/
/s/

<PAGE>

EXHIBIT "G"
RIGHT OF FIRST OFFER

Provided that Tenant is not then in default hereunder, Landlord shall offer
in writing to lease to Tenant any space in the building as to which Landlord
has made a bona fide offer to lease to any other prospective tenant
(hereafter, a "Qualified Offer"). Said right of first offer shall be subject
to all rights of first offer previously granted other tenants in the building
and the following conditions:

a) At the time Landlord makes any Qualified Offer, Landlord shall give
Tenant written notice specifying (i) the identity of the proposed tenant;
(ii) the square footage proposed to be leased and it's location within
the Building and (iii) the proposed commencement date.

b) If Tenant intends to exercise it's right of first offer as to the space
described in Landlord's notice, Tenant shall give Landlord written notice
of such intent. Such notice must be received by Landlord not later than
5:00 p.m. pre-Tenant's receipt of Landlord's notice described in (a)
above.

c) If Tenant fails to give timely notice in accordance with subparagraph (b)
above, Landlord may lease such space to the party and on the terms
specified in it's notice to Tenant, however, in the event a lease is not
consummated with the party identified in Landlord's notice, Tenant's
fight of first offer shall again apply to the pertinent space and Landlord
shall notify Tenant of any subsequent offer from or to any other party to
lease same.

d) If Tenant properly exercises it's right of first offer granted hereby,
that portion of space herein described, will be leased, as of the
commencement date specified in Landlord's notice, on the terms and
conditions applicable to the Premises, including the same basic rent per
rentable square foot except as follows:

(i) In the event the cost (per rentable square foot) to Landlord of
constructing leasehold improvements comparable to those described in
the Building Standard Tenant Work Letter attached hereto as Exhibit
"C" is either higher or lower than the cost of such improvements to
the Premises, the basic rent set forth in Paragraph 8(a) will be
increased or decreased, as appropriate, by an amount equivalent to
such cost differential.

<PAGE>

The amount of said cost differential, if any, will be determined by
comparing the total work letter cost computed in accordance with the
most recent "Dodge Report" available as of (1) the date of this lease
and (2) the date of Tenant's notice of it's intent to exercise the
foregoing option. The cost set forth in each such "Dodge Report"
shall be conclusive as to any individual work letter item.

(ii) Tenant's pro rata share of operating expenses under Paragraph 8(b)
of the Lease shall be amended.

(iii) The description of (and Exhibits depicting) the "Premises" in
Paragraph 5 of the lease shall be amended.

jp:11/17/93

/s/
/s/

<PAGE>

EXHIBIT "H"
AMENDED AGREEMENT

EARLY TERMINATION OF LEASE

Notwithstanding anything to the contrary contained in this Lease, Lessee, at
its option, may cancel and terminate this Lease effective as of the end of
the sixtieth (60th) month of the term, provided, as conditions of such
termination and cancellations: (a) Lessee gives written notice to the Lessor
at least one hundred and fifty (150) days prior to the commencement of the
sixtieth (60th) month in the term of its intent to terminate the Lease, (b)
Lessee pays to Lessor an amount equal to $12.00 per rentable square foot to
cover the unamortized portion of those costs and expenses incurred by Lessor
in connection with this Lease, and (c) Lessee continues to perform all their
terms and conditions of the Lease until the date of its cancellation and
termination.

/s/
/s/

<PAGE>

AMENDMENT TO MULTI-TENANT OFFICE LEASE

AGREEMENT made as of the 26th day of April, 1994, by and between EDB
Property Partners, LP III, successor to Laurel Larchmont Office, Inc.
("Landlord") and qad, inc. ("Tenant").

W I T N E S S E T H:

WHEREAS, Tenant and Laurel Larchmont Office, Inc. ("LLO") executed and
delivered a multi-tenant office lease (the "Lease") for certain premises
commonly known as Suites 103 East, 105 East, 200 East, and 200 West (the
"Premises") in the building known as 10,000 Midlantic Drive, Mount Laurel,
New Jersey; and

WHEREAS, LLO assigned the Lease to Landlord on or about December 31, 1993;
and

WHEREAS, under Section 13(c) of the Lease, Tenant was required to furnish
to Landlord and approve certain plans for work specified on Exhibit C to the
Lease ("Tenant Improvements") by January 31, 1994, and, under Section 13(d)
of the Lease, Landlord was required to substantially complete the Premises,
subject to extensions for delays caused by Tenant and/or by force majeure, by
June 1, 1994; and

WHEREAS, Tenant was unable to furnish plans for Tenant Improvements to
Landlord until April, 1994; and

WHEREAS, the parties agree that the Commencement Date shall be extended;
and

WHEREAS, the parties wish to adopt procedures to enhance the speed at which
the Premises will be completed;

NOW, THEREFORE, in consideration of the premises, and the

<PAGE>

mutual covenants and agreements hereinafter set forth, the parties hereby agree
that the Lease is amended as follows:

1. The first sentence of Section 7 of the Lease is deleted in its
entirety, and the following is substituted therefor:

"The term of this Lease shall be seven (7) years, zero (0) months
commencing September 1, 1994 ("Commencement Date") and ending at 12:00
noon on August 31, 2001."

2. In addition to any other actions, inactions, causes or events that may
cause or result in the postponement or extension of the Commencement Date
under the terms and provisions of the Lease, the Commencement Date shall be
postponed by the number of days of delay caused by or resulting from any one
or more of the following:

(a) The failure of the plans by the Landlord for Tenant Improvements to
be bid, awarded, and approved on a "fast track" basis.

(b) The failure of Township officials to grant a building permit for
Tenant Improvements within twenty (20) days after the application for such
permit is submitted.

(d) The failure of Tenant to respond to the applicable party as to any
decisions with respect to Tenant Improvements, change orders, or the completion
of the Premises within forty eight (48) hours after such a decision is
requested, orally or in writing.

3. In order to expedite the completion of the Premises, the parties agree
that the following will apply to work required to complete the "Project", which
for purposes of this Agreement shall

<PAGE>

mean the completion of the Premises, including without limitation the completion
of Tenant Improvements:

(a) Landlord will engage Cosensa & Associates, Inc. ("C & A") an
independent Project Administrator, responsible to both Landlord and Tenant, to
oversee and expedite the Project. C&A's fee shall not exceed three percent (3%)
of the total cost of completing the Project. The fee will be included in
Tenant's construction allowance of $25.00 per rentable square foot, granted
under Exhibit C to the Lease.

(b) Tenant hereby designates Linda K. Rickard as its representative
who will have full authority to make binding decisions on behalf of Tenant
with respect to the Project, including without limitation authority to
approve plans, specifications, modifications, architects, and general
contractors. Tenant must cause Ms. Rickard to be available at all times when
work on the Project is occurring.

4. This Amendment supersedes and cancels all prior agreements between
the parties hereto with respect to the subject matter hereof,* including
without limitation the provisions of paragraphs 1, 2, and 3 of the letter
agreement between the parties dated April 19, 1994 and countersigned by
Tenant on April 26, 1994.

5. Except as expressly set forth herein, the Lease is hereby in all
respects ratified, confirmed and approved.

*including the additional construction and expense clause and penalty clause
contained in Paragraph 13(c) of the lease, and

<PAGE>

IN WITNESS WHEREOF, this Amendment has been duly executed on behalf of each
of the parties hereto as of the day and year first above written. *

qad, inc., Tenant

By: /s/
-----------------------------

EDB Property Partners, LP III
Landlord

By: Emmes Laurel Property Corp.,
A Delaware Corporation
General Partner

By: /s/ Andrew Davidoff
----------------------------
Andrew Davidoff L.P.

* There is attached hereto a Rider which amends the terms of this document and
which is hereby incorporated into this document by reference.

<PAGE>

RIDER

Notwithstanding anything to the contrary contained in this Amendment:

1. The parties agrees that: (1) Landlord has not caused a delay under
Paragraphs 2 (a) and (b) above and that (2) these Paragraphs are now
null and void for all purposes;

2. The parties agree that, as of June 2, 1994, Landlord had caused no
delay under Paragraph 2 (c) of the Amendment;

3. The following language is added to the end of the Paragraph 2 (d)
of the Amendment:

Provided, however, that if Tenant fails to respond to an initial
inquiry from Landlord within forty-eight hours, Landlord may then
provide Tenant with a failure to respond notice ("Second Failure
Notice"). Should Tenant (once again) fail to respond within
forty-eight hours after Tenant's receipt of the Second Failure Notice,
then Tenant shall be liable to Landlord for: (a) any rent foregone by
Landlord, and (b) any additional construction costs incurred, both as a
result of Tenant's failure to respond in a timely matter, under terms
of existing lease.

4. The first sentence of Paragraph 13 (c) of the lease is hereby
deleted and replaced with the following:

If Tenant makes any changes to the plans for its space after June 2,
1994, and such changes cause a delay in the Commencement Date or an
increase in the construction costs for the space, then Tenant shall pay
to Landlord as rent hereunder: (1) any rent foregone by Landlord as a
result of said delay, (2) any operating expenses incurred by Landlord
(which would have been otherwise paid by Tenant) as a result of said
delay, and (3) any increase in construction costs carried by said
delay, all of which payments shall be due and payable under the terms
of the existing lease.

<PAGE>

5. Paragraph 4 of the Amendment is hereby deleted and replaced with
the following:

Where this Amendment conflicts with the terms of the Lease or any other
prior written or oral agreement between the parties, the terms of this
Amendment shall control and be paramount. Notwithstanding the
foregoing, the letter agreement between the parties dated April 19th,
1994 (a copy of which is attached hereto and incorporated herein
by reference) is now null and void for all purposes, except paragraph 4.
The parties agree that Paragraph 4 of the letter is incorporated into a
pre-existing lease dated July 13, 1990 for 2000 Midlantic Drive by
Amendment #7.

<PAGE>

April 19, 1994

Linda K. Rickard
Manager, Regional Administrative Services
qad inc.
2000 Midlantic Drive
Suite 100
Mt. Laurel, NJ, 08054

Re: Lease agreement between qad, inc.,(Tenant), and Laurel Larchmont
Offices, Inc. (Landlord), for 10000 Midlantic Drive, Mt. Laurel, NJ
assigned to EDB Property Partners, LP III as Landlord on December 31,
1993

Dear Linda:

The following recaps our discussion with Andrew Davidoff on Friday, April 15
concerning the tenant improvements for the above referenced Lease Agreement:

The Lease was drafted with the intention that qad would submit tenant
improvement plans to us for our approval by January 31, 1994, in order for
the tenant improvements to be completed by June 1, 1994., We received the
tenant improvement plans in early April and thus will not be able to complete
construction by June 1, 1994, as originally intended.

To assist qad in expediting the tenant build out, we will modify the Lease as
follows:

1. Cosenza & Associates, Inc. will be engaged as an independent
project administrator, jointly responsible to both Landlord and Tenant,
to oversee and expedite the construction of your space. Cosenza &
Associates' fee which may be up to 3% of the total project cost, will
be included in the $25.00 per square foot tenant allowance specified
in the Lease.

2. The rent commencement and substantial completion dates specified
in the Lease will be changed from June 1, 1994 to September 1, 1994.
This is an aggressive deadline and therefore requires the following to
occur:

a. The project must be designed, bid, awarded, and approved by the
Township building code officials on a "Fast Track" basis. There must
be no "long lead time" items on the Tenant's specifications.

<PAGE>

April 19, 1994 -2-

Linda K. Rickard

b. Tenant schematic drawings submitted to Cosenza & Associates are
complete and fully approved by qad.

c. Project decisions required from qad, from this date forwarded,
will be received within 48 hours after receipt of same.

d. A maximum of two architectural firms will be asked to bid on
project drawings. A maximum of four general contractors will be
asked to bid on project construction. qad will approve the architects
and general contractors asked to bid.

e. qad will appoint one representative of qad, inc. who will be
on-site and fully authorized to make decisions, such as approving
plans, specifications, modifications, etc., within the 48 hours
specified in paragraph 2.c.

3. We will provide architectural and engineering plans and tenant
improvements as per the Lease Agreement referenced above.

4. Regarding the rent commencement date for the additional space qad
currently occupies at 2000 Midlantic Drive, qad agrees to begin paying,
as of July 1, 1994 additional annual rent of $7.00 per square foot.
The additional rent is calculated and paid in advance on a monthly
basis. Attached is a copy of the Lease Amendment, outlining the terms
of this agreement, which was submitted to you for your execution on
April 8, 1994.

Please indicate your agreement with the above by signing as designated below
and I will institute the necessary lease modifications. If you have any
questions, please contact me immediately at (609) 439-1414.

Kind Regards,

/s/ Anthony S. Rimikis

Anthony S. Rimikis
General Manager

Approved: /s/ Linda K. Rickard
------------------------ ----------
Linda K. Rickard Date

cc: Andy Davidoff

<PAGE>

[LETTERHEAD]

January 10, 1994

FEDERAL EXPRESS
- ---------------

Ms. Linda K. Rickard
Manager - Regional Administrative Services
QAD Inc.
2000 Midlantic Drive
Suite 100
Mount Laurel, New Jersey 08054

Re: Multi-Tenant Office Lease between
Laurel Larchmont Office, Inc. and
QAD, Inc.
Premises: 10000 Midlantic Drive
Mount Laurel, New Jersey
----------------------------------

Dear Ms. Rickard:

This law firm represents EDB Property Partners L.P. III, the entity
which acquired title to the captioned property from Laurel Larchmont Office,
Inc. on December 30, 1993. On behalf of the new owner of the premises, I am
enclosing one fully executed copy of the captioned Lease. Please be advised
that this Lease was assigned to the new owner in connection with the sale of
the premises. I have also enclosed for your file a copy of a letter dated
December 30, 1993 from the previous owner advising of the transfer of title.

All future payments under the Lease should be directed to EDB
Property Partners L.P. III, care of Emmes Asset Management Corp., 52
Vanderbilt Avenue, Suite 1510, New York, New York 10017. Any inquiries
regarding the premises and the Lease should be directed to Mr. Andrew
Davidoff at Emmes Asset Management

<PAGE>

[LETTERHEAD]
Ms. Linda K. Rickard
January 10, 1994
Page 2

Corp., who may be reached by telephone at 212-867-5050 (Extension 306).

Very truly yours,

/s/ Gary S. Kleinman

Gary S. Kleinman

GSK:bmw
Encl.
cc: Mr. Andrew Davidoff
(by hand, w/encl.)

<PAGE>

LAUREL LARCHMONT OFFICE, INC.
c/o Midlantic National Bank
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818

December 30, 1993

Qad Inc.
10000 Midlantic Drive
Mt. Laurel, New Jersey

Attention: Linda K. Richard, Manager,
Regional Administration Services

Re: Lease between Laurel
Laurel Office Inc. and Qad Inc.
Premises: 10000 Midlantic Drive
Mt. Laurel, New Jersey

Dear Ms. Richard:

We have enclosed for your files one (1) fully executed original of the
captioned Lease, which has been dated as of December 29, 1993.

Please be advised that the Premises were sold to EDB Property Partners
L.P. III on December 30, 1993.

Accordingly, all future payments and inquiries regarding the Premises
and the Lease should be directed to the managing agent for the new landlord
as follows:

EDB Property Partners L.P. III
c/o Emmes Asset Management Corp.
52 Vanderbilt Avenue, Suite 1510
New York, New York 10017
Attention: Andrew Davidoff
(212) 867-5050

Thank you for your attention to this matter.

Very truly yours,

LAUREL LARCHMONT OFFICE, INC.

By: /s/ James Lanno
--------------------------
James Lanno
Vice President

<PAGE>

LANDLORD: LAUREL LARCHMONT OFFICE, INC.

TENANT: qad, inc.

PREMISES: 10000 MIDLANTIC DRIVE, SUITE
MOUNT LAUREL, NEW JERSEY

INDEX TO MULTI-TENANT OFFICE LEASE

DESCRIPTION PAGE
- ----------- ----

1. DATE OF LEASE 1

2. LANDLORD 1

3. TENANT 1

4. NOTICES 1

5. PREMISES 2

6. USE OF PREMISES 2

7. TERM 3

8. RENT 4

9. LATE PAYMENT 8

10. SECURITY DEPOSIT 9

11. SIGNS 9

12. EXCESS USE OF ELECTRICITY 9

13. CONDITION OF PREMISES 9

14. REPAIRS AND MAINTENANCE 12

15. ALTERATIONS AND TRADE FIXTURES 14

16. ACCESS TO PREMISES 16

17. ECRA COMPLIANCE 16

18. BUILDING SERVICES 18

19. ASSIGNMENT AND SUBLETTING 21

20. MECHANICS' LIENS 23

<PAGE>

21. INDEMNIFICATION AND LIABILITY INSURANCE 24

22. WAIVER OF SUBROGATION 27

23. WAIVER OF CLAIMS 27

24. FIRE OR OTHER CASUALTY 28

25. SUBORDINATION AND NON-DISTURBANCE 30

26. CONDEMNATION 31

27. ESTOPPEL CERTIFICATE 32

28. DEFAULT 33

29. REMEDIES 35

30. REQUIREMENT OF STRICT PERFORMANCE 39

31. RELOCATION OF TENANT 40

32. LANDLORD'S OBLIGATIONS 40

33. LANDLORD'S LIABILITY 40

34. SUCCESSORS 40

35. GOVERNING LAW 41

36. SEVERABILITY 41

37. CAPTIONS 41

38. GENDER 41

39. WARRANTIES OF TENANT 41

40. ENTIRE AGREEMENT 42

41. WAIVER OF TRIAL BY JURY 43

42. CONSENT OF THE PARTIES 43

43. ADDITIONAL SCHEDULES 43

44. BINDING EFFECT 43

<PAGE>

MULTI-TENANT OFFICE LEASE

1. DATE OF LEASE:

2. LANDLORD: Laurel Larchmont Office, Inc.

Address of Landlord: c/o Midlantic National Bank
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818

3. TENANT: qad, inc.

Address of Tenant: 6450 Via Real
Carpinteria, California 93013

Tenant's SIC Number: 7757

4. NOTICES

LANDLORD: Laurel Larchmont Office, Inc.
c/o Midlantic National Bank
499 Thornall Street
P.O. Box 600
Edison, New Jersey 08818

TENANT: qad, inc.
10000 Midlantic Drive
Suites 103 East, 105 East, 200 East and 200 West
Mount Laurel, New Jersey 08054

<PAGE>

5. PREMISES

(Include street address, approximate square footage, suite number, and
lot & block number)

10000 Midlantic Drive
Suites 105 East, 200 East and 200 West
Mount Laurel, New Jersey 08054

R.S.F. Suite 103 East 3,384 sf.
Suite 105 East 9,412 sf.
Suite 200 East 22,287 sf.
Suite 200 West 22,188 sf.
----------
Total: 57,271 sf.
Block #513, Lot #3

As identified on Exhibit "A" ("Premises") in the building known as
10000 MIDLANTIC DRIVE ("Building").

6. USE OF PREMISES

The Tenant covenants and agrees to use the Premises as OFFICE AND
RELATED PURPOSES. Tenant agrees not to use or permit the Premises to be
used for any other purpose without

<PAGE>

Tenant shall observe and comply with the rules and regulations
attached hereto, as Exhibit "B", as well as applicable laws and
governmental regulations as currently or hereinafter enacted and to all
reasonable requirements of the insurer of the Premises or other Building
which the Premises are a part. Tenant agrees to promptly furnish Landlord
with a copy of any notice that it receives that it is in violation of any
applicable law or governmental regulations.

7. TERM

<PAGE>

If the Lease term does not commence upon the date indicated above,
Landlord and Tenant shall, by separate writing, set forth the date that
the Lease term commenced and will terminate.

8. RENT

(a) Tenant shall pay to Landlord, without set off or deduction, at
its offices, P.O. Box 600, Edison, New Jersey 08818 or such other place
as Landlord directs, rental as set forth below:

TERM PSF RATE MONTHLY RENT ANNUAL RENT
---------------------------------------------------------------------------
Year 1 $12.00 (x $45,271.00 $543,252.00
45,271 sf)

Year 2 $12.00 $57,271.00 $687,252.00

Years 3 thru 5 $12.50 $59,657.29 $715,887.50

Years 6 and 7 $13.00 $62,043.58 $744,523.00

Payable on the first business day of each month during the term of this
Lease except that the first month's rent shall be payable upon the
execution of this Lease.

<PAGE>

This operating cost shall be estimated by Landlord at the commencement
of the rental term and Tenant shall pay to Landlord in addition to the
basic rent and on the same day provided in paragraph 8(a) 1/12 thereof.
The estimated operating cost for the year in which this Lease commences
is $7.00 per R.S.F. As an inducement to Tenant, Landlord shall fix the
operating expenses during the first twelve (12) months at a rate of
$6.27 per square foot or $29,924.10 per month. The Tenant's proportionate
share is 32.62 percent (57,271 sf DIVIDED BY 175,573 sf = 32.62%). The
operating expenses shall include all costs normally incurred in the
maintenance and operation of an Office Building, less any charges invoiced
directly to other tenants in the Building and shall include:

(i) Real estate taxes assessed on the Building, land underlying
same, parking areas or other common elements including any assessments or
municipal improvements;

(ii) All costs and expense directly related to the operation of
the Building including preparing units for rental, lighting, cleaning,
insuring, removing snow, ice and debris, policing and regulating traffic
in the area immediately adjacent to the Building and depreciation of
machinery and equipment used for such operation;

(iii) All costs and expense, other than those of a capital
nature, of replacing paving, curbs, walkways, landscaping (including
replanting and replacing flowers and

<PAGE>

other planting), drainage and lighting facilities in the Building and areas
immediately adjacent thereto;

(iv) Electricity and fuel used in lighting, heating,
ventilating, and air conditioning of the Premises;

(v) Maintenance of mechanical and electrical equipment
including heating, ventilating and air conditioning equipment in the
Premises;

(vi) Window cleaning and janitorial service, including
janitorial equipment and supplies;

(vii) Maintenance of elevators, rest rooms, lobbies, hallways and
other common areas of the Building;

(viii) Wages for personnel directly involved in the building
management and operation, including all taxes payable by Landlord thereon
and fringe benefits;

(ix) Water and sewer rents, charges and standby fees; and

(x) Accounting fees, management fees and legal fees which
directly benefit the overall operation of the Building, it is expressly
agreed that legal fees incurred in an action against an individual tenant
shall not be deemed includable as an operating expense pursuant to this
provision.

(xi) All costs associated with maintaining, operating and
monitoring any security system or sprinkler system.

<PAGE>

(xii) Any other expense or charge which would be considered an
expense of maintaining, operating or repairing the Premises under sound
accounting principles.

The operating expense increases shall not exceed five percent (5%)
cummulatively per year except for the first year's fixed rate as it affects
the second year's adjustment, not including those items outside of
Landlord's direct control such as taxes and utilities, which shall not be
capped.

Notwithstanding anything to the contrary contained herein, capital
expenditures and the costs of preparing any other unit for rental shall not
be included as operating costs. However, if Landlord incurs any capital
expense for an improvement required by virtue of any governmental statute,
ordinance or regulation then Landlord shall be permitted to recover on an
amortized basis the portion of the capital costs applicable to the term of
this Lease including any renewal or extension. Similarly, should Landlord
make any capital improvement which reduces the operating costs payable
hereunder then Landlord shall be permitted to recover the amortized costs
as aforesaid but in no case shall the expense allocated to Tenant exceed
the cost savings achieved by the capital improvement.

<PAGE>

(c) When used in this Lease pro rata shall be a percentage obtained by
dividing the square footage of the Premises by the square footage of the
Building in which the Premises are located. The percentage for the Premises
is 32.62 percent.

(d) In determining Operating Expenses, if less than 95% of the rentable
area of the Building have been occupied by tenants for more than thirty
(30) days during such year, operating expenses shall be deemed for such
year to be an amount equal to the like expenses which would normally be
expected to be incurred had such occupancy of the Building been 95%
throughout such year, as reasonably determined by Landlord.

9. LATE PAYMENT

<PAGE>

additional charge will be made for checks returned for insufficient
funds.

10. SECURITY DEPOSIT - DELETED

11. SIGNS

Landlord shall place a building standard sign upon the Tenant's door
and a listing in the directory on the first floor. Tenant shall not post
any sign or other listing in the windows or upon the exterior of the
Building.

12. EXCESS USE OF ELECTRICITY

Landlord shall bill Tenant separately and Tenant shall pay to
Landlord, at its then prevailing rate, an hourly fee for excess costs
incurred for electricity, heating and air conditioning beyond the
Building's normal operating hours. These hours are defined as follows:

Weekly business days: 8:00 AM to 7:00 PM
Customer Service Area: 8:00 AM to 9:00 PM
(All Areas) Saturday: 8:00 AM to 1:00 PM

Tenant shall have direct control of lighting at all hours.

13. CONDITION OF PREMISES

(a) Before the Commencement Date, Landlord will substantially
complete the construction of the Building or any improvements to the
Premises (if not substantially completed as of the date of this Lease) to
the stage that the Building is operable for Tenant's purposes, which shall
be defined as occurring when the public entrances of the Building,
including ground floor lobbies and public hallways of the floor containing
the Premises (or portions of said lobbies and hallways necessary to
provide reasonable and

<PAGE>

safe access to the Premises) are substantially completed and elevators
necessary to provide services to the Premises, the heating and air
conditioning system (as required for the season and then prevailing
climate) and all other mechanical systems required for service to the
Premises are in regular operation.

(b) The Premises shall be deemed to be substantially completed when
all work specified to be done in Exhibit "C" ("Tenant Finish") have been
substantially completed, except for: (i) minor items of finishing and
construction of a nature which are not necessary to make the Premises
reasonably tenantable for the permitted use, and; (ii) items not then
completed because of delay by Tenant in furnishing any drawings, plans
or approvals (collectively, "Plans") required by Exhibit "C" or because
of approved requests made by Tenant subsequent to delivery of Plans, or
changes or additions therein.

<PAGE>

period as reasonably estimated by Landlord. Landlord and Tenant,
understanding the difficulty in determining or estimating the actual
damages that will result from Tenant's lateness in delivering Plans,
have agreed upon the foregoing as an appropriate method of liquidating
such damages.

(d) Landlord shall have the Premises substantially completed by
the Commencement Date, except for delays due to Force Majeure or
Tenant's failure to timely furnish or approve the Plans, any of which
shall extend the Commencement Date for a period equal to a total of the
duration of each such delay. If the Premises is not substantially
completed within one (1) month of the Commencement Date, Landlord shall
credit Tenant one (1) day of "free" rent for each late day as penalty, or
if not completed within THREE (3) months following the Commencement Date,
as the same may be extended in accordance herewith, Tenant, as Tenant's
sole right thereby arising, may terminate this Lease by notice to
Landlord given thereafter, provided that the terms shall not have
commenced within thirty (30) days after the giving of such notice by
Tenant. This Lease shall terminate in such case upon expiration of
thirty (30) days after Landlord's receipt of such notice without
substantial completion having occurred, whereupon Landlord shall return
all rent and the security deposit paid by Tenant to Landlord in advance,
and all further obligations of the parties hereunder shall end. It is
understood that in the event of such termination by Tenant,

<PAGE>

Landlord shall have no responsibility to reimburse Tenant for any cost
or expense which Tenant may have directly or indirectly incurred with
respect to this Lease or the projected occupancy of the Premises,
whether arranging for or terminating of arrangements for other space, or
any alterations to the Premises of otherwise except for reasonable legal
fees.

(e) The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Building were at such
time in satisfactory condition, order and repair, subject only to a
punch list which will be prepared prior to the time the Tenant takes
possession.

(f) The Tenant shall quit and surrender the Premises at the end of
the term in as good condition as received except for reasonable wear
and tear.

14. REPAIRS AND MAINTENANCE

(a) Except as specifically otherwise provided in paragraph (b) and
(c) of this paragraph, Tenant, at its sole cost and expense and
throughout the term of this Lease, shall keep and maintain the Premises
including carpeting in good order and condition, free of accumulation of
dirt and rubbish, and shall promptly make all repairs necessary to keep
and maintain such good order and condition reasonable wear and tear
excepted, whether such repairs are interior or exterior, ordinary or
extraordinary, foreseen or unforeseen. When used in this Article 14, the
term "repairs" shall include replacements and renewals when necessary.
All

<PAGE>

repairs made by Tenant shall utilize materials and equipment which are
at least equal in quality and usefulness to those originally used in
constructing the Building and the Premises.

(b) Landlord, throughout the term of this Lease and at Landlord's
sole cost and expense, shall make all necessary repairs to the footings
and foundations and the structural steel columns and girders forming a
part of the Premises, providing however, that Landlord shall have no
responsibility to make any repair unless and until Landlord receives
written notice of the need for such repair. Tenant shall pay the cost of
any repairs made pursuant to this paragraph if same are occasioned by
the act, omission or negligence of Tenant, its employees or invitees.

(c) Landlord shall make all necessary repairs to the roof, walls,
exterior portions of the Premises and the Building, utility lines,
equipment and other utility facilities in the Building, which serve more
than one tenant of the Building, and to any driveways, sidewalks, curbs,
loading, parking and landscaped areas, and other exterior improvements
on the property; provided, however, that Landlord shall have no
responsibility to make any repairs unless and until Landlord received
written notice of the need for such repair. Tenant shall pay its
proportionate share of the cost of all repairs to be performed by
Landlord pursuant to this subparagraph (c) as additional rent promptly
upon being billed therefore.

<PAGE>

(d) Landlord shall not be liable by reason of any injury to or
interference with Tenant's business arising from the making of any
repairs, alterations, additions or improvements in or to the Premises or
the Building or to any appurtenances or equipment therein. There shall
be no abatement of rent because of such repairs, alterations, additions
or improvements, except as set forth in the "Fire or Other Casualty"
Section 24 hereof.

15. ALTERATIONS AND TRADE FIXTURES

Tenant shall have the right to make any reasonable alterations,
additions, or improvements with Landlord's prior written consent and all
alterations, additions or improvements made by either of the parties
hereto upon the Premises, except moveable and detached or detachable
office furniture, and moveable partitions, and moveable machinery and
equipment put in at Tenant's expense, shall be the property of Landlord,
and shall remain upon and be surrendered with the Premises, as part
thereof at the termination of this Lease.

Any property or fixtures which remain upon the Premises after the
expiration of the Lease shall be deemed abandoned by Tenant and Landlord
may take possession of same and dispose of in any reasonable manner
without any further liability of Landlord to Tenant. Any costs
associated with the removal of such property shall be payable by Tenant.

All labor and materials furnished by or on behalf of Tenant under
or pursuant to this Lease shall be first class,

<PAGE>

no less than the caliber and quality which exists in the Premises and by
contractors approved in writing by Landlord and shall be accomplished at
times so as not to disturb the activities of other tenants. Tenant shall
not install any alterations, additions or improvements in such a manner
as to compromise the structural integrity of the Premises or any part
thereof. The labor and materials shall be installed in complete
conformity to all applicable statutes, codes, ordinances and regulations.

Landlord agrees that it will not unreasonably withhold or delay its
consent to any proposed addition, alteration or improvement. Tenant
agrees that it will submit to Landlord sealed plans and specifications
along with the name and address of the proposed contractor and all
subcontractors as part of any request made hereunder. Prior to
commencing the work, Tenant will furnish Landlord with copies of all
governmental permits and certificates establishing that its contractor
and subcontractors have adequate insurance coverages. Upon completion of
the work, Tenant will submit to Landlord as-built drawings and
certificates of inspection certifying the satisfactory completion of the
alteration, addition or improvement.

Landlord either has or is in the process of installing a master key
system. Tenant therefore agrees that under no circumstances will it
change any of the exterior locks thereby making it impossible for the
Landlord to gain access with its master key.

<PAGE>

16. ACCESS TO PREMISES

Landlord, its employees and agents shall have the right to enter
the Premises at all reasonable times upon twenty-four (24) hour notice
except in the case of emergency, for the purpose of examining or
inspecting the same, showing the same to prospective purchasers,
mortgagees or tenants of the Building, and making such alterations,
repairs, improvements or additions to the Premises or to the Building as
may be necessary. If representatives of Tenant shall not be present to
open and permit entry into the Premises at any time when such entry by
Landlord is necessary or permitted hereunder, Landlord may enter by means
of a master key (or forcibly in the event of an emergency) without
liability to Tenant and without such entry constituting an eviction of
Tenant or termination of this Lease. Tenant shall not change any lock
leading into the Premises whereby Landlord would not be able to enter
with a master key.

17. ECRA COMPLIANCE

Tenant shall, at Tenant's own expense, comply with the
Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq. and
the regulations promulgated thereunder ("ECRA"). Tenant shall, at
Tenant's own expense, make all submission to, provide all information
to, and comply with all requirements of, the Bureau of Industrial Site
Evaluation ("the Bureau") of the New Jersey Department of Environmental
Protection ("NJDEPE"). Should the Bureau or any other division of NJDEPE
determine that a cleanup plan be prepared

<PAGE>

and that a cleanup be undertaken because of any spills or discharges of
hazardous substances or wastes at the Premises which occur during the
term of this Lease, then Tenant shall, at Tenant's own expense, prepare
and submit the required plans and financial assurances, and carry out
the approved plans. Tenant's obligations under this paragraph shall
arise if there is any closing, terminating or transferring of operations
of an industrial establishment at the Premises pursuant to ECRA. At no
expense to Landlord, Tenant shall promptly provide all information
requested by Landlord for preparation of non-applicability affidavits and
shall promptly sign such affidavits when requested by Landlord. Tenant
shall be required to pay for only one (1) such affidavit during the term
of this lease. Tenant shall indemnify, defend and save harmless Landlord
from all fines, suits, procedures, claims and actions of any kind
arising out of or in any way connected with any spills or discharges of
hazardous substances or wastes at the Premises which occur during the
term of this Lease; and from all fines, suites, procedures, claims and
actions of any kind arising out of Tenant's failure to provide all
information, make all submissions and take all actions required by ECRA
Bureau or any other division of NJDEPE. Tenant's obligations and
liabilities under this paragraph shall continue so long as Landlord
remains responsible for any spills or discharges of hazardous substances
or wastes at the Premises which occur during the term of this Lease.
Tenant's failure to abide by

<PAGE>

the terms of this paragraph shall be restrainable by injunction.

Nothing herein is intended nor shall be it construed as imposing
any environmental liability upon the Tenant for any spill or discharge
occurring prior to the date that the Tenant takes possession nor shall
the Tenant be required to comply with the NJDEPE closure requirements in
the event that the Landlord determines to sell the Building or otherwise
engages in a reorganization of some other act which triggers the NJDEPE
closure requirements.

Landlord warrants to the best of its knowledge that there exists
no discharges of hazardous substances or waste, or the existence of
PCB's and Asbestos on the Premises and further indemnifies Tenant from
such condition if in existence before Tenant's lease commencement.

18. BUILDING SERVICES

(a) Landlord shall provide within the following standards
consistent with the operation of a first class office building in the
Philadelphia metropolitan area:

(1) Air conditioning, ventilating and heating, at comfortable
levels through the system of the Building, Monday to Friday, from 8:00AM
to 7:00PM except as modified in Paragraph 12 and on Saturdays from
8:00AM to 1:00PM, excluding holidays so as to heat the Tenant's Premises
to a minimum of 68 degrees F. between October 1 and May 1 and cooled to
a maximum of 74 degrees F. between May 1 and October 1, subject to
revision due to mandatory or voluntary

<PAGE>

compliance with Federal, State or Municipal laws, orders, rulings,
statutes or guidelines from time to time in effect during the term of
this Lease, and any renewals thereof.

(2) Electric current controllable by Tenant at all hours in
such reasonable quantity as may be required by Tenant for the operation
of the lighting fixtures and electrical outlets existing upon the
Premises as of the date of the commencement of the Lease. If Tenant's
use of electricity, in Landlord's judgement reasonably exercised,
exceeds normal office use levels, Landlord may, at Tenant's expense
install a submeter in the leased space to measure the electricity
consumed and bill Tenant the cost thereof. In the event a meter cannot
be used, a mutually agreed upon load count may be used to determine the
amount of electricity used which exceeds normal levels.

(3) Landlord, at the inception of this Lease, will furnish
light bulbs or fluorescent tubes for each lighting fixture then
installed on the Premises at Landlord's expense and during the term of
this Lease or any renewals or extensions thereof, replace the same from
time to time as needed, the labor and material of which replacements
shall be billed to Tenant if overused or abused, otherwise the cost
shall be included in the normal operating expense budget.

(4) Maintenance of service of the public toilet rooms in the
Building.

<PAGE>

(5) Cleaning of outside and inside of exterior window panes.

(6) Cleaning and maintenance of common areas in the Building.

(7) Elevator service during the normal business hours set
forth in subparagraph 1 above, except that a minimum of one (1) elevator
shall be operational at all times;

(8) Janitor service - Exhibit "D".

Tenant shall have the right but not the obligation to contract
directly for janitorial service and the cost normally included in the
operating expenses shall be adjusted accordingly to reflect only the
Tenant's pro rata share of building common areas. Landlord shall charge
only for services customarily provided in similar buildings at rates
reasonably acceptable to the industry.

Landlord does not warrant that these services shall be free from
any slowdown, interruption or stoppage pursuant to voluntary agreement
by and between Landlord and governmental bodies and regulatory agencies
or caused by the maintenance, repair, substitution, renewal, replacement
or improvement of any of the equipment involved in the furnishing of any
such services, or caused by changes of services, alterations, strikes,
lockouts, labor controversies, fuel shortages, accidents, acts of God or
the elements or any other cause beyond the reasonable control of
Landlord; and specifically no such slowdown, interruption or stoppage of
any such

<PAGE>

services shall ever by construed as an eviction, actual or constructive, of
Tenant nor shall same cause any abatement of annual basic rent or
additional rent payable hereunder.

19. ASSIGNMENT AND SUBLETTING

(a) Tenant shall have no right to sublet all or any part of the
Premises without the prior written approval of Landlord, except to an
affiliate or subsidiary which shall not require Landlord's approval.
Approval by Landlord will not be unreasonably withheld. On any approved
subletting of all or any part of the Premises, (a) Landlord shall receive
from Tenant fifty percent (50%) of all profit direct or indirect derived by
Tenant from the subletting* and (b) Tenant shall remain liable under all
terms and conditions of this Lease. In the event of default by Tenant under
the terms and conditions of this Lease at such time that all or part of the
Premises are then sublet, Landlord may collect directly from the
subtenant(s) all rents becoming due to Tenant under the Sublease(s) and
apply such rents against any sums due to Landlord by Tenant under this
Lease, and Tenant hereby authorizes and directs such Subtenant(s) to make
such payment of rent to Landlord upon receipt of notice from Landlord. Such
collection of rent by Landlord shall not constitute a novation or a release
of Tenant from its liability under the terms and conditions or this Lease.

(b) Tenant shall have no right to make an assignment of this Lease
without the prior written approval of Landlord. Approval by Landlord will
not be unreasonably

* excluding the sale of furniture, fixtures and equipment in the premises

<PAGE>

withheld. On any approved assignment of this Lease, (a) Landlord shall have
the right to approve the assignee and the assignment documents (the
assignee must agree therein to assume all terms, conditions, and
obligations of the Lease), (b) Landlord shall receive from Tenant all
profit derived by Tenant form the assignment, and (c) Tenant shall be
relieved of all subsequent liability under the terms and conditions of this
Lease upon the approval and completion of the assignment.

(c) The written approval of Landlord to one or more sublettings or
assignments shall not operate as a waiver of Landlord's right to approve
any further sublettings and assignments.

(d) Tenant shall not (a) mortgage, pledge or otherwise encumber its
interest in this Lease or (b) grant any license, concession or other right
of occupancy of any portion of the Premises, without the prior written
consent of Landlord.

(e) As a condition precedent to Tenant's right to sublease the
Premises or to assign this Lease, Tenant shall, at Tenant's own expense,
comply with ECRA.

(f) Tenant shall promptly furnish to Landlord true and complete
copies of all documents, submissions and correspondence provided by Tenant
to the Bureau and all documents, reports, directives and correspondence
provided by the Bureau to Tenant. Tenant shall also promptly furnish to
Landlord true and complete copies of all sampling and

<PAGE>

test results obtained from samples and tests taken at and around the
Premises.

(g) As a condition precedent to Tenant's right to sublease the
Premises or to assign the Lease, Tenant shall have received from the Bureau
either (i) a non-qualified approval of Tenant's negative declaration or
(ii) a non-applicability letter, for which Tenant shall promptly apply
pursuant to ECRA. If this condition shall not be satisfied, then Landlord
shall have the right to withhold consent to sublease or assignment.

(h) Nothing herein to the contrary withstanding, Landlord's written
consent shall not be required for any sublease or assignment of this Lease
to any other entity which controls or is controlled by Tenant provided that
Tenant shall continue to remain liable in such instance. Tenant shall be
required to give Landlord thirty (30) days written notice in advance of any
such subleasing or assignment.

(i) Tenant agrees that any subleasing or assignment to any person,
firm, partnership or corporation which is not an actual user of the
Premises is absolutely prohibited and nothing herein shall require Landlord
to consent to any such subleasing or assignment.

20. MECHANICS' LIENS

If any mechanics' or other lien shall be filed against the Premises or the
Building for labor or material furnished or to be furnished at the request
of the Tenant, then Tenant

<PAGE>

shall at its expense cause such lien to be discharged of record by payment,
bond or otherwise, within thirty (30) days after Tenant receives written
notice. If Tenant shall fail to cause such lien to be discharged of record
within such thirty (30) day period, Landlord may cause such lien to be
discharged by payment, bond or otherwise, without investigation as to the
validity thereof or as to any offsets or defenses thereto. The cost to
Landlord for removal of such lien will be charged to Tenant as additional
rent and payable on the first day of the month next following the payment
by Landlord. Tenant shall indemnify and hold Landlord harmless against any
and all claims, costs, damages, liabilities and expenses (including
reasonable attorney fees) which may be brought or imposed against or
incurred by Landlord by reason of any such lien or its discharge.

21. INDEMNIFICATION AND LIABILITY INSURANCE

(a) Tenant shall indemnify hold Landlord harmless against and from
liability and claims of any kind for liabilities, losses, damages, suits,
actions, fines, penalties, claims or demands of any kind and asserted by or
on behalf of any person, entity, independent contractor or governmental
authority, arising out of or in any way connected with, (i) Tenant's use
and occupancy of the Premises or any work, activity or other things allowed
or suffered by Tenant to be done in, on or about the Premises; (ii) any
breach or default by Tenant of any of Tenant's

<PAGE>

(b) During the term of this Lease or any renewal thereof, Tenant
shall obtain and maintain and promptly pay all premiums for comprehensive
general liability insurance with respect to the demised Premises, the
Buildings and land on which it is situated, covering at least the hazards
of "premises operations" and "independent contractors" in the amount of not
less than $1,000,000.00 with respect to injuries to or death or any one
person and in the amount of not less than $1,000,000.00 with respect to
injuries to or death of more than one person in any one occurrence and in
the amount of not less than $100,000.00 per occurrence with respect to
damaged property, such coverage to also include a contractual liability
endorsement with such insurance company or companies as shall be
satisfactory to Landlord from time to time, and all such policies and
renewals thereof shall name the Landlord as an additional insured. On or
before the commencement date of the term of this Lease, and thereafter not
less than fifteen (15) days prior to the expiration dates of said policy or
policies, Tenant

<PAGE>

shall provide copies of policies or certificates of insurance evidencing
coverage required by this Lease.

(c) All Tenant's policies of insurance shall provide (i) that no
material change or cancellation of said policies shall be made without
thirty (30) days prior written notice to Landlord and (ii), (iii) that the
insurance company issuing the same shall have no right of subrogation
against the Landlord, and (iv) that as to the interest of Landlord, the
insurance afforded by the policy shall not be invalidated by any breach or
violation by Tenant of any of the warranties, declarations or conditions in
the policy.

(d) Landlord shall insure the Building of which the demised Premises
are a part and Tenant shall insure the fixtures, equipment, machinery,
tenant improvement and betterments and contents against loss or damage by
fire and such other risks as may be included in the broadest form of
extended coverage insurance including sprinkler leakage and rent insurance
where applicable from time to time available. Tenant shall not engage in
any activity or store any product or material in the demised Premises which
will either cause an increase in the insurance on the entire Building or
which will make the Building uninsurable.

<PAGE>

22. WAIVER OF SUBROGATION

Tenant and Landlord, respectively, hereby release each other from any
and all liability or responsibility to the other for anyone claiming by,
through or under it or them by way of subrogation or otherwise for any loss
or damage to property covered by any insurance then in force, even if such
loss or damage shall have been caused by the fault or negligence of the
other party or anyone for whom such party may be responsible; provided,
however, that this release shall be applicable and in force and effect only
with respect to any loss or damage occurring during such time as the policy
or policies of insurance covering said loss shall contain a clause or
endorsement to the effect that this release shall not adversely affect or
impair such insurance or prejudice the right of the insured to recover
thereunder.

23. WAIVER OF CLAIMS

Except as otherwise in this Lease provided, Landlord and Landlord's
agents, servants and employees shall not be liable for, and Tenant hereby
releases and relieves Landlord, its agents, servants, employees from, all
liability in connection with any and all loss of life, personal injury,
damage to or loss of property, or loss or interruption of business
occurring to Tenant, its agents, servants, employees, invitees, licensees,
visitors, or any other person, firm, corporation or entity, in or about or
arising out of the Premises, from, without limitation, (a) any fire, other
casualty, accident, occurrence or condition

<PAGE>

in or upon the Premises or the Building; (b) any defect in or failure of
(i) plumbing, sprinkling, electrical, heating or air conditioning systems
or equipment, telecommunication conduit, lines and equipment or any other
systems and equipment of the Premises and the Building, and (ii) the
elevators, stairways, railings or walkways of the Building; (c) any steam,
gas, oil, water, rain or snow that may leak into, issue or flow from any
part of the Premises or the Building from the drains, pipes, roof, or
plumbing, sewer or other installation of same, or from any other place or
quarter; (d) the breaking or disrepair of any installations and equipment;
(e) the falling of any fixture or any wall or ceiling materials; (f)
damaged or broken interior or exterior glass; (g) latent or patent
defects; (h) the exercise of any rights by Landlord under the terms and
conditions of this Lease; (i) any acts or omissions of the other tenants
or occupants of the Building or of nearby buildings; (j) any acts or
omissions of other persons; (k) any acts or omissions of Landlord, its
agents, servants and employees, except those involving gross negligence;
and (l) theft, acts of God, public enemy, injunction, riot, strike,
insurrection, war, court order or any order of any governmental authorities
having jurisdiction over the Premises.

24. FIRE OR OTHER CASUALTY

(a) If the Premises are damaged by fire or other casualty, the damages
shall be repaired by and at the

<PAGE>

(b) If the Premises, in the opinion of Landlord's licensed architect
or engineer, are (i) rendered substantially untenantable by reason of such
fire or other casualty, or (ii) twenty percent (20%) or more of the
Premises is damaged by said fire or other casualty and less than six (6)
months would remain on the Lease term or any renewal thereof upon
completion of the repairs or reconstruction, or (iii) fifty percent (50%)
or more of the Premises is damaged by said fire or other casualty, then
Landlord shall have the right to be exercised by notice in writing
delivered to the Tenant within thirty (30) days from and after said
occurrence, to elect to terminate this Lease, and, in such event, this
Lease and the tenancy hereby created shall cease as of the date of said
occurrence, the rent to be adjusted as of said date.

<PAGE>

(c) If the Building, in the sole opinion of Landlord, shall be
substantially damaged by fire or other casualty, regardless of whether or
not the Premises were damaged by such occurrence, Landlord shall have the
right, to be exercised by notice in writing delivered to the Tenant within
thirty (30) days from and after said occurrence, to terminate this Lease;
and in such event, this Lease and the tenancy hereby created shall cease as
of the date of said termination unless terminated as of the date of said
occurrence in accordance with Paragraph 24(b) hereof, the rent to be
adjusted as of the date of such termination.

25. SUBORDINATION AND NON-DISTURBANCE

This Lease is subject and subordinate to any mortgage now or hereafter
affecting or covering the Premises. Notwithstanding the aforesaid
subordination, in the event of the foreclosure of any such mortgage, (a)
this Lease shall not terminate, and (b) the peaceful possession of Tenant
shall not be disturbed, provided that Tenant is not in default under any of
the terms and conditions of this Lease. Tenant agrees to attorn to and to
recognize the mortgagee or the purchaser at foreclosure sale as Tenant's
landlord for the balance of the term of this Lease. Tenant hereby agrees,
however, that such mortgage or the purchaser at foreclosure sale shall not
be (i) liable for any act or omission of Landlord and (ii) subject to any
offsets or defenses which Tenant might have against Landlord; (iii) bound
by any amendment or modification of this Lease made

<PAGE>

without its consent. The aforesaid subordination, non-disturbance and
attornment provisions shall be self-operative; however, Tenant agrees to
promptly execute any other agreement submitted by Landlord in confirmation
or acknowledgement of same. Tenant hereby authorizes and empowers Landlord
as its attorney-in-fact to execute an instrument in confirmation or
acknowledgement of the provisions of this paragraph in the event that
Tenant fails to execute any document within ten (10) days of its
presentation.

26. CONDEMNATION

(a) If the whole of the Premises shall be condemned or taken either
permanently or temporarily for any public or quasi-public use of purpose,
under any statute or by right of eminent domain, or by private purchase in
lieu thereof, then in that event the term of this Lease shall cease and
terminate from the date when possession is taken thereunder pursuant to
such proceeding or purchase. The rent shall be adjusted as of the time of
such termination and any rent paid for a period thereafter shall be
refunded. In the event more than fifteen percent (15%) of the Building
containing same shall be so taken (or if more than fifty percent (50%) of
the parking areas are taken and not promptly replaced with contiguous
parking areas) then Landlord may elect to terminate this Lease from the
date when possession is taken thereunder pursuant to such proceeding or
purchase or, upon mutual agreement of the

<PAGE>

parties, Landlord shall repair and restore, at its own expense, the portion
not taken and thereafter the rent shall be reduced proportionately to the
portion of the Premises taken.

(b) In the event of any total or partial taking of the Premises or
the Building, Landlord shall be entitled to receive the entire award in
such proceeding of the Building and land and Tenant shall make a separate
application for Tenant's fixtures, equipment and moving expenses under the
then applicable New Jersey eminent domain code.

(c) If the Premises or the Building are declared unsafe by any duly
constituted authority having the power to make such determination, or are
the subject of a violation notice or notice requiring repair or
reconstruction which cannot be repaired by Landlord at its sole cost and
expense within thirty (30) days, then Landlord at its option, may terminate
this Lease, unless Tenant chooses to make such repair at it's own cost, and
in such event, Tenant shall immediately surrender said Premises to Landlord
and thereupon this Lease shall terminate and the rent shall be apportioned
as of the date of such termination.

27. ESTOPPEL CERTIFICATE

<PAGE>

that be the case) without modification or amendment (or, if there have been
any modifications or amendments, that this Lease is in full force and
effect as modified and amended and setting forth the modifications or
amendments), (ii) certifying the dates to which annual basic rental and
Additional Rent have been paid, and (iii) either certifying that to the
knowledge of the Tenant no default exists under this Lease or specifying
each such default; it being the intention and agreement of Landlord and
Tenant that any such statement by Tenant may be relied upon by a
prospective purchaser or a prospective or current mortgagee of the
Building, or by others, in any matter affecting the Premises.

28. DEFAULT

The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:

(a) Failure of Tenant to accept possession of the Premises within
thirty (30) days after the date of issuance of a certificate of occupancy;

(b) The vacation or abandonment of the Premises by Tenant, which
shall be defined as Tenant's non-use of the premises for a contiguous
period of greater than fourteen (14) calendar days;

(c) A failure by Tenant to pay, when due or no later than the tenth
(10th) day of the month, any installment of rent hereunder or any
Additional Rent or any such other sum herein required to be paid by Tenant
where such failure

<PAGE>

(d) A failure by Tenant to observe and perform any other provisions
or covenants of this Lease to be observed or performed by Tenant, where
such failure continues for thirty (30) days after written notice thereof
from Landlord to Tenant provided, however, that if the nature of the
default is such that the same cannot reasonably be cured within such thirty
(30) day period, Tenant shall not be deemed to be in default if Tenant
shall within such period commence such cure and thereafter diligently
prosecute the same to completion;

(e) The filing of a petition by or against Tenant for adjudication as
a bankrupt or insolvent or for its reorganization or for the appointment
pursuant to any local, state or federal bankruptcy or insolvency laws of a
receiver or trustee of Tenant's property; or an assignment by Tenant for
the benefit of creditors; or the taking of possession of the property of
Tenant by any local, state or federal governmental officer or agency or
court appointed official for the dissolution or liquidation of Tenant or
for the operating, either temporary or permanent, of Tenant's

<PAGE>

business; provided, however, that if any such action is commenced against
Tenant the same shall not constitute a default if Tenant causes the same to
be dismissed within sixty (60) days after the filing of same.

29. REMEDIES

Upon the occurrence of any such default set forth above:

(a) Landlord may (but shall not be required to) perform for the
account of Tenant any such default of Tenant and immediately recover as
Additional Rent any expenditure made and the amount of any obligations
incurred in connection therewith, plus interest at the rate of two percent
(2%) per annum over the Midlantic National Bank prime rate from the date
of such expenditure;

(b) Landlord may accelerate all rent and additional rent due for the
balance of the term of this Lease and declare the same to be immediately
due and payable; in the case of bankruptcy, insolvent by law or
reorganization, Tenant agrees to vacate premises and accelerate rent for a
period of two (2) months. This Lease and the unexpired term hereof shall
cease and expire.

(c) In determining the amount of any future payments due Landlord due
to increase as an operating cost and/or for costs of living increases,
Landlord may make such determinations based upon the amount of increases in
operating costs and costs of living increase for the full year immediately
prior to such default;

<PAGE>

(d) Landlord, at its option, may serve notice upon Tenant that this
Lease and the then unexpired term hereof and all renewal options shall
cease and expire and become absolutely void on the date specified in such
notice, to be not less than five (5) days after the date of such notice
without any right on the part of the Tenant to save the forfeiture of
payment of any sum due or by the performance of any terms, provision,
covenant, agreement or condition broken; and, thereupon and at the
expiration of the time limit in such notice, this Lease and the term
hereof granted, as well as the right, title and interest of the Tenant
hereunder, shall wholly cease and expire and become void in the same manner
and with the same force and effect (except as to Tenant's liability) as if
the date fixed in such notice were the date herein granted for expiration
of the term of this Lease. Thereupon, Tenant shall immediately quit and
surrender to Landlord the Premises, and Landlord may enter into and
repossess the Premises by summary proceedings, detainer, ejectment or
otherwise and remove all occupants thereof and, at Landlord's option, any
property thereon without being liable to indictment, prosecution or damages
therefor. No such expiration or termination of this Lease shall relieve
Tenant of its liability and obligations under this Lease, whether or not the
Premises shall be relet;

(e) Landlord may, at any time after the occurrence of any event of
default, re-enter and repossesses the Premises

<PAGE>

and any part thereof and attempt in its own name, as agent for Tenant if
this Lease not be terminated or in its own behalf if this Lease be
terminated, to relet all or any part of such Premises for and upon such
terms and to such persons, firms or corporations and for such period or
periods as Landlord, in its sole discretion, shall determine, including the
term beyond the termination of this Lease; and Landlord shall not be
required to accept any tenant offered by Tenant or observe any instruction
given by Tenant about such reletting or do any act or exercise any care or
diligence with respect to such reletting or to the mitigation of damages.
For the purpose of such reletting, Landlord may decorate or make repairs,
changes, alterations or additions in or to the Premises to the extent
deemed by Landlord desirable or convenient; and the cost of such
decoration, repairs, changes, alterations or additions shall be charged to
and be payable by Tenant as Additional Rent hereunder, as well as any
reasonable brokerage and legal fees expended by Landlord; and any sums
collected by Landlord from any new tenant obtained on account of the Tenant
shall be credited against the balance of the rent due hereunder as
aforesaid. Tenant shall pay to Landlord monthly, on the days when the rent
would have been payable under this Lease, the amount due hereunder less the
amount obtained by Landlord from such new tenant;

(f) Landlord shall have the right of injunction, in the event of a
breach by Tenant of any of the agreements,

<PAGE>

(g) In the event Tenant fails to vacate the premises upon the
expiration of this or any extended term hereunder or upon termination of
this Lease, Tenant shall pay to the Landlord one hundred fifty percent
(150%) the monthly rental payment for the month in which this Lease expired
or terminated and for each succeeding month as liquidated damages.

This lease may only be extended beyond the expiration date by the
parties executing a new lease on Landlord's then current lease form or by
an extension agreement signed by both parties making specific reference to
this Lease. No proposals, offers, correspondence or the like shall be
legally binding upon Landlord until and unless the terms are incorporated
in either a new lease or a formal amendment to this Lease as provided in
paragraph 40.

<PAGE>

(h) In addition to all remedies provided herein or by law, Tenant
shall pay to Landlord reasonable attorneys fees and court costs incurred as
a result of such breach.

30. REQUIREMENT OF STRICT PERFORMANCE

The failure or delay on the part of either party to enforce or
exercise at any time any of the provisions, rights or remedies in the Lease
shall in no way be construed to be a waiver thereof, nor in any way to
affect the validity of this Lease or any part hereof, or the right of the
party to thereafter enforce each and every such provision, right or remedy.
No waiver of any breach of this Lease shall be held to be a waiver of any
other of subsequent breach. The receipt by Landlord of rent at a time when
the rent is in default under this Lease shall not be construed as a waiver
of such default. The receipt by Landlord of a lesser amount than the rent
due shall not be construed to be other than a payment on account of the
rent then due, nor shall any statement on Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction, and
Landlord may accept such payment without prejudice to Landlord's right to
recover the balance of the rent due or to pursue any other remedies
provided in this Lease. No act or thing done by Landlord or Landlord's
agents or employees during the term of this Lease shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
a surrender shall be valid unless in writing and signed by Landlord.

<PAGE>

31. RELOCATION OF TENANT - DELETED

32. LANDLORD'S OBLIGATIONS

33. LANDLORD'S LIABILITY

34. SUCCESSORS

The respective rights and obligations provided in this Lease shall
bind and inure to the benefit to the parties hereto, their legal
representatives, heirs, successors and assigns; provided, however, that
no rights shall inure to the benefit of any successors of Tenant unless
Landlord's written consent for the transfer to such successor has first
been obtained as provided in paragraph 19 hereof.

<PAGE>

35. GOVERNING LAW

This Lease shall be construed, governed and enforced in accordance
with the laws of the state in which the Premises are located.

36. SEVERABILITY

If any provisions of this Lease shall be held to be invalid, void or
unenforceable, the remaining provisions hereof shall in no way be
affected or impaired and such remaining provisions shall remain in full
force and effect.

37. CAPTIONS

Marginal captions, titles or exhibits and riders and the table of
contents in this Lease are for convenience and reference only, and are in
no way to be construed as defining, limiting or modifying the scope of
intent of the various provisions of this Lease.

38. GENDER

39. WARRANTIES OF TENANT

<PAGE>

Tenant for good and valuable consideration shall indemnify and hold
Landlord harmless from and against any and all claims, suits,
proceedings, damages, obligations, liabilities, counsel fees, costs,
losses, expenses, orders and judgements imposed upon, incurred by or
asserted against Landlord by reason of the falsity or error of this
aforesaid warranty.

40. ENTIRE AGREEMENT

This Lease, including the Exhibits and any Riders hereto, contains
all the agreements, conditions, understandings, representations and
warranties made between the parties hereto with respect to the subject
matter hereof, and may not be modified orally or in any manner other than
by an agreement in writing signed by both parties hereto or their
respective successors in interest. Without in any way limiting the
generality of the foregoing, this Lease can only be extended pursuant to
the due exercise of an option (if any) contained herein and/or otherwise
formal agreement signed by both Landlord and Tenant specifically
extending the terms. No negotiations, correspondence by Landlord or
offers to extend the terms shall be deemed an

<PAGE>

extension of the termination date for any period whatsoever without such
formal agreement.

41. WAIVER OF TRIAL BY JURY

Landlord and Tenant each hereby waive the right to a trial by jury
in the event any claim is made concerning the construction,
interpretation or enforcement of this Lease.

42. CONSENT OF THE PARTIES

Wherever the consent of either party is required, it shall be deemed
to be written consent and shall not be unreasonably withheld or delayed.

43. ADDITIONAL SCHEDULES

The following additional schedules are attached hereto and made a
part of this Lease:

Exhibit "A" - Plan

Exhibit "B" - Rules and Regulations

Exhibit "C" - Tenant Work Letter

Exhibit "D" - Janitorial Specifications

Exhibit "E" - Renewal Option

Exhibit "F" - Fees

Exhibit "G" - Right of First Offer

Exhibit "H" - Amended Agreement

44. BINDING EFFECT

This Lease shall be effective only when it is signed by both the
Landlord and Tenant and a fully executed copy delivered to the Tenant.
The Tenant's submission of a signed Lease for review by the Landlord does
not give the Tenant any interest, right or option to the Premises.

<PAGE>

45. CESSATION OF EXISTING LEASE

IN WITNESS WHEREOF, the parties hereto have duly executed this Lease and have
initialed the Exhibits and Riders hereto in seven (7) counterparts the day
and year first above written.

TENANT: qad.inc

BY Donald R. Cast
-------------------------------

Title Regional Manager
----------------------------

LANDLORD: LAUREL LARCHMONT OFFICE INC.

BY James R. Lanno
-------------------------------

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

<PAGE>

EXHIBIT "A"

[FLOOR PLANS]

(WEST WING-FIRST FLOOR)

(EAST WING-FIRST FLOOR)

10000 MIDLANTIC DRIVE
LAUREL CORPORATE CENTER
MOUNT LAUREL, NEW JERSEY
[Illegible]

<PAGE>

EXHIBIT "A"

FIRST FLOOR PLAN (EAST)

<PAGE>

EXHIBIT "A"

SECOND FLOOR PLAN (EAST)

<PAGE>

EXHIBIT "A"

SECOND FLOOR PLAN (WEST)

<PAGE>

EXHIBIT "B"
RULES AND REGULATIONS

1. No part or the whole of the sidewalks, plaza areas, entrances, passages,
courts, stairways, corridors or halls of the building or the real property
shall be obstructed or encumbered by any tenant or used for any purpose other
than ingress and egress to and from the space demised to such Tenant.

2. No awnings or other projections shall be attached to the outside walls or
windows of the building. No curtains, blinds, shades, or screens shall be
attached to or hung in, or used in connection with, any window or door of the
space demised to any tenant other than those specified or supplied by
landlord, removal of same at any time will be prohibited.

3. No sign, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted, or affixed on any part of the outside or
inside of tenant's premises, so as to be visable from the exterior without
prior written consent of landlord.

4. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the building.

7. No tenant shall mark, paper, paint, bore into, make any alterations or
additions to, or in any way deface any part, including equipment and
fixtures, of the leased space

<PAGE>

or the building of which it forms a part, without the prior written consent
of landlord. No wires shall be installed except in conduits, ducts or outlets
established for that purpose, unless prior written consent of landlord has
been obtained. No tenant shall lay carpeting, so that the same shall come in
direct contact with the floor of the leased space, and, if tenant desires to
install carpeting, an underlayment shall be first laid, without the use of
cement or other similar adhesive material. If any tenant desires to install
any floor covering other than carpeting, subject to the prior written consent
of landlord, such floor covering shall be installed in accordance with the
manufacturer's specifications.

8. No cooking shall be done or permitted by any tenant in the leased space,
without the prior written consent of landlord, provided, however, that the
heating, refrigeration and preparing of beverages and light snacks for
employees shall be permitted if there are appropriate facilities and
equipment for such purposes. No tenant shall cause to permit any unusual or
objectionable odors to be produced upon or emanate from the leased space.

9. Neither the whole nor any part of the space demised to any tenant shall
be used for manufacturing, without prior written approval from the landlord,
or for the sale at auction of merchandise, goods, or property.

10. No tenant shall make or permit to be made, any unseemly or disturbing
noises or disturb or interfere with other tenants or occupants of the
building or neighboring buildings or premises.

11. All moving of safes, freight, furniture or bulky matter of any
description to and from the leased space, shall only take place within the
confines of specified passageways or stairs, and during the hours designated
by landlord. There shall not be used in any space, or in the public walkways
of the building, either by the tenant or by jobbers or others, in the
delivery or receipt of merchandise, and hand trucks, except those equipped
with rubber tires.

12. No tenant shall use or occupy or permit any portion of the space demised
to such tenant to be used or occupied as an employment bureau or for the
storage, manufacture or sale of liquor, narcotics or illegal drugs.

<PAGE>

13. Landlord shall have the right to prohibit any advertising by any tenant
which in landlord's opinion, tends to impair the reputation of the building,
and upon notice from landlord, such tenant shall refrain from or discontinue
such advertising.

14. No space demised to any tenant shall be used, or permitted to be used,
for lodging or sleeping or for any immoral or illegal purposes.

15. The requirements of tenants will be attended to only upon application at
the office of landlord. Building employees shall not be required to perform,
and shall not be requested by any tenant to perform, any work outside of
their regular duties, unless under specific instructions from the office of
landlord or the building management.

16. Canvassing, soliciting, and peddling in the buildings are prohibited,
and each tenant shall cooperate to prevent the same.

17. No animals of any kind shall be brought into or kept about the building
by any tenant.

18. No tenant shall install or permit or allow installation of a television,
radio, or two-way radio antenna, or any other similar antenna, on the roof,
in the windows or upon the exterior of the leased space of the building,
without the prior written consent of landlord.

19. No tenant shall tie in, or permit other to tie into the water supply on
the premises without prior written consent of the building management.

20. No tenant shall remove, alter or replace the building standard ceiling
light diffusers in any portion of the leased space without the prior written
consent of landlord.

21. Except for purposes of emergency, notices, posters, or advertising media
will not be permitted to be affixed on the exterior of the building.

22. Business machines and mechanical equipment belonging to tenant which
cause noise or vibration that may be transmitted to the structure of the
building or to any space therein to such a degree to be objectionable to
landlord or

<PAGE>

to any tenant in the building shall be installed and maintained by tenant, at
tenant's expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibration.

23. Tenant shall immediately notify the building management of any serious
breakage, or fire or disorder, which comes to its attention in its premises
or any of the common areas of the building.

24. Tenant shall apply, at tenant's costs, such reasonable pest
extermination measures as tenant deems reasonably necessary.

25. Tenant shall not burn any trash or garbage of any kind in or about the
demised premises.

26. Tenant shall not permit the use or placement of door mats or the like on
the exterior of any entrance door to the demised premises.

27. For purposes of these Rules and Regulations, the "building management"
shall mean the duly designated representative of landlord to manage the
building.

28. Landlord reserves the right to recind, amend, alter or waive any of the
foregoing Rules and Regulations at any time when, in its judgement, it deems
it necessary, desirable or proper for its best interest and for the best
interest of the tenants, and no such recission, amendment, alteration or
waiver of any rule or regulation in favor of one tenant shall operate as an
alteration or waiver in favor of any other tenant. Landlord shall not be
responsible to any tenant for the non-observance or violation by any other
tenant of any of these Rules and Regulations at any time.

ACCEPTED BY: /s/
---------------------------

ACCEPTED BY: /s/ James R. Lanno
---------------------------

<PAGE>

EXHIBIT "C"
TENANT WORK LETTER

Tenant acknowledges and agrees that the entire cost and expense of tenant
improvement work to be performed for the leased premises is to be at the
Tenant's sole cost and expense, except that the Landlord will contribute to
such expense the amount of $25 per square foot of the leased premises.

The lessor shall be responsible for having work shown on the final
construction plans completed in good and workmanlike manner as expeditiously
as possible and shall give Lessee an allowance against the cost to construct
said improvements shown on the final construction plans of up to $25.00 per
rentable square foot for Lessee improvements. In the event the cost to
construct said Lessee improvements exceeds $25.00 per rentable square foot,
Lessee shall be responsible for the payment of all costs in excess of said
$25.00 per rentable square foot allowance within fifteen (15) days of
submission of an invoice from Lessor.

In the event, the cost to construct Lessee improvements is less than $25.00
per rentable square foot, Lessor shall apply the remaining value of the
construction allowance as a credit against Base Rent due from Lessee. Such
credit shall be applied in twelve (12) equal monthly installments beginning
as of the Commencement Date.

The plans and specifications for these improvements shall be mutually agreed
to by both Landlord and Tenant. Landlord will not unreasonably withhold its'
approval.

Landlord is responsible to provide renovations which are required by the
Americans with Disabilities Act which are not part of the above improvements,
at no additional cost to Tenant.

Tenant requires the Landlord employ the design and construction services
of Whitesell Services, Inc. for the purpose of continuity and expediency since
time is of the essence.

If the cost of such service, in the reasonable opinion of Tenant, is not in
keeping with industry standards in the region, then Tenant shall have the
right to contract directly for the services. If Tenant chooses to contract
directly for the services, then Tenant shall have no claim to penalties or
termination defined in Paragraph 13(d) unless such delay is caused directly by
Landlord.

<PAGE>

EXHIBIT "D"
JANITORIAL SPECIFICATIONS

A. NIGHTLY -- (Monday through Friday)

1. OFFICES AND COMMON AREAS
a. Empty waste receptacles and replace liner as needed.
b. Boxes of trash will also be removed if clearly labeled
"trash".
c. Empty and wipe all ash trays.
d. Vacuum all carpeted areas.
e. Dust mop all tiled floors, baseboards and damp mop any
spillages.
f. Dust and/or damp wipe clean the following:
Desks (if cleared), chairs, file cabinets, tables,
lamps, pictures and frames, window sills, doors,
push and switch plates and telephones.
g. Wash clean all water coolers and/or fountains.
h. Clean all glazed entrance and elevator doors.
i. Spot clean carpeting.
j. Sweep stair towers.

2. BATHROOMS
a. Empty and clean waste receptacles (replace liner if
applicable) and wash dispensers.
b. Sweep and wet mop all floors using disinfectant.
c. Spot clean all tiled walls and partitions.
d. Scour, wash and disinfect all basins, bowls and urinals.
e. Wash and polish all mirrors, shelves and bright work
including plumbing fixtures.
f. Refill all paper products and soap dispensers.

B. WEEKLY

1. OFFICES AND COMMON AREAS.
a. Render high dusting of all pictures, frames, doors, partitions
pipes, louvers, etc.

2. BATHROOMS.
a. Spray buff tiled floors.

C. MONTHLY

1. OFFICES AND COMMON AREAS.
a. Clean all interior partition glass, diffusers and grills.

2. BATHROOMS.
a. Machine wash and refinish floors.

<PAGE>

D. EVERY THREE MONTHS

1. OFFICES AND COMMON AREAS.
a. Strip and refinish all tiled flooring as appropriate.

2. STAIR TOWERS.
a. Damp mop all floors.

E. EVERY SIX MONTHS

1. WINDOWS.
a. Wash clean all interior and exterior windows.

F. ANNUALLY

1. COMMON AREAS AND TENANT SPACES.
a. Carpet cleaning.

Revised: 11/12/93

<PAGE>

EXHIBIT "E"
RENEWAL OPTION

(i) The term "Lease Year" as used in this Exhibit "E" shall
mean the twelve (12) calendar months commencing with the first day
of the first full calendar month of the initial term or the Renewal
Term of this Lease, as applicable and the succeeding twelve (12)
calendar month periods.

LANDLORD: TENANT:
BY /s/ James P. Lanno BY /s/
---------------------------------- -----------------------------------
James P. Lanno

<PAGE>

EXHIBIT "F"

FEES

<PAGE>

EXHIBIT "G"

RIGHT OF FIRST OFFER

a) At the time Landlord makes any Qualified Offer, Landlord shall
give Tenant written notice specifying (i) the identity of the proposed
tenant; (ii) the square footage proposed to be leased and it's location
within the Building and (iii) the proposed commencement date.

b) If Tenant intends to exercise it's right of first offer as to the
space described in Landlord's notice, Tenant shall give Landlord
written notice of such intent. Such notice must be received by Landlord
not later than 5:00 p.m. prevailing Eastern Time on the fourteenth
(14th) day following Tenant's receipt of Landlord's notice described in
(a) above.

c) If Tenant fails to give timely notice in accordance with
subparagraph (b) above, Landlord may lease such space to the party and
on the terms specified in it's notice to Tenant, however, in the event
a lease is not consummated with the party identified in Landlord's
notice, Tenant's right of first offer shall again apply to the
pertinent space and Landlord shall notify Tenant of any subsequent
offer from or to any other party to lease same.

d) If Tenant properly exercises it's right of first offer granted
hereby, that portion of space herein described, will be leased, as of
the commencement date specified in Landlord's notice, on the terms and
conditions applicable to the Premises, including the same basic rent
per rentable square foot except as follows:

(i) In the event the cost (per rentable square foot) to
Landlord of constructing leasehold improvements comparable to
those described in the Building Standard Tenant Work Letter
attached hereto as Exhibit "C" is either higher or lower than the
cost of such improvements to the Premises, the basic rent set
forth in Paragraph 8(a) will be increased or decreased, as
appropriate, by an amount equivalent to such cost differential.

<PAGE>

The amount of said cost differential, if any, will be
determined by comparing the total work letter cost computed in
accordance with the most recent "Dodge Report" available as of (1)
the date of this lease and (2) the date of Tenant's notice of it's
intent to exercise the foregoing option. The cost set forth in
each such "Dodge Report" shall be conclusive as to any individual
work letter item.

(ii) Tenant's pro rata share of operating expenses under Paragraph 8(b)
of the Lease shall be amended.

(iii) The description of (and Exhibits depicting) the "Premises" in
Paragraph 5 of the Lease shall be amended.

jp:11/17/93

<PAGE>

EXHIBIT "H"
AMENDED AGREEMENT

EARLY TERMINATION OF LEASE

Notwithstanding anything to the contrary contained in this Lease, Lessee, at
its option, may cancel and terminate this Lease effective as of the end of
the sixtieth (60th) month of the term, provided, as conditions of such
termination and cancellations: (a) Lessee gives written notice to the Lessor
at least one hundred and fifty (150) days prior to the commencement of the
sixtieth (60th) month in the term of its intent to terminate the Lease, (b)
Lessee pays to Lessor an amount equal to $12.00 per rentable square foot to
cover the unamortized portion of those costs and expenses incurred by Lessor
in connection with this Lease, and (c) Lessee continues to perform all the
terms and conditions of the Lease until the date of its cancellation and
termination.

<PAGE>

SECOND AMENDMENT TO
MULTI-TENANT OFFICE LEASE

THIS SECOND AMENDMENT TO MULTI-TENANT OFFICE LEASE (this "Amendment"), made
this _____ day of ____________________, 1995, is made by and between EDB
Property Partners L.P. III, a Delaware limited partnership ("Landlord"), and
qad.inc, a California corporation ("Tenant").

R1. WHEREAS, Laurel Larchmont Office, Inc. ("LLO") and Tenant are parties
to an undated multi-tenant office lease (the "Lease") for approximately 57,271
square feet (the "Premises") located in suites 103, 105 and 200 East and 200
West of the building located at 10,000 Midlantic Drive (the "Building"), Mount
Laurel, New Jersey; and

R2. WHEREAS, Landlord is the successor-in-interest to all of LLO's right,
title, interest and obligations in and to the Lease: and

R3. WHEREAS, the Lease has been amended by an unnumbered Amendment to
Multi-Tenant Office Lease dated April 26, 1994 (which contains a Rider); and

R4. WHEREAS, Tenant desires, and Landlord is willing, to expand the
Premises and lease additional space of approximately 3,912 square feet shown on
Exhibit A and A1 and located on the first (1st) floor east wing of the Building
(the "Additional Space"); upon the terms of this agreement and

R5. WHEREAS, the parties hereto mutually desire, effective as of the date
of execution of this Amendment, to amend the Lease on such terms and conditions
as are more fully set forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

1. This Amendment is hereby expressly conditioned upon execution of, and
shall not be effective until the date (the "Effective date"), if any, upon which
the Sublease attached hereto as Exhibit B, by and among Landlord, Tenant and
Origin Technology and Business, Inc., is fully executed and delivered by all
parties. Landlord hereby grants Landlord's consent to the entering into of such
Sublease by Tenant and approves of the terms and conditions thereof. Landlord
hereby waives all right to receive any profit in connection with this subletting
which would otherwise be allowed pursuant to Paragraph 19 of the Lease.
Landlord further acknowledges and agrees that Tenant shall not have any
obligation to comply with ECRA (now ISRA) as a result of the Sublease, as would
otherwise be required under Paragraphs (e) through (g) of Article 19. In
addition, Landlord hereby consents to the construction of the alterations and
improvements in the additional Space by Tenant all as set forth on Exhibit C.

<PAGE>

2. Effective as of the Effective Date, the Lease, as amended, shall be,
and hereby is, further amended as follows:

A. Section 5 (Premises) of the Lease shall be, and the same hereby
is, amended by adding "Suite _____ East (the "Additional Space") 3,912 square
feet as the tenth (10th) written line of the section and adjusting all
subsequent lines down one (1) line and by deleting the words "total: 57,271
s.f.." in the eleventh (11th) written line and inserting in its place "Total:
61,183 s.f.". the intent of this provision is to add the Additional Space to the
definition of "Premises" in Lease.

B. EXHIBIT A and A1 of the Lease which depicts the Premises shall
be, and the same hereby is, amended by adding the page labeled "EXHIBIT A AND A1
- - ADDITIONAL SPACE" Attached hereto as an additional page thereof.

C. Section 7 (Term) of the Lease shall be, and hereby is, amended
by adding to the end of the first (1st) paragraph the following sentence;

The "Additional Space Commencement Date" shall be June 1, 1995."

D. Section 8 (Rent) of the Lease shall be, and hereby is, amended
by adding a new subsection (e) thereto as follows:

"(e) Commencing on the Additional Space Commencement Date and
continuing until the expiration or earlier termination of the term hereof, in
addition to the rent provided in Section 8(a) hereof, Tenant shall pay rent for
the Additional Space as follows:

June 1, 1995 - August 31, 1996 $12.00 per sq. ft.
September 1, 1996 - August 31, 1999 $12.50 per sq. ft.
September 1, 1999 - August 31, 2001 $13.00 per sq. ft.

E. Effective as of the Occupancy Date Section 8 (Rent) subsection
(b) of the Lease shall be, and hereby is, amended by deleting the fifth (5th)
sentence in its entirety and inserting the following sentence in its place:

"The Tenant's proportionate share is thirty-five percent (35%)
(61,183 s.f. DIVIDED BY 175,573 s.f. = 35%)."

F. Section 8 (Rent) subsection (c) of the Lease shall be, and
hereby is, amended by deleting the last sentence in its entirety and inserting
the following sentence in its place:

"The percentage for the Premises is thirty-five percent (35%)."

G. Section 13 (Condition of Premises) of the Lease shall be, and
hereby is, amended by adding a new subsection (g) thereto as follows:

<PAGE>

"(g) Notwithstanding anything to the contrary contained herein,
with respect to the Additional Space, the parties agree as follows:

(i) CONDITION OF ADDITIONAL SPACE. Upon occupancy, Tenant
shall accept the Additional Space in its existing "AS IS" condition, except for
the construction of the demising wall as defined by (g.2.vi) of this Second
Amendment, subject to all applicable municipal, county, state and federal laws,
statutes, ordinances, including zoning and regulations governing and relating to
the use, occupancy and possession of the Additional Space.

(ii) The taking of possession of the Additional Space by Tenant
shall conclusively establish that the Additional Space was at such time in
satisfactory condition, order and repair, subject only to a punch list which
will be prepared prior to the time the Tenant takes possession.

(iii) The Tenant shall quit and surrender the Additional Space
at the end of the term in as good condition as received except for reasonable
wear and tear in accordance with the Lease damage by fire or casualty,
condemnation and/or permitted alterations all excepted. The parties agree and
acknowledge that the lease term with respect to the Additional Space shall
expire at noon on August 21, 2001 or otherwise be coterminous with the Lease.

(iv) Notwithstanding anything to the contrary contained in this
Section 13 or Exhibit C hereto, the cost of the demising wall to be constructed
shall be paid fifty percent (50%) by Landlord and fifty percent (50%) by Tenant.
This wall shall be completed no later than March 1, 1995 ("Occupancy Date"). In
the event occupancy is delayed due to incomplete construction of demising wall,
the "Occupancy Date" and the Additional Space Commencement date shall be delayed
by the same number of days.

3. The parties acknowledge and agree that Landlord has agreed to provide
to Tenant a Tenant Improvement Allowance ("TI Allowance") of $22.32 per square
foot of Additional Space. Landlord acknowledges and agrees that such sum is
earned, due and payable to Tenant as of the date hereof. However, Tenant may,
at Tenant's option, choose to have such allowance applied either:

(i) As against Rent payments due from Tenant to Landlord pursuant to
this Lease commencing at any time during the term of the Lease; or
(ii) by lump sum payment to Tenant at any time during the term of
this Lease for improvement to be constructed by Tenant at the Premises.
(iii) applied against the actual out-of-pocket cost and expense of
improvement work at the Premises performed by Landlord, Landlord agreeing upon
request of Tenant to perform those alterations to the Premises reasonably
requested by Tenant, provided Tenant agrees to reimburse Landlord for the actual
out-of pocket cost and expense of such improvements, as incurred, in excess of
the TI Allowance.

4. Except as, and to the extent, expressly modified by this Amendment,
the Lease shall continue in full force and effect, unmodified.

<PAGE>

5. The capitalized terms used in this Amendment shall have the same
meaning ascribed to them under the Lease, unless specifically designated
otherwise.

6. If any provision of this Amendment is held to be invalid or
unenforceable, the same shall not affect the validity or enforceability of the
other provisions of this Amendment, which shall continue in full force and
effect, as if the invalid or unenforceable provision has been deleted.

7. This Amendment contains the entire agreement of the parties hereto and
no representations, inducements, promises or agreements, oral or otherwise,
between the parties, not embodied herein, shall be of any force or effect. To
the extent the Lease has been modified prior to the execution hereof by an
Amendment to Multi-Tenant Office Lease as set forth in paragraph R3, above, the
terms of such amendments shall also be deemed modified by the terms of this
Amendment. This Amendment and the Lease may be further amended only in writing
signed by both Landlord and Tenant. If any provision of this Amendment
conflicts with any provision of the Lease (or of any prior amendments), the
provision of this Amendment shall be controlling.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date and year first above written.

LANDLORD:

EDB PROPERTY PARTNERS L.P. III,
a Delaware limited partnership

BY:
-------------------------------------
TITLE:
----------------------------------

TENANT:

QAD.INC
a _______________________corporation

BY:
-------------------------------------
TITLE:
----------------------------------

<PAGE>

EXHIBIT "A"

ADDITIONAL SPACE

First Floor East
10,000 Midlantic Drive
Mt. Laurel, NJ 08054

<PAGE>

EXHIBIT "A1"

ADDITIONAL SPACE

First Floor East
10,000 Midlantic Drive
Mt. Laurel, NJ 08054

<PAGE>

EXHIBIT B
SUBLEASE
(ATTACHED)
<PAGE>

SUBLEASE

THIS SUBLEASE ("SUBLEASE") is entered into as of the 31st day of January,
1995 by and between ORIGIN TECHNOLOGY IN BUSINESS, INC., a Delaware
corporation, with its principal place of business at 1105 Schrock Road, Suite
816, Columbus, Ohio 43229 (hereinafter "SUBLESSEE") and QAD, INC., a California
corporation, with its principal place of business at 10,000 Midlantic Drive,
Suite 200, Mount Laurel, New Jersey 08054 (hereinafter "SUBLESSOR").

THE PARTIES ENTER into this Sublease on the basis of the following facts,
intentions and understanding:

WHEREAS, Sublessor desires to sublease the Leased Premises consisting of
approximately 3,912 square feet on the first floor of the East Wing of 10,000
Midlantic Drive, Mt. Laurel, NJ 08054, as outlined on Exhibit "A" and "A1"
attached hereto (hereinafter "LEASED PREMISES") and Sublessee now desires to
sublet the Subleased Premises from Sublessor on the terms, covenants and
conditions as hereinafter provided. A copy of said Lease is attached hereto as
Exhibit "B."

NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties herein contained, the parties agree as follows:

1. SUBLEASE. Sublessor hereby agrees to lease the subleased Premises to
Sublessee and Sublessee agrees to lease the Subleased Premises from Sublessor on
the conditions hereinafter set forth.

2. CONDITION OF SUBLEASED PREMISES. Sublessee shall accept the Subleased
Premises in their existing "AS IS" condition, subject to all applicable
municipal, county, state and federal laws, statutes, ordinances, including
zoning and regulations governing and relating to the use, occupancy and
possession of the Subleased Premises. Sublessee recognizes and agrees that
Sublessor shall not be required to perform any work or construction on the
Subleased Premises in order to prepare the same for Sublessee's occupancy. By
entering the Subleased Premises, Sublessee shall be deemed to accept the
Subleased Premises in their condition existing as of the date of such entry.

3. SUBLEASE SUBJECT TO LEASE. This Sublease shall be subject to all of
the terms, covenants and conditions of the Lease and Sublessee shall assume and
perform the obligations of Sublessor as Tenant in the Lease with respect to the
Subleased Premises, except for the payment of minimum annual rent contained in
the Lease. Sublessee shall not commit or permit to be committed on the
Subleased Premises any act or omission which shall violate any terms, covenants
or conditions of the Lease applicable to Sublessee. In the event of any
inconsistency between the lease and the Sublease, the terms of this Sublease
shall control. All of the terms, covenants and

-1-

<PAGE>

conditions in the Lease are incorporated herein as terms, covenants and
conditions of this Sublease, except for any paragraphs which shall be superseded
by this Sublease. To the extent that the Lease provides that Landlord shall
provided services, utilities, insurance, maintenance, repairs or any and all
other obligations of Landlord rendered in connection with the operation of the
Subleased Premises, Sublessee shall seek recourse first from Landlord by notice
to Landlord with a copy simultaneously provided to Sublessor. If Landlord shall
not take action after request is made by Sublessee after the passing of any
applicable cure period specified in the Lease, then Sublessee may notify
Sublessor of such failure. Upon receipt of such notice, Sublessor shall use
prompt, reasonable efforts to enforce Sublessor's rights under the Lease for the
benefit of Sublessee. Sublessor shall have no duty to perform any obligations
of the Landlord under the Overlease and shall under no circumstances be
responsible for or liable to Sublessee for any default, failure or delay on the
part of the Landlord in the performance of any obligations under the Overlease,
nor shall such default of the Landlord affect this Sublease or waive or defer
the performance of any of Sublessee's obligations hereunder. In addition,
Sublessee shall have no right to exercise the Renewal Option, Right of First
Offer or Early Termination of Lease rights granted pursuant to Exhibit "E", "G"
and "H", respectively, of the Lease.

4. TERM. The term ("TERM") of this Sublease shall commence on June 1,
1995, and shall terminate on the earlier of August 31, 2001 or the date on which
the Lease is terminated. Occupancy may occur as of February 1, 1995 in
accordance with the Overlease.

5. RENT.

a. MINIMUM ANNUAL RENT.

Sublessee shall pay to Sublessor rental as set forth below: The
date of sublease rent schedule is based upon the Overlease anniversary date of
September 1.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TERM PER SQUARE FOOT MONTHLY ANNUAL RENT
RATE RENT
- -------------------------------------------------------------------------------
Months June 1995
- August 1995 $12.00 (x 3,912 square feet) $3,912.48 $11,737.44
- -------------------------------------------------------------------------------
Year 2: (Sept $12.00 $3,912.48 $46,944.00
1995 to Aug 1996
- -------------------------------------------------------------------------------
Years 3 through 5: $12.50 $4,075.00 $48,900.00
Sept 1996 to Aug
1999
- -------------------------------------------------------------------------------
Years 6 and 7: $13.00 $4,238.00 $50,856.00
Sept 1999 to Aug
2001
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

-2-

<PAGE>

payable on the first business day of each month during the term of this Lease
except that the first month's rent shall be payable upon the execution of this
Lease.

b. In addition to the minimum annual rental, Sublessee shall pay to
Sublessor its proportionate share of all operating costs incurred during each
calendar year (prorated where appropriate) during the term of this Lease.

This operating cost shall be estimated by Sublessor at the
commencement of occupancy and Sublessee shall pay to Sublessor in addition to
the basic rent and on the same day provided in paragraph 8(a) 1/12 thereof. The
estimated operating cost for the year in which this Lease commences is $7.00 per
rentable square foot. The operating expenses shall include all costs normally
incurred in the maintenance and operation of an office building, less any
charges invoiced directly to other tenants in the building and shall include:

i. Real estate taxes assessed on the building, land underlying
same, parking areas or other common elements including any assessments or
municipal improvements;

ii. All costs and expense directly related to the operation of
the building including preparing units for rental, lighting, cleaning,
insuring, removing snow, ice and debris, policing and regulating traffic in
the area immediately adjacent to the building and depreciation of machinery
and equipment used for such operation;

iii. All costs and expense, other than those of a capital nature,
or replacing paving, curbs, walkways, landscaping (including replanting and
replacing flowers and other planting), drainage and lighting facilities in the
building and areas immediately adjacent thereto;

iv. Electricity and fuel used in lighting, heating, ventilating,
and air conditioning of the Premises;

v. Maintenance and mechanical and electrical equipment
including heating, ventilating and air conditioning equipment in the Premises;

vi. Window cleaning and janitorial service, including janitorial
equipment and supplies;

vii. Maintenance of elevators, rest rooms, lobbies, hallways and
other common areas of the building;

viii. Wages for personnel directly involved in the building
management and operating, including all taxes payable by Sublessor thereon and
fringe benefits;

-3-

<PAGE>

ix. Water and sewer rents, charges and standby fees;

x. Accounting fees, management fees and legal fees which
directly benefit the overall operation of the building, it is expressly agreed
that legal fees incurred in an action against an individual tenant shall not be
deemed includable as an operating expense pursuant to this provision; and

xi. All costs associated with maintaining, operating and
monitoring any security system or sprinkler system.

c. In determining operating expenses, if less than 95% of the
rentable area of the building has been occupied by tenants for more than thirty
(30) days during such year, operating expenses shall be deemed for such year to
be an amount equal to the like expenses which would normally be expected to be
incurred had such occupancy of the building been 95% throughout such year, as
reasonably determined by Landlord.

d. Rent shall be paid to the Sublessor at 10000 Midlantic Drive,
Mount Laurel, New Jersey 08054, or at such other place or places as Sublessor
may from time to time direct.

e. Sublessee shall not request Landlord to provide services,
materials or supplies in excess of the basic services, which Landlord is
obligated top provide under the Lease without first obtaining the written
consent of Sublessor, which consent shall not be unreasonably withheld. Upon
notification to Sublessor by Sublessee of termination of any services, or
impairment of any services, Sublessor shall immediately notify Landlord in
accordance with the notice provision of the Lease.

f. Sublessee shall pay to Sublessor as additional rent, within ten
(10) days after demand therefore by Sublessor, any and all other additional rent
payments and sums due pursuant to the lease.

6. LATE PAYMENT. Rent is due and payable on or before the first day of
each month. Rent received after the tenth (10th) of the month is subject to a
late charge of ten (10%) percent of the monthly payment which charge must
accompany rent. An additional charge will be made for checks returned for
insufficient funds.

7. INSURANCE.

a. Sublessee shall carry and maintain during the entire term of the
Sublease the insurance required pursuant to the Lease. In addition, Sublessee
shall name Sublessor as an additional insured with respect to said insurance.

-4-

<PAGE>

b. Sublessee shall, prior to the commencement of the term, and
during the term, thirty (30) days prior to the expiration of the policy of
insurance, furnish to Sublessor and Landlord certificates evidencing such
coverage, which certificates shall state that such insurance coverage may not be
changed or canceled without at least ten (10) days' prior written notice to
Sublessor and Landlord.

8. DEFAULT. In the event Sublessee shall breach any of the terms,
covenants or conditions of this Sublease or the Lease, then, in that event, in
addition to the remedies Landlord may have against Tenant for Tenant default in
the Lease, Sublessor shall have the right to enter and retake the Subleased
Premises and terminate Sublessee's interest under this Sublease. If Sublessee
defaults under the Lease, Sublessee shall indemnify, defend by counsel
acceptable to Sublessor and hold Sublessor harmless from and against all damages
resulting from such default. If Sublessee defaults under Sublessee's
obligations under this Sublease and Sublessor fulfills any of Sublessee's
obligations in order to prevent Sublessee from being in default, Sublessee
shall immediately reimburse Sublessor for (i) the amount of Minimum annual
Rent, (ii) all amounts attributable to Additional Rent and (iii) all other
costs and expenses incurred by Sublessor in fulfilling Sublessee's
obligations in the Sublease and the Lease, together with interest on those
sums at the rate of one percent (1%) per month (but in no event at a rate in
excess of that permitted by law) from the date due thereof until paid, and
the amount of such interest shall be deemed Additional Rent hereunder.

9. ALTERATIONS. Sublessee shall not make or suffer to be made any
alterations, additions or improvements in, on or to the Subleased Premises
without the prior written consent of Sublessor and Landlord. In the event
Sublessor and Landlord consent to the making of any such alteration, addition or
improvement by Sublessee, the same shall be made by Sublessee at its sole cost
and expense, and any contractor or person selected by Sublessee to make the same
shall first be approved in writing by Sublessor and Landlord. Upon the
expiration or sooner termination of this Sublease. Sublessee shall, upon demand
by Sublessor, at Sublessee's sole cost and expense, with all due diligence,
repair and restore the Subleased Premises to their original condition, ordinary
wear and tear excepted.

10. HOLDING OVER. Sublessee will, at the termination of this Sublease by
lapse of time or otherwise, yield up immediately possession to Sublessor and
Landlord. If Sublessee retains possession of the Subleased Premises or any part
thereof after such termination, then Sublessee shall pay to Sublessor all
damages sustained by Sublessor resulting from retention of possession by
Sublessee.

11. SUBLESSOR COVENANTS. Sublessor covenants to promptly pay when due all
rents due and accruing to Landlord and in the event that it fails to promptly
remit said rent to Landlord, Sublessor specifically authorizes and directs
Sublessee, upon Sublessee's receipt of due written demand from Landlord, to
remit the rent hereunder directly to Landlord and said remittance shall be
deemed in lieu of the rent obligations herein contained.

-5-
<PAGE>

12. INDEMNIFICATION. Sublessee shall indemnify Sublessor and hold
Sublessor harmless from and against any and all claims, demands, suits
judgments, liabilities, costs and expenses, including reasonable attorney's
fees, arising out of or in connection with Sublessee's use and possession of the
Leased Premises, or by arising out of the failure of Sublessee, its agents,
contractors or employees to perform any covenant, term or condition of the Lease
or Sublease to be performed by Sublessee. Sublessor shall indemnify Sublessee
and hold Sublessee harmless from and against any and all claims, demands, suits,
judgments, liabilities, costs and expenses, including reasonable attorney's
fees, arising out of the failure of Sublessor to perform any covenant, term or
condition of the Lease to be performed by Sublessor hereunder.

13. ATTORNEYS' FEES. If either party shall commence an action against
the other party in order to enforce any term, covenant or condition of this
sublease, the prevailing party shall be entitled to recover from the losing
party the costs and expenses of such action, including reasonable attorneys'
fees to be set by the court in such action.

14. BROKER. Sublessee warrants and represents to Sublessor that it has
dealt with no broker or real estate agent or made no agreement or created any
liability with respect to this Sublease and/or the Subleased Premises or in
connection with the payment of brokerage or other commissions other than
Jackson-Cross ONCOR International, and Sublessee hereby agrees to indemnify,
defend and hold Sublessor harmless from and against all liability, cost, or
expense arising out of the claims of any other broker or real estate agent
claiming by, through or under Sublessee for a commission in connection with this
Sublease and/or the transaction contemplated by this Sublease.

15. EARLY TERMINATION OF SUBLEASE. Notwithstanding anything to the
contrary contained in this Sublease, Sublessor or Sublessee, at its option, may
terminate this Lease effective at anytime after the end of the twenty-fourth
(24th) month of the term, provided, as a condition of such termination,
Sublessor or Sublessee gives written notice to the other at least sixty (60)
prior to the proposed date of termination, which shall be after the
twenty-fourth (24th) month of the term and anytime thereafter up to August 31,
2001, in which event the Lease shall terminate as of the expiration of the date
set forth in such notice. Sublessee shall have no termination right as provided
herein in the event the Sublessee has defaulted under any of the obligations of
Sublessee under and pursuant to the Lease or this Sublease.

16. NOTICES. All notice or demands of any kind required or desired to
be given by Sublessor or Sublessee hereunder shall be in writing and shall be
deemed to be delivered seventy-two (72) hours after depositing the notice or
demand in the United States Mail, certified or registered, postage prepaid,
addressed to the parties as follows:

To Sublessor: qad.inc
10000 Midlantic Drive, Suite 200
Mount Laurel, NJ 08054

-6-
<PAGE>

To Sublessee: Origin Technology in Business, Inc.
1105 Schrock Road, Suite 816
Columbus, OH 43229

or to any other address provided to the other party in writing.

17. LANDLORD'S CONSENT. This Sublease is subject to Landlord's
consent and shall be of no effect unless and until this Sublease has been
accepted and agreed to by Landlord.

18. ASSIGNMENT. Without the prior consent of Sublessor, which may
be withheld by Sublessor in its sole discretion, neither Sublessee, nor
Sublessee's legal representatives or successors in interest shall, by operation
of law, merger, or otherwise, further sublet the Premises or assign or mortgage
this Sublease. If Sublessee is a corporation, none of its capital stock shall
be transferred voluntarily or by operation of law without Sublessor's consent.
Any consent by Sublessor to any act of assignment shall be held to apply only to
the specific transaction thereby authorized. Such consent shall not be
construed as a waiver of the duty of Sublessee, or the legal representatives or
assigns of Sublessee, to obtain from Sublessor consent to any other or
subsequent assignment, or as modifying or limiting the rights of Sublessor under
the foregoing covenant by Sublessee not to assign without such consent.

19. EFFECT. This Sublease shall be binding upon the parties hereto,
their heirs, executors, legal representatives, successors and permitted assigns,
and may not be altered, amended, terminated or modified except by written
instrument executed by each of the parties hereto.

20. FORUM. This Sublease shall be governed by the laws of the
state in which the Premises is located.

21. MODIFICATION. This Sublease may not be modified or amended
except by a written agreement executed by the parties hereto.

-7-
<PAGE>

IN WITNESS WHEREOF, this Sublease Agreement has been executed on the
date and year first written.

SUBLESSOR SUBLESSEE

qad.inc ORIGIN TECHNOLOGY
IN BUSINESS, INC.

By: By: /s/ MARTIN HENECK
---------------------------- ----------------------------
Title: Title: Vice President
--------------------------- ----------------------------
Date: Date: 1/31/95
---------------------------- ----------------------------

CONSENT OF OVERLANDLORD

EDB Property Partners, L.P. III, as Landlord under the Overlease
("Overlandlord"), hereby consents to the within Sublease by qad.inc to Origin
Technology in Business, Inc. pursuant to Article 19 of the Overlease.

OVERLANDLORD

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

By:
----------------------------------

Title:
----------------------------------

Date:
----------------------------------

-8-

<PAGE>

EXHIBIT "A"
SUBLEASED PREMISES

First Floor East
10,000 Midlantic Drive
Mt. Laurel, NJ 08054

<PAGE>

EXHIBIT "A1"
SUBLEASED PREMISES

First Floor East
10,000 Midlantic Drive
Mt. Laurel, NJ 08054

<PAGE>

Q.A.D. EXPANSION PROVISIONS

I. The Lease shall be, and hereby is, amended by deleting the text of
EXHIBIT G in its entirety and inserting the following in lieu thereof:

"EXHIBIT G

(1) GENERAL. Provided that Tenant is not in default under this Lease,
Tenant shall have an option to lease additional space (except space leased to
Tenant) which becomes available for lease in the Building during the Lease Term
(or any Renewal Term) (which may be referred to herein as the "Expansion Space"
or the "expansion space"), in accordance with the terms of this EXHIBIT G,
below. Notwithstanding anything to the contrary in this EXHIBIT G, in no event
shall any lease by Tenant of expansion space pursuant to this EXHIBIT G be for a
term which is less than thirty-six (36) months.

(2) EXPANSION SPACE LIST. Tenant shall have the right to request in
writing that Landlord provide Tenant with access to a current list of all
available expansion space in the Building (i.e. 10,000 Midlantic Drive) (an
"Expansion Space List.") Within five (5) business days after Tenant's request
therefor, Landlord shall provide Tenant with access to an Expansion Space List
for the most recent calendar quarter. For confidentiality reasons, Landlord
shall not deliver a copy of the written Expansion Space List to Tenant; instead,
Landlord shall allow Tenant access to and reasonable opportunity to review the
Expansion Space List at a time (or times) which is convenient for Tenant at
either Landlord's or Tenant's offices (Tenant may select which location.) Each
Expansion Space List shall include and identify:

(a) all space which is either currently vacant in the Building or
expected to become available during the twelve (12) month period
immediately following the date of such Expansion Space List, including the
expected dates of such availability; and

(b) any space which is currently (or which is expected to become)
available for Lease within such 12-month period, even if the same is
subject to rights of other parties, including without limitation, any
renewal, expansion, holdover or other rights or options to lease or occupy
space previously granted to such other parties (a "Pre-existing Right"),
and in such event the Expansion Space List shall include a description of
the rights of such parties for any such space(s). Tenant acknowledges that
Landlord's ability to lease any such space(s) is and shall be subject and
subordinate to any and all Pre-existing Rights.

(3) TENANT'S OPTION ELECTION NOTICE. If Tenant wishes to exercise its
option to lease all (but in no event less than all) of a particular space
identified on the Expansion Space List which is not then subject to a Pre-
existing Right, Tenant shall notify Landlord in writing ("Tenant's Option
Election Notice"), such notice to identify the particular Expansion Space Tenant
wishes to lease. Within five (5) business days after receipt of Tenant's Option
Election Notice, Landlord shall notify Tenant in writing either: (i) that such
Expansion Space is available for Tenant to lease (the "Free

<PAGE>

& Clear Notice"), in which event Landlord and Tenant shall execute a lease for
such Expansion Space in accordance with EXHIBIT G paragraph (6), below; or (ii)
that there is currently another potential tenant for such Expansion Space, in
which event Landlord will provide Tenant with confirmation of such potential
tenant's good faith intention to lease the Expansion Space by providing Tenant
with a signed letter of intent (the "LOI") which contains the material terms
under which such potential tenant is willing to lease the Expansion Space.

If Landlord provides Tenant with the LOI in accordance herewith, then
Tenant shall have no expansion rights with respect to such Expansion Space for
thirty (30) days after Tenant's receipt of the LOI, and Landlord and such
potential tenant shall be allowed such thirty (30) day period within which to
negotiate and sign a lease for such Expansion Space on materially the same terms
as the LOI. If (i) Landlord provides Tenant with a Free & Clear Notice for such
Expansion Space, or (ii) Landlord fails to provide Tenant with the LOI for such
Expansion Space within the aforementioned five (5) business day period, or (iii)
Landlord and the potential tenant under the LOI fail to execute a lease for such
Expansion Space within the aforementioned thirty (30) day period, then Tenant
shall have the right to lease such Expansion Space in accordance with the terms
of Paragraph 6 of this EXHIBIT G, and Landlord and Tenant shall be required, in
either event, to execute a lease for such Expansion Space (an "Expansion Lease")
in accordance with Paragraph 4, below, within fifteen (15) business days
thereafter.

(4) EXPANSION LEASE. Within fifteen (15) business days after the
occurrence of one of the events described in clauses (i), (ii) or (iii) of the
last sentence of Paragraph 3, above, Landlord and Tenant shall execute an
Expansion Lease in accordance with the requirements of this Paragraph 4. Such
Expansion Lease shall:

(i) incorporate all of the terms of this Lease, except it shall be modified
to reflect (1) the actual square footage of the Expansion Space (and shall
further include appropriate adjustment of Tenant's pro rata share of
operating expenses and all other terms which are based on such square
footage), (2) the rental rate for the Expansion Space, which shall be the
identical to the rental rate then in effect for the initially leased
Premises, and (3) the lease term for the Expansion Space, which shall be
coterminous with the term of this Lease (unless the term of this Lease
expires in less than thirty-six (36) months, in which case the term of the
Expansion Lease shall be no less than thirty-six (36) months);

(ii) specify that, subject to the proration provisions and Tenant
contribution requirements of Paragraph 5, below (which shall be
incorporated within the Expansion Lease), Landlord shall construct
leasehold improvements to the Expansion Space comparable to those in
Tenant's current Premises, with Tenant to contribute to the cost of such
construction in the amount specified in Paragraph 5, below, that Tenant
shall not receive any buildout or other allowance or any free rent or
reduced rent for or with respect to the Expansion Space, and that any
additional improvements or construction that Tenant performs in the
Expansion Space shall be treated as an "alteration" pursuant to Section 15
of the Lease;

<PAGE>

(iii) unless Landlord and Tenant specifically agree otherwise, the
expansion rights of Tenant reflected in this EXHIBIT G shall not be
incorporated in the Expansion Lease and any reference in the Lease to this
EXHIBIT G shall be ignored and/or deleted in the Expansion Lease;

(iv) delete any expansion or renewal options, unless Landlord and Tenant
expressly agree otherwise at the time, in each's sole discretion;

(v) specify that the Expansion Lease Commencement Date shall be the
earlier of (1) the date Tenant takes occupancy of the Expansion Space, or
(2) the ninety-first (91st) day after the Expansion Lease is signed; and

(vi) specify that Tenant shall not have the right to assign or sublet
all or any portion of the Expansion Space during the two (2) year period
after the Expansion Lease Commencement Date, unless (A) such sublease or
assignment requires the subtenant or assignee to pay rental at the
rental rate then being offered by Landlord for comparable space within
the Building, (B) Tenant pays to Landlord one-hundred percent (100%) of
the "profit" realized from such sublease or assignment (i.e., 100% of
(1) the rental and other consideration received from such assignee or
subtenant LESS (2) the allocable rental and other consideration payable
by Tenant to Landlord under the Expansion Lease with respect to the
affected portion of the Expansion Space, which profit shall be
calculated on a per square foot basis with respect to the affected
portion of the Expansion Space, and (C) the proposed sublease or
assignment is otherwise consented to by Landlord, which consent shall
not be unreasonably withheld.

Landlord and Tenant agree to negotiate in good faith and to make diligent
efforts to resolve any dispute or disagreement regarding the terms of the
Expansion Lease within the aforementioned fifteen (15) business day period.

(5) PRORATION OF CONSTRUCTION ALLOWANCE. Tenant acknowledges that the
cost to construct leasehold improvements to Tenant's existing Premises equalled
approximately $25.00 per square foot of rentable area. To the extent the term
of any Expansion Lease is less than eighty-four (84) months, Landlord's
construction obligation referenced in Paragraph 4(ii), above, shall be capped at
a per square foot cost equal the product of $25.00 times a fraction, the
numerator of which is the number of months in the term of the Expansion Lease,
and the denominator of which is 84 (hereafter, the "Capped Cost"). Tenant shall
be responsible for (and shall deposit with Landlord prior to, and as a condition
to, and as "Capped Cost"). Tenant shall be responsible for (and shall deposit
with Landlord prior to, and as a condition to, Landlord's commencement of such
construction, an amount equal to) all costs of Landlord's construction under
Paragraph 4(ii), above, in excess of the Capped Cost. All such construction
work shall be competitively bid. This proration provision shall be incorporated
in the terms of any Expansion Lease.

(6) TENANT'S FAILURE TO EXECUTE EXPANSION LEASE. In the event Tenant
fails or declines to exercise its option to lease an Expansion Space within the
requisite time periods provided for in this EXHIBIT G, or in the event Tenant
fails or declines to execute and deliver the Expansion Lease within the
requisite time period provided for in this EXHIBIT G, after Tenant exercises its
option (such

<PAGE>

events are hereinafter collectively referred to as a "Failure To Expand"), then
in either such event for a period of sixty (60) days.

(7) MISCELLANEOUS. Time is of the essence of all provisions and time
periods set forth in this EXHIBIT G. In addition, Tenant acknowledges and
agrees that Tenant's right to lease additional space and any other rights
granted under this EXHIBIT G are granted exclusively to Tenant and not to any
assignee or sublessee of Tenant.

(8) SPECIFIC RIGHTS TO TWO EXPANSION PREMISES. Without limiting the
general expansion rights provided for herein, Landlord agrees that, as modified
in this Paragraph 8, the option set forth in this EXHIBIT G shall apply to two
spaces which are, or are expected to become, available within the Building, one
consisting of approximately 8,000 square feet of rentable area ("Space A") and
the other consisting of approximately 12,000 square feet of rentable area
("Space B"), each of which is identified in SCHEDULE G-1 attached to this
EXHIBIT G. In the event Landlord receives an offer to lease Space A and/or
Space B from a prospective tenant or its broker at any time after the date
hereof, Landlord will so notify Tenant, and Tenant will have the right, within
ten (10) days after Landlord provides Tenant with such Notice, to provide a
"Tenant's Expansion Option Notice" to Landlord with respect thereto. If Tenant
provides such Tenant's Expansion Option Notice under this Paragraph 8 within
such ten (10) day period, then Landlord shall be deemed to have given Tenant a
"Free & Clear" notice for the applicable space on the same date that Landlord
received Tenant's Expansion Option Notice, and the remaining provisions of
Paragraphs 4 - 7, above, shall apply to the Expansion Lease for such space. If
Tenant fails to provide such Tenant's Expansion Option Notice for such space
within such ten (10) day period, then Tenant's option to lease such space under
this Paragraph 8 shall be extinguished and shall be null and void and of no
further force and effect. [PLEASE NOTE: TONY RIMIKIS IS TO PROVIDE YOU WITH A
SPECIFIC DESCRIPTION OF THESE TWO SPACES UNDER SEPARATE COVER].

<PAGE>

THIRD AMENDMENT TO
MULTI-TENANT OFFICE LEASE

THIS THIRD AMENDMENT TO MULTI-TENANT OFFICE LEASE (this "Amendment"),
made this 30th day of November, 1995, is made by and between EDB Property
Partners L.P. I, a Delaware limited partnership ("Landlord"), and q.a.d.,
inc., a California corporation ("Tenant").

R1. WHEREAS, Laurel Larchmont Office, Inc. ("LLO") and Tenant were the
original parties to an undated multi-tenant office lease (the "Original
Lease") for approximately 57,271 square feet (the "Original Premises")
located in suites 103, 105 and 200 East and 200 West of the building located
at 10000 Midlantic Drive, Mount Laurel, New Jersey (the "Building"); and

R2. WHEREAS, the Original Lease has been amended by one unnumbered
Amendment to Multi-Tenant Office Lease dated April 26, 1994 (which contains a
Rider) and a Second Amendment to Multi-Tenant Office Lease (the "Second
Amendment") dated May 30, 1995 (the Original Lease, as amended to date, is
herein called the "Lease") which amendments, among other things, expanded the
Original Premises to approximately 61,183 square feet (said original
expansion space, the "Original Additional Space"; and the Original Premises,
as heretofore expanded, the "Premises"); and

R3. WHEREAS, Landlord is the successor-in-interest to all of LLO's right,
title and interest in and to the Lease; and

R4. WHEREAS, Tenant desires, and Landlord is willing, on the terms and
conditions set forth herein, to expand the Premises and lease additional
space of approximately 717 square feet (the "New Additional Space") causing
the Original Premises to be expanded by a total of 4,629 square feet (the
Original Additional Space, together with the New Additional Space, shall
hereinafter be referred to as the "Additional Space"); and

R5. WHEREAS, the parties hereto mutually desire, effective as of the date
of execution of this Amendment, to amend the Lease on such terms and
conditions as are more fully set forth herein.

NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:

<PAGE>

1. The Lease is hereby further amended as follows:

A. The term "Additional Space" as used in the Lease, as amended, shall
refer to the 4,629 square feet shown as EXHIBIT A-1 annexed hereto and
incorporated herein by this reference.

B. Section 5 (Premises) of the Lease shall be, and the same hereby is,
amended by deleting the words "Suite 100 East (the "Additional Space") 3,912
s.f." in the tenth (10th) written line and inserting in their place "Suite 101
East (the "Additional Space") 4,629 s.f." and by deleting the words "Total:
61,183 s.f." in the eleventh (11th) written line and inserting in their place
"Total: 61,900 s.f.". The intent of this provision is to add the Additional
Space to the definition of "Premises" in the Lease.

C. EXHIBIT A of the Lease which depicts the Premises shall be, and the
same hereby is, amended by deleting therefrom the pages labeled "EXHIBIT A -
ADDITIONAL SPACE" attached to the Second Amendment and adding in lieu thereof
the page labeled "EXHIBIT A-1 - ADDITIONAL SPACE" attached hereto and
incorporated herein by this reference.

D. Effective as of the Occupancy Date (as defined in Section G of the
Second Amendment), Section 8 (Rent), subsection (b) of the Lease shall be,
and hereby is, amended by deleting therefrom the fifth (5th) sentence, in its
entirety, and inserting in lieu thereof the following sentence:

"The Tenant's proportionate share is thirty-five and three-tenths
(35.3%) percent (61,900 s.f./175,573 s.f. = 35.3%)."

E. Section 8 (Rent), subsection (c) of the Lease shall be, and hereby
is, amended by deleting therefrom the last sentence, in its entirety, and
inserting the following sentence in its place:

"The percentage for the Premises is thirty-five and three-tenths
(35.3%) percent."

F. Section 8 (Rent), subsection (c) of the Lease shall be, and hereby
is, amended by adding after the phrase "per sq. ft." each time it appears in
said subparagraph the following parenthetical: (based on 4,629 sq. ft.)". It
is the intent of the parties that the New Additional Space be included when
calculating the Rent to be paid under said subsection (e).

2. Except as expressly modified by this Amendment, the Lease shall remain
unmodified and shall continue in full force and effect.

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<PAGE>

3. All capitalized terms used but not defined in this Amendment shall
have the same meanings ascribed to them under the Lease.

4. If any provision of this Amendment is held to be invalid or
unenforceable, the same shall not affect the validity or enforceability of
the other provisions of this Amendment, which shall continue in full force
and effect, as if the invalid or unenforceable provision had been deleted.

5. This Amendment contains the entire agreement of the parties hereto and
no representations, inducements, promises or agreements, oral or otherwise,
between the parties, not embodied herein, shall be of any force or effect.
This Amendment and the Lease may be further amended only in writing signed by
both Landlord and Tenant. If any provision of this Amendment conflicts with
any provision of the Lease, the provision of this Amendment shall be
controlling.

6. Landlord agrees that the Consent to Sublease dated May 30, 1995 shall
be deemed applicable to that certain Amended and Restated Sublease, the form
of which is attached hereto as EXHIBIT B and incorporated herein by this
reference.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date and year first written.

LANDLORD:

EDB Property Partners L.P. I,
a Delaware limited partnership

By: Emmes Laurel Property Corp.,
its general partner

By:
------------------------------------
Name:
Title:

TENANT:

q.a.d., inc.,
a California corporation

By: /s/ Douglas Marsh
---------------------------------
Name: Douglas Marsh Dec 7, 1995
Title: VP Operations

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<PAGE>

[FLOOR PLAN]

<PAGE>

EXHIBIT B

AMENDED AND RESTATED SUBLEASE

THIS AMENDED AND RESTATED SUBLEASE ("Amended and Restated Sublease") is
entered into as of the ______ day of September, 1995 by and between ORIGIN
TECHNOLOGY IN BUSINESS, INC., a Delaware corporation, with its principal
place of business at 1105 Schrock Road, Suite 816, Columbus, Ohio 43229
(hereinafter "Sublessee") and qad inc., a California corporation, with its
principal place of business at 6450 Via Real, Carpinteria, California, 93013
(hereinafter "Sublessor").

THE PARTIES ENTER into this Amended and Restated Sublease on the basis of
the following facts, intentions and understanding:

WHEREAS, Sublessor and Sublessee entered into a certain lease dated
July 6, 1994 (the "Original Sublease") covering the Premises (as defined in the
Original Sublease); and

WHEREAS, Sublessor and Sublessee now desire to sublease certain
additional premises, for a total of approximately 4,629 square feet on the
first floor of the East Wing of 10,000 Midlantic Drive, Mt. Laurel, New
Jersey 08054, as outlined on Exhibit "A" and "A1" attached hereto
(hereinafter "Subleased Premises") upon the terms, covenants and conditions
as hereinafter provided. This subletting is subject to the terms of
sublessor's letting of the Subleased Premises by Lease dated 30th day of May,
1995 (The "Lease"). A copy of said lease ("The Lease") is attached hereto as
Exhibit "B".

WHEREAS, Sublessor and Sublessee intend that the terms of this Amended
and Restated Sublease Agreement (hereinafter, the "Sublease") amend and
restate the terms of the Original Sublease and establish the rights and
obligations of the parties with regard to the matters set forth herein from
and after the date (the "Execution Date") of execution hereof;

NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties herein contained, the parties agree as follows:

1. SUBLEASE.

a. As of the Execution Date, the Original Sublease shall be hereby
amended and restated as set forth in this Amended and Restated Sublease.
Hereafter this Amended and Restated Sublease shall govern all the rights and
obligations of the parties hereto with respect to the subject matter hereof,
and the Original Sublease shall be null and void and of no further force or
effect.

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<PAGE>

b. Sublessor hereby agrees to lease the Subleased Premises to
Sublessee and Sublessee agrees to lease the Subleased Premises from Sublessor
on the conditions hereinafter set forth.

3. AMENDED AND RESTATED SUBLEASE SUBJECT TO LEASE. This Amended and
Restated Sublease shall be subject to all of the terms, covenants and
conditions of the Lease and Sublessee shall assume and perform the
obligations of Sublessor as Tenant in the Lease with respect to the Subleased
Premises, except for the payment of minimum annual rent contained in the
Lease. Sublessee shall not commit or permit to be committed on the Subleased
Premises any act or omission which shall violate any terms, covenants or
conditions of the Lease applicable to Sublessee. In the event of any
inconsistency between the Lease and the Amended and Restated Sublease, the
terms of this Amended and Restated Sublease shall control. All of the terms,
covenants and conditions in the Lease are incorporated herein as terms,
covenants and conditions of this Amended and Restated Sublease, except for
any paragraphs which shall be superseded by this Amended and Restated
Sublease. To the extent that the Lease provides that Landlord shall provided
services, utilities, insurance, maintenance, repairs or any and all other
obligations of Landlord rendered in connection with the operation of the
Subleased Premises, Sublessee shall seek recourse first from Landlord by
notice to Landlord with a copy simultaneously provided to Sublessor. If
Landlord shall not take action after request is made by Sublessee after the
passing of any applicable cure period specified in the Lease, then Sublessee
may notify Sublessor of such failure. Upon receipt of such notice, Sublessor
shall use prompt, reasonable efforts to enforce Sublessor's rights under the
Lease for the benefit of Sublessee. Sublessor shall have no duty to perform
any obligations of the Landlord under the Overlease and shall under no
circumstances be responsible for or liable to Sublessee for any default,
failure or delay on the part of the Landlord in the performance of any
obligations under the Overlease, nor shall such default of the Landlord
affect this Amended and Restated Sublease or waive or defer the performance
of any of Sublessee's obligations hereunder. In addition, Sublessee shall
have no right to exercise the Renewal Option, Right of First Offer or Early
Termination of Lease rights granted pursuant to Exhibit "E", "G" and "H",
respectively, of the Lease.

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<PAGE>

4. TERM. The term ("Term") of this Amended and Restated Sublease shall
commence on the date (The Commencement Date) which is the earlier of (i) the
date which is one hundred twenty (120) days after the Second Amendment to
Multi-Tenant Office Lease (the Second Amendment) is executed by the
Sublessor, EDB Property Partners, L.P. III, Landlord under the Lease or (ii)
the date on which a final Certificate of Occupancy is obtained by the
Sublessee.

5. RENT.

A. MINIMUM ANNUAL RENT.

Sublessee shall pay to Sublessor rental as set forth below:
The date of Amended and Restated Sublease rent schedule is based upon the
Overlease anniversary date of September 1

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TERM PER SQUARE FOOT MONTHLY ANNUAL RENT
RATE RENT
- -------------------------------------------------------------------------------
Commencement
Date-August 1995 $12.00 (x 4.629 square feet) $4,629.00 $55,548.00
------- --------- ----------
- -------------------------------------------------------------------------------
Year 2: Sept. $12.00 $4,629.00 $55,548.00
1995-August 1995 --------- ----------
- -------------------------------------------------------------------------------
Years 3 through 5: $12.50 $4,821.88 $57,862.50
Sept 1996 to Aug --------- ----------
1999
- -------------------------------------------------------------------------------
Years 6 and 7: $13.00 $5,014.75 $60,177.00
Sept 1999 to Aug --------- ----------
2001
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

payable on the first business day of each month during the term of this
Amended and Restated Sublease except that the first month's rent shall be
payable upon the execution of this Amended and Restated Sublease.

Notwithstanding the forgoing, provided Sublessee is not in default of this
Amended and Restated Sublease, if the Leased Premises Commencement Date is
earlier than ninety (90) days after the Second Amendment is executed, then
Sublessee shall not be obligated to pay rent for the Leased Premises until
the thirtieth (30th) day after such Leased Premises Commencement Date AND if
the Leased Premises Commencement Date is on or after such ninetieth (90th)
day, the Sublessee shall

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<PAGE>

not be obligated to pay rent for the Subleased Premises until the date which
is one hundred twenty (120) days after the Second Amendment is executed.

This operating cost shall be estimated by Sublessor at the
commencement of occupancy and Sublessee shall pay to Sublessor in addition
to the basic rent and on the same day provided in paragraph 5(a) 1/12
thereof. The estimated operating cost for the year in which this Lease
commences is $7.00 per rentable square foot. The operating expenses shall
include all costs normally incurred in the maintenance and operation of an
office building, less any charges invoiced directly to other tenants in the
building and shall include:

i. Real estate taxes assessed on the building, land
underlying same, parking areas or other common elements including any
assessments or municipal improvements;

ii. All costs and expense directly related to the
operation of the building including preparing units for rental, lighting,
cleaning, insuring, removing snow, ice and debris, policing and regulating
traffic in the area immediately adjacent to the building and depreciation of
machinery and equipment used for such operation;

iii. All costs and expense, other than those of a capital
nature, or replacing paving, curbs, walkways, landscaping (including
replanting and replacing flowers and other planting), drainage and lighting
facilities in the building and areas immediately adjacent thereto;

iv. Electricity and fuel used in lighting, heating,
ventilating, and air conditioning of the Premises;

v. Maintenance and mechanical and electrical equipment
including heating, ventilating and air conditioning equipment in the Premises;

vi. Window cleaning and janitorial service, including
janitorial equipment and supplies;

vii. Maintenance of elevators, rest rooms, lobbies,
hallways and other common areas of the building;

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<PAGE>

viii. Wages for personnel directly involved in the building
management and operating, including all taxes payable by Sublessor thereon
and fringe benefits;

ix. Water and sewer rents, charges and standby fees;

x. Accounting fees, management fees and legal fees which
directly benefit the overall operation of the building, it is expressly
agreed that legal fees incurred in an action against an individual tenant
shall not be deemed includable as an operating expense pursuant to this
provision; and

xi. All costs associated with maintaining, operating and
monitoring any security system or sprinkler system.

c. In determining operating expenses, if less than 95% of the
rentable area of the building has been occupied by tenants for more than
thirty (30) days during such year, operating expenses shall be deemed for
such year to be an amount equal to the like expenses which would normally be
expected to be incurred had such occupancy of the building been 95%
throughout such year, as reasonably determined by Landlord.

d. Rent shall be paid to the Sublessor at 10000 Midlantic
Drive, Mount Laurel, New Jersey 08054, or at such other place or places as
Sublessor may from time to time direct.

e. Sublessee shall not request Landlord to provide services,
materials or supplies in excess of the basic services, which Landlord is
obligated to provide under the Lease without first obtaining the written
consent of Sublessor, which consent shall not be unreasonably withheld. Upon
notification to Sublessor by Sublessee of termination of any services, or
impairment of any services, Sublessor shall immediately notify Landlord in
accordance with the notice provision of the Lease.

f. Sublessee shall pay to Sublessor as additional rent, within
ten (10) days after demand therefore by Sublessor, any and all other
additional rent payments and sums due pursuant to the lease.

6. LATE PAYMENT. Rent is due and payable on or before the first day
of each month. Rent received after the tenth (10th) of the month is subject
to a late charge of ten (10%) percent of the monthly payment which charge
must accompany rent. An additional charge will be made for checks returned
for insufficient funds.

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<PAGE>

7. INSURANCE.

a. Sublessee shall carry and maintain during the entire term of
the Sublease the insurance required pursuant to the Lease. In addition,
Sublessee shall name Sublessor as an additional insured with respect to said
insurance.

b. Sublessee shall, prior to the commencement of the term, and
during the term, thirty (30) days prior to the expiration of the policy of
insurance, furnish to Sublessor and Landlord certificates evidencing such
coverage, which certificates shall state that such insurance coverage may not
be changed or canceled without at least ten (10) days' prior written notice
to Sublessor and Landlord.

8. DEFAULT. In the event Sublessee shall breach any of the terms,
covenants or conditions of this Amended and Restated Sublease or the Lease,
then, in that event, in addition to the remedies Landlord may have against
Tenant for Tenant default in the Lease, Sublessor shall have the right to
enter and retake the Subleased Premises and terminate Sublessee's interest
under this Amended and Restated Sublease. If Sublessee defaults under the
Lease, Sublessee shall indemnify, defend by counsel acceptable to Sublessor
and hold Sublessor harmless from and against all damages resulting from
such default. If Sublessee defaults under Sublessee's obligations under
this Amended and Restated Sublease and Sublessor fulfills any of Sublessee's
obligations in order to prevent Sublessee from being in default, Sublessee
shall immediately reimburse Sublessor for (i) the amount of Minimum Annual
Rent, (ii) all amounts attributable to Additional Rent and (iii) all other
costs and expenses incurred by Sublessor in fulfilling Sublessee's
obligations in the Sublease and the Lease, together with interest on those
sums at the rate of one percent (1%) per month (but in no event at a rate in
excess of that permitted by law) from the date due thereof until paid, and
the amount of such interest shall be deemed Additional Rent hereunder.

9. ALTERATIONS. Sublessee shall not make or suffer to be made any
alterations, additions or improvements in, on or to the Subleased Premises
without the prior written consent of Sublessor and Landlord. In the event
Sublessor and Landlord consent to the making of any such alteration, addition
or improvement by Sublessee, the same shall be made by Sublessee at its sole
cost and expense, and any contractor or person selected by Sublessee to make
the same shall first be approved in writing by Sublessor and Landlord. Upon
the expiration or sooner termination of this Amended and Restated Sublease,
Sublessee shall, upon demand by Sublessor, at Sublessee's sole cost and
expense, with all due diligence, repair and restore the Subleased Premises
to their original condition, ordinary wear and tear excepted.

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<PAGE>

10. HOLDING OVER. Sublessee will, at the termination of this Amended
and Restated Sublease by lapse of time or otherwise, yield up immediately
possession to Sublessor and Landlord. If Sublessee retains possession of the
Subleased Premises or any part thereof after such termination, then Sublessee
shall pay to Sublessor all damages sustained by Sublessor resulting from
retention of possession by Sublessee.

11. SUBLESSOR COVENANTS. Sublessor covenants to promptly pay when due
all rents due and accruing to Landlord and in the event that it fails to
promptly remit said rent to Landlord, Sublessor specifically authorizes and
directs Sublessee, upon Sublessee's receipt of due written demand from
Landlord, to remit the rent hereunder directly to Landlord and said
remittance shall be deemed in lieu of the rent obligations herein contained.

12. INDEMNIFICATION. Sublessee shall indemnify Sublessor and hold
Sublessor harmless from and against any and all claims, demands, suits,
judgments, liabilities, costs and expenses, including reasonable attorneys'
fees, arising out of or in connection with Sublessee's use and possession of
the Leased Premises, or by arising out of the failure of Sublessee, its
agents, contractors or employees to perform any covenant, term or condition
of the Lease or Sublease to be performed by Sublessee. Sublessor shall
indemnify Sublessee and hold Sublessee harmless from and against any and all
claims, demands, suits, judgments, liabilities, costs and expenses, including
reasonable attorneys' fees, arising out of the failure of Sublessor to
perform any covenant, term or condition of the Lease to be performed by
Sublessor thereunder.

13. ATTORNEYS' FEES. If either party shall commence an action against
the other party in order to enforce any term, covenant or condition of this
Amended and Restated Sublease, the prevailing party shall be entitled to
recover from the losing party the costs and expenses of such action,
including reasonable attorneys' fees to be set by the court in such action.

14. BROKER. Sublessee warrants and represents to Sublessor that it has
dealt with no broker or real estate agent or made no agreement or created any
liability with respect to this Amended and Restated Sublease and/or the
Subleased Premises or in connection with the payment of brokerage or other
commissions other than Jackson-Cross ONCOR International, and Sublessee
hereby agrees to indemnify, defend and hold Sublessor harmless from and
against all liability, cost, or expense arising out of the claims of any
other broker or real estate agent claiming by, through or under Sublessee for
a commission in connection with this Amended and Restated Sublease and/or the
transaction contemplated by this Sublease.

-7-

<PAGE>

11. SUBLESSOR COVENANTS. Sublessor covenants to promptly pay when due
all rents due and accruing to Landlord and in the event that it fails to
promptly remit said rent to Landlord, Sublessor specifically authorizes and
directs Sublessee, upon Sublessee's receipt of due written demand from
Landlord, to remit the rent hereunder directly to Landlord and said
remittance shall be deemed in lieu of the rent obligations herein contained.

14. BROKER. Sublessee warrants and represents to Sublessor that it has
dealt with no broker or real estate agent or made no agreement or created any
liability with respect to this Amended and Restated Sublease and/or the
Subleased Premises or in connection with the payment of brokerage or other
commissions other than Jackson-Cross ONCOR International, and Sublessee
hereby agrees to indemnify, defend and hold Sublessor harmless from and
against all liability, cost, or expense arising our of the claims of any
other broker or real estate agent claiming by, through or under Sublessee for
a commission in connection with this Amended and Restated Sublease and/or the
transaction contemplated by this Sublease.

-7-

<PAGE>

15. EARLY TERMINATION OF SUBLEASE. Notwithstanding anything to the
contrary contained in this Amended and Restated Sublease, Sublessor or
Sublessee, at its option, may terminate this Amended and Restated Sublease
effective at anytime after end of the twenty-fourth (24th) month of the term,
provided, as a condition of such termination, Sublessor or Sublessee gives
written notice to the other at least sixty (60) days prior to the proposed
date of termination, which shall be after the twenty-fourth (24th) month of
the term and anytime thereafter up to August 31, 2001, in which event the
Amended and Restated Sublease shall terminate as of the expiration of the
date set forth in such notice. Sublessee shall have no termination right as
provided herein in the event the Sublessee has defaulted under any of the
obligations of Sublessee under and pursuant to the Lease or this Amended and
Restated Sublease.

To Sublessor: qad.inc
10000 Midlantic Drive, Suite 200
Mount Laurel, NJ 08054

To Sublessee: Origin Technology in Business, Inc.
1105 Schrock Road, Suite 816
Columbus, OH 43229

or to any other address provided to the other party in writing.

17. LANDLORD'S CONSENT. This Amended and Restated Sublease is subject
to Landlord's consent and shall be of no effect unless and until this Amended
and Restated Sublease has been accepted and agreed to by Landlord.

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<PAGE>

18. ASSIGNMENT. Without the prior written consent of Sublessor, which
may be withheld by Sublessor in its sole discretion, neither Sublessee, nor
Sublessee's legal representatives or successors in interest shall, by
operation of law, merger, or otherwise, further sublet the Subleased Premises
or assign or mortgage this Amended and Restated Sublease. If Sublessee is a
corporation, none of its capital stock shall be transferred voluntarily or by
operation of law without Sublessor's written consent. Any consent by
Sublessor to any act of assignment shall be held to apply only to the
specific transaction thereby authorized. Such consent shall not be
construed as a waiver of the duty of Sublessee, or the legal representatives
or assigns of Sublessee, to obtain from Sublessor consent to any other or
subsequent assignment, or as modifying or limiting the rights of Sublessor
under the foregoing covenant by Sublessee not to assign without such consent.

19. EFFECT. This Amended and Restated Sublease shall be binding upon
the parties hereto, their heirs, executors, legal representatives, successors
and permitted assigns, and may not be altered, amended, terminated or
modified except by written instrument executed by each of the parties hereto.

20. FORUM. This Amended and Restated Sublease shall be governed by the
laws of the state in which the Premises is located.

21. MODIFICATION. This Amended and Restated Sublease may not be
modified or amended except by a written agreement executed by the parties
hereto.

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<PAGE>

IN WITNESS WHEREOF, this Sublease Agreement has been executed on the
date and year first written.

SUBLESSOR SUBLESSEE

qad.inc ORIGIN TECHNOLOGY
IN BUSINESS, INC.

By: /s/ Douglas Marsh KL By: /s/
------------------------------ ------------------------------

Title: VP OPERATIONS Title: VP
------------------------------ ------------------------------

Date: DEC 7, 1995 Date: 11/30/95
------------------------------ ------------------------------

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<PAGE>

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the "MERGER AGREEMENT"), dated as
of July 8, 1997, is entered into by and between QAD Inc., a California
corporation ("QAD-CALIFORNIA"), and QAD Inc., a Delaware corporation
("QAD-DELAWARE").

RECITALS

1. QAD-California is a corporation duly organized and existing
under the laws of the State of California.

2. QAD-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware.

3. On the date of this Merger Agreement, QAD-California's
authorized capital consists of 155,000,000 shares, consisting of 149,000,000
shares of Class A Common Stock, no par value per share (the "QAD-CALIFORNIA
CLASS A COMMON STOCK"), of which 22,524,234 shares are issued and
outstanding; 1,000,000 shares of Class B Common Stock, no par value per share
(the "QAD-CALIFORNIA CLASS B COMMON STOCK"), of which four shares are issued
and outstanding; and 5,000,000 shares of Preferred Stock, no par value per
share (the "QAD-CALIFORNIA PREFERRED STOCK"), of which none are issued and
outstanding.

4. On the date of this Merger Agreement, QAD-Delaware's authorized
capital consists of 155,000,000 shares of stock, consisting of 149,000,000
shares of Class A Common Stock, par value $.001 per share (the "QAD-DELAWARE
CLASS A COMMON STOCK"), of which none are issued and outstanding; 1,000,000
shares of Class B Common Stock, par value $.001 per share (the "QAD-DELAWARE
CLASS B COMMON STOCK"), of which 1 share is issued and outstanding and owned
by QAD-California; and 5,000,000 shares of preferred stock, par value $.001
per share (the "QAD-DELAWARE PREFERRED STOCK"), of which none are issued and
outstanding.

5. The respective Boards of Directors of QAD-California and
QAD-Delaware have determined that it is advisable and in the best interests
of each such corporation that QAD-California merge with and into QAD-Delaware
upon the terms and subject to the conditions of this Merger Agreement for the
purpose of effecting the reincorporation of QAD-California in the State of
Delaware (the "MERGER").

6. The respective Boards of Directors of QAD-California and
QAD-Delaware have, by resolutions duly adopted, approved this Merger
Agreement. The holders of a majority of the shares of QAD-California Class A
Common Stock outstanding and all of the shares of QAD-California Class B
Common Stock outstanding

<PAGE>

have adopted and approved this Merger Agreement, and QAD-California has
adopted and approved this Merger Agreement as the sole stockholder of
QAD-Delaware.

7. The parties intend by this Merger Agreement to effect a
"reorganization" under Section 368 of the Internal Revenue Code of 1986, as
amended.

TERMS AND PROVISIONS OF REINCORPORATION

In consideration of the foregoing Recitals and of the following terms
and provisions, and subject to the following conditions, it is agreed:

1. MERGER. The effective time of the Merger (the "EFFECTIVE
TIME") shall occur at the latest of (a) the time and date that shareholders
of QAD-California approve this Merger Agreement and the Merger, (b) the time
and date that a certificate of merger is duly filed with the Secretary of
State of Delaware with respect to the Merger, or (c) the time and date that
the certificate of merger is duly filed with the California Corporation
Commission with respect to the Merger. As of the Effective Time,
QAD-California shall be merged with and into QAD-Delaware, QAD-Delaware shall
be the surviving corporation of the Merger (hereinafter sometimes referred to
as the "SURVIVING CORPORATION"), and the separate corporate existence of
QAD-California shall cease.

2. GOVERNING DOCUMENTS.

a. The Certificate of Incorporation of QAD-Delaware, as it
may be amended or restated subject to applicable law, and as in effect
immediately prior to the Effective Time, shall constitute the Certificate of
Incorporation of the Surviving Corporation without further change or
amendment until thereafter amended in accordance with the provisions thereof
and applicable law.

b. The Bylaws of QAD-Delaware as in effect immediately prior
to the Effective Time shall constitute the Bylaws of the Surviving
Corporation without change or amendment until thereafter amended in
accordance with the provisions thereof and applicable law.

3. OFFICERS AND DIRECTORS. The persons who are officers and
directors of QAD-California immediately prior to the Effective Time shall,
after the Effective Time, be the officers and directors of the Surviving
Corporation, without change until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation
and Bylaws and applicable law. The directors of QAD-California are as
follows: Pamela M. Lopker, Karl F. Lopker and Evan M. Bishop.

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<PAGE>

4. NAME. The name of the Surviving Corporation shall continue to
be QAD Inc.

5. SUCCESSION. At the Effective Time, the separate corporate
existence of QAD-California shall cease, and the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public or
private nature and be subject to all the restrictions, disabilities and
duties of QAD-California; and all property, real, personal and mixed, and all
debts due to QAD-California on whatever account, as well as for share
subscriptions and all other things in action, shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of
QAD-California, and the title to any real estate vested by deed or otherwise
shall not revert or be in any way impaired by reason of the Merger; but all
rights of creditors and liens upon any property of QAD-California shall be
preserved unimpaired, and all debts, liabilities and duties of QAD-California
shall thenceforth attach to the Surviving Corporation and may be enforced
against it to the same extent as if such debts, liabilities and duties had
been incurred or contracted by it; PROVIDED, HOWEVER, that such liens upon
property of QAD-California will be limited to the property affected thereby
immediately prior to the Merger. All corporate acts, plans, policies,
agreements, arrangements, approvals and authorizations of QAD-California, its
shareholders, Board of Directors and committees thereof, officers and agents
which were valid and effective immediately prior to the Effective Time, shall
be taken for all purposes as the acts, plans, policies, agreements,
arrangements, approvals and authorizations of the Surviving Corporation and
shall be as effective and binding thereon as the same were with respect to
QAD-California.

6. FURTHER ASSURANCES. From time to time, as and when required or
requested by the Surviving Corporation or by its successors and assigns,
there shall be executed and delivered on behalf of QAD-California such deeds,
assignments and other instruments, and there shall be taken or caused to be
taken by it all such further and other action, as shall be appropriate or
necessary in order to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation the title to and possession of all property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of QAD-California and otherwise to carry out the purposes of this
Merger Agreement, and the officers and directors of the Surviving Corporation
are fully authorized in the name and on behalf of QAD-California or
otherwise, to take any and all such action and to execute and deliver any and
all such deeds, assignments and other instruments.

7. CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:

a. Each share of QAD-California Class A Common Stock
outstanding immediately prior to the Effective Time shall be converted into,
and shall

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<PAGE>

become, one fully paid and nonassessable share of QAD-Delaware Class A Common
Stock.

b. Each share of QAD-California Class B Common Stock
outstanding immediately prior to the Effective Time shall be converted into,
and shall become, one fully paid and nonassessable share of QAD-Delaware
Class B Common Stock.

c. The 1 share of QAD-Delaware Class B Common Stock issued
and outstanding in the name of QAD-California shall be cancelled and retired,
and no payment shall be made with respect thereto, and such share shall
resume the status of an authorized and unissued share of QAD-Delaware Class B
Common Stock.

8. STOCK CERTIFICATES. At and after the Effective Time, any
outstanding certificates which immediately prior to the Effective Time
represented shares of QAD-California Class A Common Stock or QAD-California
Class B Common Stock shall be deemed for all purposes to evidence ownership
of, and to represent shares of, QAD-Delaware Class A Common Stock or
QAD-Delaware Class B Common Stock, respectively, into which such shares of
QAD-California formerly represented by such certificates have been converted
as herein provided. The registered owner on the books and records of
QAD-California or its transfer agent of any such outstanding stock whether
certificated or not shall have and be entitled to exercise any voting or
other rights with respect to and to receive any dividends and other
distributions upon the shares of QAD-Delaware Class A Common Stock or
QAD-Delaware Class B Common Stock evidenced by such outstanding shares as
above provided.

9. OPTIONS; STOCK GRANTS. Each right in or to, or option to
purchase, shares of QAD-California Class A Common Stock granted under any of
the QAD-California Non-Qualified Stock Option Agreements (the "OPTION
AGREEMENTS") which are outstanding immediately prior to the Effective Time
(collectively, the "Options"), and any shares of QAD-California Class A
Common Stock granted under the 1994 Stock Ownership Program (the "STOCK
PROGRAM") which, as of the Effective Time, have not yet vested (the "UNVESTED
SHARES"), shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and/or become a right in or to, or
an option to purchase at the same option price per share, as the case may be,
the same number of shares of QAD-Delaware Common Stock, upon the same terms
and subject to the same conditions as set forth in their respective Option
Agreements or in the Stock Program as in effect at the Effective Time. A
number of shares of QAD-Delaware Common Stock shall be reserved for purposes
of the Option Agreements that is equal to the number of shares of
QAD-California Class A Common Stock that could have been purchased pursuant
to the Options (assuming all Options were exercised) as of the Effective
Time. A number of shares of QAD-Delaware Common Stock shall be reserved for
purposes of the Stock Program that is equal to the number of Unvested Shares
as of the Effective Time. As of the Effective Time, the Surviving
Corporation hereby assumes

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<PAGE>

each of the Option Agreements and the Stock Program and all obligations of
QAD-California thereunder including the outstanding rights or options or
portions thereof granted pursuant to the Option Agreements or the Stock
Program.

10. OTHER EMPLOYEE BENEFIT PLANS. As of the Effective Time, the
Surviving Corporation hereby assumes all obligations of QAD-California under
any and all employee benefit plans in effect as of the Effective Time or with
respect to which employee rights or accrued benefits are outstanding as of
the Effective Time.

11. CONDITION. The consummation of the Merger and related
transactions are subject to satisfaction of the following conditions prior to
the Effective Time:

a. All necessary action shall have been taken to authorize
the execution, delivery and performance of the Merger Agreement by
QAD-California and QAD-Delaware.

b. All regulatory approvals necessary or desirable in
connection with the consummation of the Merger and the transaction
contemplated thereby shall have been obtained.

c. No suit, action, proceeding or other litigation shall have
been commenced or threatened to be commenced which, in the opinion of
QAD-California or QAD-Delaware would pose a material restriction on or impair
consummation of the Merger, performance of this Merger Agreement or the
conduct of the business of QAD-Delaware after the Effective Time, or create a
risk of subjecting QAD-California or QAD-Delaware, or their respective
shareholders, officers or directors, to material damages, costs, liability or
other relief in connection with the Merger or this Merger Agreement.

12. ACCOUNTING MATTERS. QAD-Delaware agrees that upon the
Effective Time, the assets, liabilities, reserves and accounts of
QAD-California and QAD-Delaware shall be taken up or continued on the books
of QAD-Delaware in the amounts at which such assets, liabilities, reserves
and accounts shall have been carried on the books of QAD-California and
QAD-Delaware immediately prior to the Effective Time, subject to such
adjustments, and such elimination of intercompany items, as may be
appropriate to give effect to the Merger.

13. GOVERNING LAW. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to contracts entered into and to be performed wholly within the State of
California, except to the extent that the laws of the State of Delaware are
mandatorily applicable to the Merger.

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<PAGE>

14. AMENDMENT. Subject to applicable law and subject to the rights
of QAD-California's shareholders further to approve any amendment which would
have a material adverse effect on such shareholders, this Merger Agreement
may be amended, modified or supplemented by written agreement of the parties
hereto at any time prior to the Effective Time with respect to any of the
terms contained herein.

15. DEFERRAL OR ABANDONMENT. At any time prior to the Effective
Time, this Merger Agreement may be terminated and the Merger may be abandoned
or the time of consummation of the Merger may be deferred for a reasonable
time by the Board of Directors of either QAD-California or QAD-Delaware, or
both, notwithstanding approval of this Merger Agreement by the shareholders
of QAD-California or the shareholders of QAD-Delaware, or both, if
circumstances arise which, in the opinion of the Board of Directors of
QAD-California or QAD-Delaware, make the Merger inadvisable or such deferral
of the time of consummation advisable.

16. COUNTERPARTS. This Merger Agreement may be executed in any
number of counterparts each of which when taken alone shall constitute an
original instrument and when taken together shall constitute one and the same
Agreement.

17. ASSURANCE. QAD-California and QAD-Delaware agree to execute
any and all documents, and to perform such other acts, which may be necessary
or expedient to further the purposes of this Merger Agreement.

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<PAGE>

IN WITNESS WHEREOF, QAD-California and QAD-Delaware have caused this
Merger Agreement to be signed by their respective duly authorized officers
and delivered this 8th day of July, 1997.

QAD Inc.,
a California corporation

By: /s/ Pamela M. Lopker
----------------------------------
Pamela M. Lopker
Chairman of the Board and President
ATTEST:

By: /s/ Karl F. Lopker
-------------------------
Karl F. Lopker
Secretary
QAD Inc.,
a Delaware corporation

By: /s/ Pamela M. Lopker
---------------------------------
Pamela M. Lopker
Chairman of the Board and President
ATTEST:

By: /s/ Karl F. Lopker
-------------------------
Karl F. Lopker
Secretary

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<PAGE>
EXHIBIT 23.1

The Board of Directors
QAD Inc.

The audits referred to in our report dated April 11, 1997, included the related
financial statement schedule for the years ended December 31, 1994 and 1995, the
one month period ended January 31, 1996 and the year ended January 31, 1997,
included in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.

KPMG PEAT MARWICK LLP

Los Angeles, California
July 10, 1997

<PAGE>

EXHIBIT 24.2

CERTIFIED RESOLUTION

The following is a true and correct copy of a resolution of the Board of
Directors of QAD Inc., a California corporation (the "Corporation") which was
duly adopted pursuant to a Unanimous Written Consent of the Board of
Directors of the Corporation dated May 30, 1997:

RESOLVED FURTHER, that each officer and director of the Corporation
who may be required to sign and execute the Registration Statement or
any amendment thereto or document in connection therewith (whether for
and on behalf of the Corporation, or otherwise), be, and hereby is,
authorized and empowered to execute a power of attorney appointing Karl
F. Lopker, Pamela M. Lopker and Dennis R. Raney, or any one of them, his
or her true and lawful attorneys-in-fact and agents to sign in his or
her name, place and stead in any such capacity any and all amendments
(including post-effective amendments) to the Registration Statement and
any and all other documents in connection therewith, and to file the
same with the SEC, each of said attorneys-in-fact to have the power and
authority to do and perform, in the name and on behalf of such officers
and directors who shall have executed such a power of attorney, every
act whatsoever which such attorneys, or either of them, may deem
necessary, appropriate or advisable to be done in connection therewith
as fully as such officers and directors might or could do in person.

In WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by its Secretary this 8th day of July 1997.

QAD INC.

By: /s/ Karl F. Lopker
--------------------
Karl F. Lopker,
Secretary