<PAGE>   1
                                                                   EXHIBIT 10.14


                                                       BLDG:   Westport 4
                                                       OWNER:  90
                                                       PROP:   904
                                                       UNIT:   1
                                                       TENANT: 90401

                                 LEASE AGREEMENT

        THIS LEASE, made this 26th day of May, 1998 between WESTPORT JOINT
VENTURE, a California general partnership, hereinafter called Landlord, and
COSINE COMMUNICATIONS, INC., a California corporation, hereinafter called
Tenant.

                                   WITNESSETH:

        Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A,"
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:

               All of that certain 48,384 +/- square foot, two-story building
               located at 1200 Bridge Parkway, Redwood City, California 94065.
               Said Premises is more particularly shown within the area outlined
               in Red on Exhibit A attached hereto. The entire parcel, of which
               the Premises is a part is shown within the area outlined in Green
               on Exhibit A attached. The Premises shall be improved by Landlord
               as shown on Exhibit B to be attached hereto, and is leased on an
               "as-is" basis, in its present condition, and in the configuration
               as shown in Red on Exhibit B to be attached hereto.

As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A," attached hereto, and all of the buildings,
common area private roads within the Complex, improvements, fixtures and
equipment now or hereafter situated on said land.

        Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.

1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, or any of its contents, or will cause
a cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises or the Complex which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Complex or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises or the Complex. No sale by auction
shall be permitted on the Premises. Tenant shall not place any loads upon the
floors, walls, or ceiling, which endanger the structure, or place any harmful
fluids or other materials in the drainage system of the building, or overload
existing electrical or other mechanical systems. No waste materials or refuse
shall be dumped upon or permitted to remain upon any part of the Premises or
outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorneys' fees, or liability arising out of
failure of Tenant to comply with any applicable law. Tenant shall comply with
any covenant, condition, or restriction ("CC&R's") affecting the Premises. The
provisions of this paragraph are for the benefit of Landlord only and shall not
be construed to be for the benefit of any tenant or occupant of the Complex.

2. TERM*

        A. The term of this Lease shall be for a period of TWELVE (12) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs
2(B) and 3, shall commence on the 1st day of August, 1998 and end on the 31st
day of July, 2010.

        B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:

               (a) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or

               (b) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or

               (c) When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or

               (d) As otherwise agreed in writing.

3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay, of delivery of the Premises
shall not exceed 90 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.

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* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent scheduled for the projected commencement date as shown in Paragraph
43.


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4. RENT

        A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
TWENTY THREE MILLION SEVEN HUNDRED FIFTY FOUR THOUSAND ONE HUNDRED TWENTY FOUR
AND 80/100 ($ 23,754,124.80 ) Dollars in lawful money of the United States of
America, payable as follows:

        See Paragraph 43 for Basic Rent Schedule

        B. Time for Payment. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).

        C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.

        D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:

        (a)     Tenant's proportionate share of all Taxes relating to the
                Complex as set forth in Paragraph 12, and

        (b)     Tenant's proportionate share of all insurance premiums relating
                to the Complex, as set forth in Paragraph 15, and

        (c)     Tenant's proportionate share of expenses for the operation,
                management, maintenance and repair of the Building (including
                common areas of the Building) and Common Areas of the Complex in
                which the Premises are located as set forth in Paragraph 7, and

        (d)     All charges, costs and expenses, which Tenant is required to pay
                hereunder, together with all interest and penalties, costs and
                expenses including attorneys' fees and legal expenses, that may
                accrue thereto in the event of Tenant's failure to pay such
                amounts, and all damages, reasonable costs and expenses which
                Landlord may incur by reason of default of Tenant or failure on
                Tenant's part to comply with the terms of this Lease. In the
                event of nonpayment by Tenant of Additional Rent Landlord shall
                have all the rights and remedies with respect thereto as
                Landlord has for nonpayment of rent.

        The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within five days for taxes and insurance and within thirty
days for all other Additional Rent items after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled within 120 days of the end of each calendar
year or more frequently if Landlord so elects to do so at Landlord's sole and
absolute discretion, as compared to Landlord's actual expenditure for said
Additional Rent items, with Tenant paying to Landlord, upon demand, any amount
of actual expenses expended by Landlord in excess of said estimated amount, or
Landlord crediting to Tenant (providing Tenant is not in default in the
performance of any of the terms, covenants and conditions of this Lease) any
amount of estimated payments made by Tenant in excess of Landlord's actual
expenditures for said Additional Rent items.

        The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.

        See Paragraph 54

        E. Fixed Management Fee. Beginning with the Commencement Date of the
Term of this Lease, Tenant shall pay, in addition to the Basic Rent and
Additional Rent, a fixed monthly management fee equal to 3% of the Basic Rent
due for each month during the Lease Term ("Management Fee"). For the period of
August 1, 1998 through July 31, 1999, the Management Fee shall be fixed at
$2,951.42 per month. The Management Fee shall be paid to A&P Property Management
Company at 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054.

        F. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at 2560 Mission College Blvd., Suite 101,
Santa Clara, CA 95054 or to such other person or to such other place as Landlord
may from time to time designate in writing.

        G. *Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of FOUR HUNDRED ONE THOUSAND
FIVE HUNDRED EIGHTY SEVEN AND 20/100 ($ 401,587.20 ) Dollars. Said sum shall be
held by Landlord as a Security Deposit for the faithful performance by Tenant of
all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect to
any provision of this Lease, including, but not limited to, the provisions
relating to the payment of rent and any of the monetary sums due herewith,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this Security Deposit for the payment of any other amount which Landlord may
spend by reason of Tenant's default or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in the amount
sufficient to restore the Security Deposit to its original amount. Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on such Deposit. If Tenant fully and
faithfully performs every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successors in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor.

5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions of
this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the Complex in which the Premises are located,
and their respective employees, invitees and customers, and others entitled to
the use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the Complex in which the Premises are
located, which areas and facilities are referred to herein as "Common Area."
This right shall terminate upon the termination of this Lease. Landlord reserves
the right from time to time to make changes in the shape, size, location, amount
and extent of Common Area. Landlord further reserves the right to promulgate
such reasonable rules and regulations relating to the use of the Common Area,
and any part or parts thereof, as Landlord may deem appropriate for the best
interests of the occupants of the Complex. The Rules and Regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall
abide by them and cooperate in their observance. Such Rules and Regulations may
be amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Complex of any of said Rules and Regulations. Landlord shall
operate, manage and maintain the Common Area. The manner in which the Common
Area shall be maintained and the expenditures for such maintenance shall be at
the discretion of Landlord.

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* $200,793.60 Cash due upon Lease execution.
  $200.793.60 Promissory Note due August 1, 1999.


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6. PARKING Tenant shall have the right to use with other tenants or occupants of
the Complex 218 parking spaces in the common parking areas of the Complex.
Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 218 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex in the event of a dispute among the tenants
occupying the building and/or Complex referred to herein, in which event Tenant
agrees that Tenant, Tenant's employees, agents, representatives and/or invitees
shall not use any parking spaces other than those parking spaces specifically
designated by Landlord for Tenant's use. Said parking spaces, if specifically
designated by Landlord to Tenant, may be relocated by Landlord at any time, and
from time to time. Landlord reserves the right, at Landlord's sole discretion,
to rescind any specific designation of parking spaces, thereby returning
Tenant's parking spaces to the common parking area. Landlord shall give Tenant
written notice of any change in Tenant's parking spaces. Tenant shall not, at
any time, park, or permit to be parked, any trucks or vehicles adjacent to the
loading areas so as to interfere in any way with the use of such areas, nor
shall Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area not designated by Landlord for such use by Tenant.
Tenant shall not park nor permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of the
Complex. Tenant agrees to assume responsibility for compliance by its employees
with the parking provision contained herein. If Tenant or its employees park in
other than such designated parking areas, then Landlord may charge Tenant, as an
additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for
each day or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow
away from the Complex any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions, or to attach violation stickers or
notices to such vehicles. Tenant shall use the parking areas for vehicle parking
only, and shall not use the parking areas for storage.

7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord Tenant's proportionate share (calculated on a
square footage or other equitable basis as calculated by Landlord) of all
expenses of operation, management, maintenance and repair of the Common Areas of
the Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance and
replacement of landscaped areas, private roads within the Complex and roads with
reciprocal easement areas; lakes, parking lots and paved areas (including
repairs, replacement, resealing and restriping), sidewalks, driveways;
maintenance, repair and replacement of all fixtures and electrical, mechanical,
and plumbing systems; structural elements and exterior surfaces of the
buildings; salaries and employee benefits of personnel and payroll taxes
applicable thereto; supplies, materials, equipment and tools; the cost of
capital expenditures which have the effect of reducing operating expenses,
provided, however, that in the event Landlord makes such capital improvements,
Landlord may amortize its investment in said improvements (together with
interest at the rate of fifteen (15%) percent per annum on the unamortized
balance) as an operating expense in accordance with standard accounting
practices, provided, that such amortization is not at a rate greater than the
anticipated savings in the operating expenses.

        "Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.

8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the air conditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration as
when the Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the end
of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of
the term or sooner termination of this Lease, shall remove all of Tenant's
personal property and trade fixtures from the Premises, and all property not so
removed on or before the end of the term or sooner termination of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of this
Lease, remove all moveable furniture and equipment so abandoned by Tenant, at
Tenant's sole cost, and repair any damage caused by such removal at Tenant's
sole cost. If the Premises be not surrendered at the end of the term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay. Nothing contained herein shall be construed as an extension of
the term hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all or any existing subleases or subtenancies
or operate as an assignment to Landlord of all or any such subleases or
subtenancies.

9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. Landlord reserves the right to approve all contractors and mechanics
proposed by Tenant to make such alterations and additions. Tenant shall retain
title to all moveable furniture and trade fixtures placed in the Premises. All
heating, lighting, electrical, air conditioning, floor to ceiling partitioning,
drapery, carpeting, and floor installations made by Tenant, together with all
property that has become an integral part of the Premises, shall not be deemed
trade fixtures. Tenant agrees that it will not proceed to make such alteration
or additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant. Notwithstanding anything to
the contrary herein, under no circumstances shall Tenant be authorized to
penetrate the soil to a depth that exceeds three and one-half feet from the
uppermost surface of the soil.

10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, all windows, window frames, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating
and air-conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and return
grills), store fronts, roofs, downspouts, all interior improvements within the
premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exterior,
including closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942
of the California Civil Code and under any similar law, statute or ordinance now
or hereafter in effect.

11. UTILITIES Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed.

        Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.

12. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes," as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by


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<PAGE>   4
any change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Complex (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Complex (regardless of ownership); the fixtures,
equipment and other property of Landlord, real or personal, that are an integral
part of and located in the Complex; or parking areas, public utilities, or
energy within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and (iii)
all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the Complex prevailing as of the commencement date of
this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed (whether
by reason of a change in the method of taxation or assessment, creation of a new
tax or charge, or any other cause) an alternate or additional tax or charge (i)
on the value, use or occupancy of the Complex or Landlord's interest therein or
(ii) on or measured by the gross receipts, income or rentals from the Complex,
on Landlord's business of leasing the Complex, or computed in any manner with
respect to the operation of the Complex, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Complex, then only that part of such real
Property Tax that is fairly allocable to the Complex shall be included within
the meaning of the term "Real Property Taxes." Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources. The term "Real Estate Taxes" shall also
include supplemental taxes related to the period of Tenant's Lease Term
whenever levied, including any such taxes that may be levied after the Lease
Term has expired.

        A. Taxes on Tenant's Property

               (a) Tenant shall be liable for and shall pay ten days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant, Tenant shall upon
demand, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provided that in any such event Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation, to bring suit in any
court of competent jurisdiction to recover the amount of any such taxes so paid
under protest, and any amount so recovered shall belong to Tenant.

               (b) if the Tenant improvements in the Premises, whether
installed, and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real property
taxes and assessments levied against Landlord or the Complex by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of 12Ba above. If the
records of the County Assessor are available and sufficiently detailed to serve
as a basis for determining whether said Tenant improvements are assessed at a
higher valuation than standard office improvements in other space in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of construction
shall be used.

13. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with a combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for injuries to or death of persons occurring in, on
or about the Premises or the Complex, and property damage insurance with limits
of $500,000. The policy or policies affecting such insurance, certificates of
insurance of which shall be furnished to Landlord, shall name Landlord as
additional insureds, and shall insure any liability of Landlord, contingent or
otherwise, as respects acts or omissions of Tenant, its agents, employees or
invitees or otherwise by any conduct or transactions of any of said persons in
or about or concerning the Premises, including any failure of Tenant to observe
or perform any of its obligations hereunder; shall be issued by an insurance
company admitted to transact business in the State of California; and shall
provide that the insurance effected thereby shall not be canceled, except upon
thirty (30) days' prior written notice to Landlord. If, during the term of this
Lease, in the considered opinion of Landlord's Lender, insurance advisor, or
counsel, the amount of insurance described in this paragraph 13 is not adequate,
Tenant agrees to increase said coverage to such reasonable amount as Landlord's
Lender, insurance advisor, or counsel shall deem adequate.

14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.

        Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.

15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent and any
deductibles related thereto. If such insurance cost is increased due to Tenant's
use of the Premises or the Complex, Tenant agrees to pay to Landlord the full
cost of such increase. Tenant shall have no interest in nor any right to the
proceeds of any insurance procured by Landlord for the Complex.

        Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.

16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, willful
misconduct or negligence of Landlord, its agents, servants, employees, invitees,
or contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord, its agents,
servants, employees, invitees, or contractors, Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees, in connection therewith, arising out of any injury
to or death of any person or damage to or destruction of property occurring in,
on or about the Premises, or any part thereof, from any cause whatsoever.

17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply
with any and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.

18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but no obligation, to cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.


                                  Page 4 of 8
<PAGE>   5
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord shall
require Tenant to pay to Landlord, as Additional Rent, all rents and/or
additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the
assigned, transferred and/or subleased space. Tenant shall, by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any part
of the term hereof. Within thirty (30) days after receipt of said written
notice, Landlord may, in its sole discretion, elect to terminate this Lease as
to the portion of the Premises described in Tenant's notice on the date
specified in Tenant's notice by giving written notice of such election to
terminate. If no such notice to terminate is given to Tenant within said thirty
(30) day period, Tenant may proceed to locate an acceptable sublessee, assignee,
or other transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 19. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing with
respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square feet
retained by Tenant, and this Lease as so amended shall continue in full force
and effect. In the event Tenant is allowed to assign, transfer or sublet the
whole or any part of the Premises, with the prior written consent of Landlord,
no assignee, transferee or subtenant shall assign or transfer this Lease, either
in whole or in part, or sublet the whole or any part of the Premises, without
also having obtained the prior written consent of Landlord. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised by
written notice to Tenant, terminate this Lease. The leasehold estate under this
Lease shall not, nor shall any interest therein, be assignable for any purpose
by operation of law without the written consent of Landlord. As a condition to
its consent, Landlord shall require Tenant to pay all expenses in connection
with the assignment, and Landlord shall require Tenant's assignee or transferee
(or other assignees or transferees) to assume in writing all of the obligations
under this Lease and for Tenant to remain liable to Landlord under the Lease.
Notwithstanding the above, in no event will Landlord consent to a sub-sublease.

20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.

21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after
at least 24 hours notice (except in emergencies) have, the right to enter the
Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord shall
also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder.

22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.

        Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.

        Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.

        The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from Landlord within which to cure any other default under this Lease;
provided, however, that if the nature of Tenant's failure is such that more than
thirty (30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity:

               (a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of 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 rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraph
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and the three licensed real estate brokers so
selected shall determine the amount of the rental loss that could be reasonably
avoided from the balance of the term of this Lease after the time of award. The
decision of the majority of said licensed real estate brokers shall be final and
binding upon the parties hereto.

               (b) The rights and remedies provided by California Civil Code
Section which allows Landlord to continue the Lease in effect and to enforce all
of its rights and remedies under this Lease, including the right to recover rent
as it becomes due, for so long as Landlord does not terminate Tenant's right to
possession: acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.

               (c) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law.

               (d) To the extent permitted by law, the right and power to enter
the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and apply such proceeds therefrom pursuant
to applicable California Law. Landlord may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. Upon each subletting, (i) Tenant shall be immediately liable to
pay Landlord, in addition to indebtedness other than rent due hereunder, the
cost of such subletting, including, but not limited to, reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost of such
alterations and repairs incurred by Landlord and the amount, if any, by which
the rent hereunder for the period of such subletting (to the extent such period
does not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received from
such subletting shall be applied first to payment of indebtedness other than
rent due hereunder from Tenant to Landlord; second, to the payment of any costs
of such subletting and of such alterations and repairs; third to payment of rent
due and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same becomes due hereunder. If Tenant
has been credited with any rent to be received by such subletting under option
(i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or
if such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder, Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. No taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such


                                  Page 5 of 8
<PAGE>   6
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.

               (e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord (except that Tenant may vacate so long as it pays rent,
provides an on-site security guard during normal business hours from Monday
through Friday, and otherwise performs its obligations hereunder) pursuant to
subparagraph (d) above.

23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.

24. DESTRUCTION In the event the Premises are destroyed in whole or in part from
any cause, except for routine maintenance and repairs and incidental damage and
destruction caused from vandalism and accidents for which Tenant is responsible
for under Paragraph 10, Landlord may, at its option:

               (a) Rebuild or restore the Premises to their condition prior to
the damage or destruction, or

               (b) Terminate this Lease (providing that the Premises is damaged
to the extent of 33-1/3% of the replacement cost).

        If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to the condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.

        Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.

        In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover one hundred percent of the rebuilding costs net of the
deductible.

25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.

        If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any part thereof, or (ii) any of the foregoing events occur with
respect to the taking of any space in the Complex not leased hereby, or if any
such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.

        In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.

        If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.

26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned. Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.

27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in
the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.

28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.

29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10)
days' prior written notice to 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 date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, 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.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.

30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.

31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice thereof by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform


                                  Page 6 of 8
<PAGE>   7
any such other term or covenant on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of interest per
annum as quoted by the Bank of America from the date of such payment or
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord on demand by Landlord, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of nonpayment by Tenant as in the case of failure by Tenant in the payment
of rent hereunder.

32. ATTORNEYS' FEES.

        (A) In the event that either Landlord or Tenant should bring suit for
the possession of the Premises, for the recovery of any sum due under this
Lease, or because of the breach of any provision of this Lease, or for any other
relief against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.

        (B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.

33. WAIVER The waiver by either party of the other party's failure to perform or
observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.

34. NOTICES All notices, demands, requests, advices or designations which may be
or are required to be given by either party to the other hereunder shall be in
writing. All notices, demands, requests, advices or designations by Landlord to
Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at 2560 Mission College Blvd., Suite 101,
Santa Clara, CA 95054. Each notice, request, demand, advice or designation
referred to in this paragraph shall be deemed received on the date of the
personal service or mailing thereof in the manner herein provided, as the case
may be.

35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.

36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.

37. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.

38. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agree that, in the event of
any actual or alleged failure, breach or default hereunder by Landlord:

        (i) the sole and exclusive remedy shall be against Landlord's interest
in the Premises leased herein;

        (ii) no partner of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership);

        (iii) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);

        (iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;

        (v) no judgment will be taken against any partner of Landlord;

        (vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;

        (vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;

        (viii) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.

        Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.

39.     MISCELLANEOUS AND GENERAL PROVISIONS

        a. Tenant shall not, without the written consent of Landlord, use the
        name of the building for any purpose other than as the address of the
        business conducted by Tenant in the Premises.

        b. This Lease shall in all respects be governed by and construed in
        accordance with the laws of the State of California. If any provision of
        this Lease shall be invalid, unenforceable or ineffective for any reason
        whatsoever, all other provisions hereof shall be and remain in full
        force and effect.

        c. The term "Premises" includes the space leased hereby and any
        improvements now or hereafter installed therein or attached thereto. The
        term "Landlord" or any pronoun used in place thereof includes the plural
        as well as the singular and the successors and assigns of Landlord. The
        term "Tenant" or any pronoun used in place thereof includes the plural
        as well as the singular and individuals, firms, associations,
        partnerships and corporations, and their and each of their respective
        heirs, executors, administrators, successors and permitted assigns,
        according to the context hereof, and the provisions of this Lease shall
        inure to the benefit of and bind such heirs, executors, administrators,
        successors and permitted assigns.

               The term "person" includes the plural as well as the singular and
        individuals, firms, associations, partnerships and corporations. Words
        used in any gender include other genders. If there be more than one
        Tenant the obligations of Tenants hereunder are joint and several. The
        paragraph headings of this Lease are for convenience of reference only
        and shall have no effect upon the construction or interpretation of any
        provision hereof.

        d. Time is of the essence of this Lease and of each and all of its
        provisions.


                                  Page 7 of 8
<PAGE>   8

        e. At the expiration or earlier termination of this Lease, Tenant shall
        execute, acknowledge and deliver to Landlord, within ten (10) days after
        written demand from Landlord to Tenant, any quitclaim deed or other
        document required by any reputable title company, licensed to operate in
        the State of California, to remove the cloud or encumbrance created by
        this Lease from the real property of which Tenant's Premises are a part.

        f. This instrument along with any exhibits and attachments hereto
        constitutes the entire agreement between Landlord and Tenant relative to
        the Premises and this agreement and the exhibits and attachments may be
        altered, amended or revoked only by an instrument in writing signed by
        both Landlord and Tenant. Landlord and Tenant agree hereby that all
        prior or contemporaneous oral agreements between and among themselves
        and their agents or representatives relative to the leasing of the
        Premises are merged in or revoked by this agreement.

        g. Neither Landlord nor Tenant shall record this Lease or a short form
        memorandum hereof without the consent of the other.

        h. Tenant further agrees to execute any amendments required by a lender
        to enable Landlord to obtain financing, so long as Tenant's rights
        hereunder are not substantially affected.

        i. Paragraphs 42 through 55 are added hereto and are included as a part
        of this lease.

        j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
        endorsed on or affixed to this Lease are a part hereof.

        k. Tenant covenants and agrees that no diminution or shutting off of
        light, air or view by any structure which may be hereafter erected
        (whether or not by Landlord) shall in any way affect his Lease, entitle
        Tenant to any reduction of rent hereunder or result in any liability of
        Landlord to Tenant.

40. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.

41. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.

        All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.

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

        IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.

LANDLORD:                               TENANT:

WESTPORT JOINT VENTURE INC.             COSINE COMMUNICATIONS,
a California general partnership        a California corporation

JOHN ARRILLAGA SURVIVOR'S TRUST

By: /s/ JOHN ARRILLAGA                  By:  /s/ CURTIS DUDNICK
    --------------------------------         -----------------------------------
    John Arrillaga, Trustee                  Curtis Dudnick, CFO

Date: 7/7/98                            Date: 7/8/98
      ------------------------------          ----------------------------------

PEERY PRIVATE INVESTMENT
COMPANY-WP, L.P.,
a California limited partnership

By: /s/ RICHARD T. PEERY
    -------------------------------------------
    Richard T. Peery, Trustee of the Richard T.
    Peery Separate Property Trust dated
    7/20/77, as its General Partner

Date: 7/9/98
      -----------------------------------------

PEERY PUBLIC INVESTMENT COMPANY-WP,
L.P., a California limited partnership

By: /s/ RICHARD T. PEERY
    -------------------------------------------
    Richard T. Peery, Trustee of the Richard T.
    Peery Separate Property Trust dated
    7/20/77, as its General Partner

Date: 7/9/98
      -----------------------------------------


                                  Page 8 of 8
<PAGE>   9
        Paragraphs 42 through 55 to Lease Agreement dated May 26, 1998, By and
Between Westport Joint Venture, a California general partnership, as Landlord,
and COSINE COMMUNICATIONS, INC., a California corporation, as Tenant for 48,384+
Square Feet of Space Located at 1200 Bridge Parkway, Redwood City, California.

42. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of TWENTY THREE MILLION SEVEN HUNDRED FIFTY FOUR THOUSAND ONE HUNDRED TWENTY
FOUR AND 80/100 DOLLARS ($23,754,124.80), shall be payable as follows:

        For the period August 1, 1998 through January 31, 1999 no Basic Rent
will be due; however, Tenant will be responsible for all Additional Rent
expenses as outlined in Paragraph 4D from the Commencement Date of the Lease.

        Upon Tenant's execution of this Lease Agreement, the sum of SEVENTY
THREE THOUSAND SEVEN HUNDRED EIGHTY FIVE AND 60/100 DOLLARS ($73,785.60) shall
be due, representing the rental for the period February 1, 1999 through February
28, 1999.

        On March 1, 1999, the sum of SEVENTY THREE THOUSAND SEVEN HUNDRED EIGHTY
FIVE AND 60/100 DOLLARS ($73,785.60) shall be due, and a like sum due on the
first day of each month thereafter, through and including July 1, 1999.

        On August 1, 1999, the sum of ONE HUNDRED FIFTY TWO THOUSAND FOUR
HUNDRED NINE AND 60/100 DOLLARS ($152,409.60) shall be due, and a like sum due
on the first day of each month thereafter, through and including July 1, 2000.

        On August 1, 2000, the sum of ONE HUNDRED FIFTY SEVEN THOUSAND TWO
HUNDRED FORTY EIGHT AND NO/100 DOLLARS ($157,248.00) shall be due, and a like
sum due on the first day of each month thereafter, through and including July 1,
2001.

        On August 1, 2001, the sum of ONE HUNDRED SIXTY TWO THOUSAND EIGHTY SIX
AND 40/100 DOLLARS ($162,086.40) shall be due, and a like sum due on the first
day of each month thereafter, through and including July 1, 2002.

        On August 1, 2002, the sum of ONE HUNDRED SIXTY SIX THOUSAND NINE
HUNDRED TWENTY FOUR AND 80/100 DOLLARS ($166,924.80) shall be due, and a like
sum due on the first day of each month thereafter, through and including July 1,
2003.

        On August 1, 2003, the sum of ONE HUNDRED SEVENTY ONE THOUSAND SEVEN
HUNDRED SIXTY THREE AND 20/100 DOLLARS ($171,763.20) shall be due, and a like
sum due on the first day of each month thereafter, through and including July 1,
2004.

        On August 1, 2004, the sum of ONE HUNDRED SEVENTY SIX THOUSAND SIX
HUNDRED ONE AND 60/100 DOLLARS ($176,601.60 shall be due, and a like sum due on
the first day of each month thereafter, through and including July 1, 2005.

        On August 1, 2005, the sum of ONE HUNDRED EIGHTY ONE THOUSAND FOUR
HUNDRED FORTY AND NO/100 DOLLARS ($181,440.00) shall be due, and a like sum due
on the first day of each month thereafter, through and including July 1, 2006.

        On August 1, 2006, the sum of ONE HUNDRED EIGHTY SIX THOUSAND TWO
HUNDRED SEVENTY EIGHT AND 40/100 DOLLARS ($186,278.40) shall be due, and a like
sum due on the first day of each month thereafter, through and including July 1,
2007.

        On August 1, 2007, the sum of ONE HUNDRED NINETY ONE THOUSAND ONE
HUNDRED SIXTEEN AND 80/100 DOLLARS ($191,116.80) shall be due, and a like sum
due on the first day of each month thereafter, through and including July 1,
2008.

        On August 1, 2008, the sum of ONE HUNDRED NINETY FIVE THOUSAND NINE
HUNDRED FIFTY FIVE AND 20/100 DOLLARS ($195,955.20) shall be due, and a like sum
due on the first day of each month thereafter, through and including July 1,
2009.

        On August 1, 2009, the sum of TWO HUNDRED THOUSAND SEVEN HUNDRED


                                     Page 9
<PAGE>   10
NINETY THREE AND 60/100 DOLLARS ($200,793.60) shall be due, and a like sum due
on the first day of each month thereafter, through and including July 1, 2010;
or until the entire aggregate sum of TWENTY THREE MILLION SEVEN HUNDRED FIFTY
FOUR THOUSAND ONE HUNDRED TWENTY FOUR AND 80/100 DOLLARS ($23,754,124.80) has
been paid.

43. "AS-IS" BASIS: Subject only to Paragraph 44 and to Landlord making the
improvements shown on Exhibit B to be attached hereto, it is hereby agreed that
the Premises leased hereunder is leased strictly on an "as-is" basis and in its
present condition, and in the configuration as shown on Exhibit B to be attached
hereto, and by reference made a part hereof. Except as noted herein, it is
specifically agreed between the parties that after Landlord makes the interior
improvements as shown on Exhibit B, Landlord shall not be required to make, nor
be responsible for any cost, in connection with any repair, restoration, and/or
improvement to the Premises in order for this Lease to commence, or thereafter,
throughout the Term of this Lease. Notwithstanding anything to the contrary
within this Lease, Landlord makes no warranty or representation of any kind or
nature whatsoever as to the condition or repair of the Premises, nor as to the
use or occupancy which may be made thereof.

44. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and expense,
construct certain interior improvements (the "Tenant Improvements") in the
Premises, as shown on Exhibit B to be attached to the Lease and Landlord agrees
to deliver the Premises leased hereunder to Tenant, at Landlord's expense, in
the configuration shown in Red on Exhibit B to be attached hereto.
Notwithstanding anything to the contrary above, it is specifically understood
and agreed that Landlord shall be required to furnish only a standard air
conditioning/heating system, normal electrical outlets, standard fire sprinkler
systems, standard bathroom, standard lobby, 2' x 4' suspended acoustical tile
drop ceiling throughout the entire space leased, carpeting and/or vinyl-coated
floor tile, and standard office partitions and doors, as shown on Exhibit B to
be attached hereto; provided however, that any special HVAC and/or plumbing
and/or electrical requirements over and above that normally supplied by Landlord
shall be 100 percent the responsibility of and be paid for 100 percent by
Tenant.

Notwithstanding anything to the contrary, it is agreed that in the event Tenant
makes changes, additions, or modifications to the plans and specifications to be
constructed by Landlord as set forth herein, or improvements are installed for
Tenant in excess of those to be provided Tenant by Landlord as set forth on
Exhibit B, any increased cost(s) resulting from said changes, additions, and/or
modifications and/or improvements in excess of those to be provided Tenant shall
be contracted for with Landlord and paid for one hundred percent (100%) by
Tenant.

The interior shall be constructed in accordance with Exhibit B of the Lease, it
being agreed, however, that if the interior improvements constructed by Landlord
relating thereto, do not conform exactly to the plans and specifications as set
forth in the Lease, and the general appearance, structural integrity, and
Tenant's uses and occupancy of the Premises and interior improvements relating
thereto are not materially or unreasonably affected by such deviation, it is
agreed that the commencement date of the Lease, and Tenant's obligation to pay
rental, shall not be affected, and Tenant hereby agrees, in such event, to
accept the Premises and interior improvements as constructed by Landlord.

Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord), and
Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection has been completed,
Landlord shall prepare, and both parties shall sign, a list of all "punch list"
items which the parties reasonably agree are to be corrected by Landlord (but
which shall exclude any damage or defects caused by Tenant, its employees,
agents or parties Tenant has contracted with to work on the Premises). Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the repairs on the "punch list" without the Commencement
Date of the Lease and Tenant's obligation to pay Rental thereunder being
affected. This Paragraph shall be of no force and effect if Tenant shall fail to
give any such notice to Landlord within thirty (30) days after the Commencement
Date of this Lease.


                                    Page 10
<PAGE>   11
45. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.

46. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed by
and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.

47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.

48. ASSESSMENT CREDITS: The demised property herein may be subject to a special
assessment levied by the City of Redwood City as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited. For example: if (i) the property is subject to an annual assessment of
$1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's
assessment which reduces the assessment amount shown on the property tax bill
from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord,
pay to Landlord said $200.00 credit as Additional Rent.

49. ASSIGNMENT AND SUBLETTING (CONTINUED):

        A. In addition to and notwithstanding anything to the contrary in
Paragraph 19 of this Lease, Landlord hereby agrees to consent to Tenant's
assigning or subletting said Lease to any parent or subsidiary corporation
(including an assignment resulting from a merger and/or acquisition of Tenant),
provided that the net worth of said parent or subsidiary corporation of said
corporation has a net worth equal to or greater than the net worth of Tenant (a)
at the time of Lease execution or (b) at the time of such assignment (whichever
is greater). No such assignment or subletting will release Tenant from its
liabilities, obligations, and responsibilities under this Lease. Notwithstanding
the above, Tenant shall be required to (a) give Landlord written notice prior to
such assignment or subletting to any party as described above, (b) execute
Landlord's consent document prepared by Landlord reflecting the assignment or
subletting and (c) pay Landlord's costs for processing said Consent prior to the
effective date of said assignment or sublease.

        B. Proposed Sublet Premises. Landlord hereby acknowledges that, during
the first year of the Lease Term, Tenant intends to sublease up to fifty percent
of the Leased Premises. Provided Tenant is not in default of this Lease,
Landlord agrees that it will not exercise its right, as provided for in
Paragraph 19, to terminate the Lease as a result of a request by Tenant to
sublease fifty percent or less of the Premises for a sublease term not to extend
beyond July 14, 1999. In such event, Landlord agrees to issue Landlord's
standard consent to said sublease, subject to (a) Tenant submitting to Landlord
a copy of said sublease (prior to said sublease commencing), (b) Landlord,
Tenant and Subtenant thereafter executing Landlord's standard Consent to
Sublease agreement and (c) Landlord receives payment from Tenant of Landlord's
costs for processing said Sublease Consent prior to said sublease commencing.

        In addition to and notwithstanding anything to the contrary in Paragraph
19, Tenant shall be entitled to retain one hundred percent of any rents due
Tenant from a subtenant on the Proposed Sublet Premises in excess of the Rent
payable by Tenant to Landlord hereunder ("Excess Rent") during the period prior
to July 15, 1999.


                                    Page 11
<PAGE>   12
        C. Notwithstanding the foregoing, Landlord and Tenant agree that it
shall not be unreasonable for Landlord to refuse to consent to a proposed
assignment, sublease or other transfer ("Proposed Transfer") if the Premises or
any other portion of the Property would become subject to additional or
different Government Requirements as a direct or indirect consequence of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property. However, Landlord may, in its sole discretion,
consent to such a Proposed Transfer where Landlord is indemnified by Tenant and
(i) Subtenant or (ii) Assignee, in form and substance satisfactory to Landlord's
counsel, by Tenant and/or the Proposed Transferee from and against any and all
costs, expenses, obligations and liability arising out of the Proposed Transfer
and/or the Proposed Transferee's use and occupancy of the Premises and the
Property.

        D. Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:

               "If Landlord and Tenant jointly and voluntarily elect, for any
        reason whatsoever, to terminate the Master Lease prior to the scheduled
        Master Lease termination date, then this Sublease (if then still in
        effect) shall terminate concurrently with the termination of the Master
        Lease. Subtenant expressly acknowledges and agrees that (1) the
        voluntary termination of the Master Lease by Landlord and Tenant and the
        resulting termination of this Sublease shall not give Subtenant any
        right or power to make any legal or equitable claim against Landlord,
        including without limitation any claim for interference with contract or
        interference with prospective economic advantage, and (2) Subtenant
        hereby waives any and all rights it may have under law or at equity
        against Landlord to challenge such an early termination of the Sublease,
        and unconditionally releases and relieves Landlord, and its officers,
        directors, employees and agents, from any and all claims, demands,
        and/or causes of action whatsoever (collectively, "Claims"), whether
        such matters are known or unknown, latent or apparent, suspected or
        unsuspected, foreseeable or unforeseeable, which Subtenant may have
        arising out of or in connection with any such early termination of this
        Sublease. Subtenant knowingly and intentionally waives any and all
        protection which is or may be given by Section 1542 of the California
        Civil Code which provides as follows: "A general release does not extend
        to claims which the creditor does not know or suspect to exist in his
        favor at the time of executing the release, which if known by him must
        have materially affected his settlement with debtor.

               The term of this Sublease is therefore subject to early
        termination. Subtenant's initials here below evidence (a) Subtenant's
        consideration of and agreement to this early termination provision, (b)
        Subtenant's acknowledgment that, in determining the net benefits to be
        derived by Subtenant under the terms of this Sublease, Subtenant has
        anticipated the potential for early termination, and (c) Subtenant's
        agreement to the general waiver and release of Claims above.

              Initials:                      Initials:             "
                       ----------------               -------------
                       Subtenant                      Tenant

50. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such cure
to completion.

51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be in
default under the Lease if it leaves all or any part of Premises vacant so long
as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent, (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.


                                    Page 12
<PAGE>   13
52. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):

        A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is listed,
regulated or restricted by any Environmental Law (including, without limitation,
petroleum hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule, ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.

        B. Tenant shall obtain Landlord's written consent, which may be withheld
in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlord's consent
shall not be required for normal use in compliance with applicable Environmental
Laws of customary household and office supplies (Tenant shall first provide
Landlord with a list of said materials use), such as mild cleaners, lubricants
and copier toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, release, discharge, or emission of any Hazardous
Materials on, in, beneath, to, from, at or about the Property, in connection
with Tenant's use of the Property, or by Tenant or by any of Tenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees. Tenant agrees that any and all Tenant's Hazardous Materials
Activities shall be conducted in strict, full compliance with applicable
Environmental Laws at Tenant's expense, and shall not result in any
contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of such Hazardous
Materials, including an update of same each year upon the anniversary date of
the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each
Anniversary Date, to retain a qualified environmental consultant, acceptable to
Landlord, to evaluate whether Tenant is in compliance with all applicable
Environmental Laws with respect to Tenant's Hazardous Materials Activities.
Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's findings
within two (2) months of each Anniversary Date. Tenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.

        C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.

        D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter


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<PAGE>   14
upon the Property and conduct inspection, sampling and analysis, including but
not limited to obtaining and analyzing samples of soil and groundwater, for the
purpose of determining the nature and extent of such contamination. Tenant shall
promptly reimburse Landlord for the costs of such an investigation, including
but not limited to reasonable attorneys' fees Landlord incurs with respect to
such investigation, that discloses Hazardous Materials contamination for which
Tenant is liable under this Lease. Except as may be required of Tenant by
applicable Environmental Laws, Tenant shall not perform any sampling, testing,
or drilling to identify the presence of any Hazardous Materials at the Property,
without Landlord's prior written consent which may be withheld in Landlord's
discretion. Tenant shall promptly provide Landlord with copies of any claims,
notices, work plans, data and reports prepared, received or submitted in
connection with any sampling, testing or drilling performed pursuant to the
preceding sentence.

        E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 53 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.

        F. Landlord hereby informs Tenant, and Tenant hereby acknowledges, that
the Premises and adjacent properties overlie a former solid waste landfill site
commonly known as the Westport Landfill ("Former Landfill"). Landlord further
informs Tenant, and Tenant hereby acknowledges, that (i) prior testing has
detected the presence of low levels of certain volatile and semi-volatile
organic compounds and other contaminants in the groundwater, in the leachate
from the landfilled solid waste, and/or in certain surface waters of the
Property, as more fully described in Section 2.3.2 of the report entitled
"Revised Discharge Monitoring Plan, Westport Landfill Site, Redwood City,
California" prepared by Geomatrix Consultants, dated May 1996 ("Discharge
Plan"), (ii) methane gas is or may be generated by the landfilled solid waste
(item "i" immediately preceding and this item "ii" are hereafter collectively
referred to as the "Landfill Contamination"), and (iii) the Premises and the
Former Landfill are subject to the California Regional Water Quality Control
Board's ("Regional Board") Waste Discharge Requirements Order No. 94-181 (the
"Order"). The Order is attached hereto as Exhibit C. As evidenced by their
initials set forth immediately below, Tenant acknowledges that Landlord has
provided Tenant with copies of the environmental reports listed on Exhibit D,
and Tenant acknowledges that Tenant and Tenant's experts (if any) have had ample
opportunity to review such reports and that Tenant has satisfied itself as to
the environmental conditions of the Property and the suitability of such
conditions for Tenant's intended use of the Property.

        Initial: /s/ CD          Initial:  /s/ JP
                 ---------                 ---------
                 Tenant                    Landlord

        G. Landlord shall indemnify, defend, and hold harmless Tenant against
any and all claims asserted by third parties (excluding any agents, employees,
contractors, vendors, invitees, visitors, future subtenants and assignees of
Tenant, and excluding any other parties related to Tenant), including all
liabilities, judgments, damages, suits, orders, government directives, costs and
expenses in connection with such claims, which arise from (i) the Landfill
Contamination, or (ii) the Order, as may be amended ("Landlord's Environmental
Indemnity"); provided however that Landlord's Environmental Indemnity shall be
subject to the following limitations and conditions:

        (1)     Landlord's Environmental Indemnity shall not apply to any
                economic or consequential damages suffered by Tenant, including
                but not limited to loss of business or profits.

        (2)     Landlord's Environmental Indemnity shall not apply, without
                limitation, to any


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<PAGE>   15
                releases caused by Tenant's Hazardous Materials Activities.

        (3)     Tenant acknowledges that Landlord must comply with the Order, as
                may be amended, and with directives of government authorities
                including the Regional Board, with respect to the Contamination
                and the Former Landfill. Tenant further acknowledges that
                groundwater monitoring wells, methane recovery wells and
                equipment, and other environmental control devices are located
                on and about the Premises and may be modified or added to during
                the term of the Lease (collectively, "Environmental Equipment"),
                and that environmental investigation, monitoring, closure and
                post-closure activities (collectively, "Environmental
                Activities") will be performed on the Premises during the term
                of the Lease. Tenant shall allow Landlord, and any other party
                named as a discharger under the Order, as may be amended, and
                their respective agents, consultants and contractors, and agents
                of governmental environmental authorities with jurisdiction
                ("Government Representatives") to enter the Premises to access
                the Environmental Equipment and to perform Environmental
                Activities during the term of the Lease, provided that Tenant's
                use and occupancy of the Premises shall not unreasonably be
                disturbed.

        (4)     Tenant and Landlord shall reasonably cooperate with each other
                regarding any Environmental Activities to be performed, and
                regarding any Environmental Equipment to be installed,
                maintained, or removed on the Premises during the term of the
                Lease.

        (5)     Tenant shall be responsible at its expense for repairing any
                Environmental Equipment damaged due to the negligence of Tenant
                or Tenant's agents, employees, contractors, vendors, invitees,
                visitors, future subtenants or assignees (such terms "invitees"
                and "visitors" as used in this Paragraph 52 shall not include
                Landlord or any other party named as a discharger under the
                Order as may be amended, or any of their respective agents,
                consultants or contractors, or any Government Representatives).

        It is agreed that the Tenant's responsibilities related to Hazardous
        Materials will survive the expiration or termination of this Lease and
        that Landlord may obtain specific performance of Tenant's
        responsibilities under this Paragraph 52.

53. ADDITIONAL RENT CONTINUED: The following items shall be excluded from
"Additional Rent":

        A. Leasing commissions, attorney's fees, costs, disbursements, and other
expenses incurred in connection with negotiations with other tenants, or
disputes between Landlord and other tenants, or in connection with marketing,
leasing, renovating, or improving space for other current or prospective tenants
or other current or prospective occupants of the Complex; notwithstanding
anything to the contrary herein, any costs and expenses Landlord is entitled to
be reimbursed for as stated under Paragraph 22 ("Bankruptcy and Default") ARE
NOT excluded Additional Rent items as reflected in this Paragraph 53.

        B. The cost of any service sold to any other tenant or other occupant
whose leased premises are not part of the Premises leased herein and for which
Landlord is entitled to be reimbursed as an additional charge or rental over and
above the basic rent and additional rent payable under the lease agreement with
said other tenant (including, without limitation, after-hours HVAC costs or
over-standard electrical consumption costs incurred by other tenants).

        C. Any costs for which Landlord is entitled to be reimbursed by any
other tenant or other occupant whose leased premises are not part of the
Premises leased herein.

        D. Any costs, fines, or penalties incurred due to violations by Landlord
of any governmental rule or authority, provided Tenant is not responsible under
the Lease for such costs, fines and/or penalties, and/or provided Tenant's
actions or inactions did not cause, in whole or in part, such costs, fines
and/or penalties.

        E. Wages, salaries, or other compensation paid to executive employees
above the grade of Property Manager.

        F. Repairs or other work occasioned by fire, windstorm, or other insured
peril, to the


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<PAGE>   16
extent that Landlord shall receive proceeds of such insurance or would have
received such proceeds had Landlord maintained the insurance coverage required
under this Lease providing said insurance coverage was available and Tenant paid
its share of the premium as required under the Lease (excluding any insurance
deductible(s) which Tenant is responsible for paying).

        G. Except as otherwise noted in this Lease, any mortgage debt, or ground
rents or any other amounts payable under any ground lease for the Property or
any expense which Landlord is responsible for paying under said Lease or which
results from Landlord's willful misconduct or Landlord's negligence of which
negligence Landlord has received notice of and has reasonable time to correct.

        H. Any amounts paid to any person, firm, or corporation related or
otherwise affiliated with Landlord or any general partner, officer, or director
of Landlord or any general partners, to the extent same exceeds arms-length
competitive prices paid in the Santa Clara, California metropolitan area for the
services or goods provided.

54. SUBORDINATION AND MORTGAGES: Paragraph 20 is modified to provide that,
provided Tenant is not in default in the terms of this Lease, this Lease shall
not be subordinate to a mortgage or deed of trust unless the Lender holding such
mortgage or deed of trust enters into a written subordination, non-disturbance
and attornment agreement in which the Lender agrees that notwithstanding any
subordination of this Lease to such Lender's mortgage or deed of trust, (i) such
Lender shall recognize all of Tenant's rights under this Lease, and (ii) in the
event of a foreclosure, this Lease shall not be terminated so long as Tenant is
not in default of its obligations under this Lease, but shall continue in effect
and Tenant and such Lender (or any party acquiring the Premises through such
foreclosure) shall each be bound to perform the respective obligations of Tenant
and Landlord with respect to the Premises arising after such foreclosure.

55. TAXES CONTINUED: Paragraph 12 ("Taxes") is modified by the following:

        A. The amount of Real Property Taxes payable by Tenant hereunder shall
be prorated to reflect the dates of Lease Commencement and Lease Termination.

        B. It is agreed that if any special assessments for capital improvements
are assessed, and if Landlord has the option to either pay the entire assessment
in cash or go to bond, and if Landlord elects to pay the entire assessment in
cash in lieu of going to bond, the entire portion of the assessment assigned to
Tenant's Leased Premises will be prorated over the same period that the
assessment would have been prorated had the assessment gone to bond.


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