<PAGE>
 
                                                                   EXHIBIT 10.55


                                 LEASE BETWEEN
              THE SOBRATO GROUP AND CONCENTRIC NETWORK CORPORATION


<TABLE> 
<CAPTION> 
Section                                                                           Page #
-------                                                                           ------
<S>                                                                                <C> 
Parties                                                                              1  
Premises                                                                             1
Use                                                                                  1
 Permitted Uses                                                                      1
 Uses Prohibited                                                                     1
 Advertisements and Signs                                                            1
 Covenants, Conditions and Restrictions                                              1
Term and Rental                                                                      1
 Base Monthly Rent                                                                   2
 Late Charges                                                                        2
 Security Deposit                                                                    2
Construction                                                                         3
Acceptance of Possession and Covenants to Surrender                                  4
 Delivery and Acceptance                                                             4
 Condition Upon Surrender                                                            4
 Failure to Surrender                                                                5
Alterations and Additions                                                            5
 Tenant's Alterations                                                                5
 Free From Liens                                                                     6
 Compliance With Governmental Regulations                                            6
Maintenance of Premises                                                              7
 Landlord's Obligations                                                              7
 Tenant's Obligations                                                                7
 Excluded Costs                                                                      7
 Waiver of Liability                                                                 8
Hazard Insurance                                                                     8
 Tenant's Use                                                                        8
 Landlord's Insurance                                                                8
 Tenant's Insurance                                                                  9
 Waiver                                                                              9
Taxes                                                                                9
Utilities                                                                           10
Toxic Waste and Environmental Damage                                                10
 Tenant's Responsibility                                                            10
 Tenant's Indemnity Regarding Hazardous Materials                                   10
 Actual Release by Tenant                                                           11
 Environmental Monitoring                                                           12
 No Responsibility                                                                  12
 Landlord's Representation and Indemnity                                            12
Notification                                                                        13
Environmental Studies                                                               13
Tenant's Default                                                                    13
 Remedies                                                                           13
 Right to Re-enter                                                                  14
 Abandonment                                                                        14
 No Termination                                                                     14
 Non-Waiver                                                                         14
 Performance by Landlord                                                            15
 Habitual Default                                                                   15 
</TABLE> 

                                     Page 1
<PAGE>
 
<TABLE> 
<S>                                                                                <C> 
Landlord's  Liability                                                               15
 Limitation on Landlord's Liability                                                 15
 Limitation on Tenant's Recourse                                                    15 
 Indemnification of Landlord                                                        16
Destruction of Premises                                                             16
 Landlord's Obligation to Restore                                                   16
 Limitations on Landlord's Restoration Obligation                                   16
Condemnation                                                                        17
Assignment or Sublease                                                              17
 Consent by Landlord                                                                17
 Assignment or Subletting Consideration                                             18
 No Release                                                                         18
 Reorganization of Tenant                                                           18
 Permitted Transfers                                                                18
 Effect of Default                                                                  19
 Effects of Conveyance                                                              19
 Successors and Assigns                                                             19
Option to Extend the Lease Term                                                     19
 Grant and Exercise of Option                                                       19
 Determination of Fair Market Rental                                                20
 Resolution of a Disagreement over the Fair Market Rental                           20
 Personal to Tenant                                                                 21
Condition Precedent to Lease                                                        21
General Provisions                                                                  21
 Attorney's Fees                                                                    21
 Authority of Parties                                                               21
 Brokers                                                                            21
 Choice of Law                                                                      22
 Dispute Resolution                                                                 22
 Entire Agreement                                                                   22
 Entry by Landlord                                                                  22
 Estoppel Certificates                                                              23
 Exhibits                                                                           23
 Interest                                                                           23
 No Presumption Against Drafter                                                     23
 Notices                                                                            23
 Property Management                                                                24
 Rent                                                                               24
 Representations                                                                    24
 Rights and Remedies                                                                24
 Severability                                                                       24
 Submission of Lease                                                                24
 Subordination                                                                      24
 Approvals                                                                          25
 Reasonable Expenditures                                                            25
 Survival of Indemnities                                                            25
 Time                                                                               25
 Waiver of Right to Jury Trial                                                      25 
 Memorandum of Lease                                                                25
 Quiet Enjoyment                                                                    26
EXHIBIT A - Premises                                                                28
</TABLE> 

                                     Page 2
<PAGE>
 
1.  PARTIES: THIS LEASE, is entered into on this 15th day of May, 1998, between
The Sobrato Group, a California Limited Partnership, whose address is 10600
North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and Concentric Network
Corporation, a Delaware Corporation, whose address is 10590 North Tantau Avenue,
Cupertino, California, 95014 hereinafter called respectively Landlord and
Tenant.

2.  PREMISES: Landlord hereby leases to Tenant, and Tenant hires from Landlord
those certain Premises with the appurtenances, situated in the City of San Jose,
County of Santa Clara, State of California, commonly known and designated as
1400 Parkmoor Avenue, including a building consisting of 102,848 rentable square
feet ("Building") and exclusive parking for approximately 340 cars, as outlined
in red on Exhibit "A". Unless expressly provided otherwise, the term Premises as
          -----------                                                         
used herein shall include the Tenant Improvements (defined in Section 5.B)
constructed by Tenant pursuant to Section 5.B.

3.  USE:

  A. PERMITTED USES: Tenant shall use the Premises only for the following
purposes and shall not change the use of the Premises without the prior written
consent of Landlord: Office, research and development, marketing, light
manufacturing, other legally permitted uses, ancillary storage and other
incidental uses. Tenant shall use only the number of parking spaces allocated to
Tenant. Landlord makes no representation or warranty that any specific use of
the Premises desired by Tenant is permitted pursuant to any Laws.

  B. USES PROHIBITED: Tenant shall not commit or suffer to be committed on the
Premises any waste, nuisance, or other act or thing which may disturb the quiet
enjoyment of any other tenant in or around the Premises, nor allow any sale by
auction or allow the Premises to be used for any unlawful purpose. Tenant shall
not (i) damage or overload the electrical, mechanical or plumbing systems of the
Premises, (ii) attach, hang or suspend anything from the ceiling, walls or
columns of the Building if it would endanger the structural integrity of the
Building or set any load on the floor in excess of the load limits for which
such items are designed if it would endanger the structural integrity of the
Building, or (iii) generate dust, fumes or waste products which create a fire or
health hazard or damage the Premises or in the soils surrounding the Building.
No materials, supplies, equipment, finished products or semi-finished products,
raw materials or articles of any nature, or any waste materials, refuse, scrap
or debris, shall be stored upon or permitted to remain on any portion of the
Premises outside of the Building other than within designated trash enclosure
areas without Landlord's prior approval, which approval may be withheld in its
sole discretion.

  C. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be placed upon
or about the Premises any signs not approved by the city or other governing
authority. Any sign placed on the Premises shall be removed by Tenant, at its
sole cost, prior to the Expiration Date or promptly following the earlier
termination of the Lease, and Tenant shall repair, at its sole cost, any damage
or injury to the Premises caused thereby, and if not so removed, then Landlord
may have same so removed at Tenant's expense. Landlord shall cooperate with
Tenant in acquiring required permits for the signage desired by Tenant;
provided, however, that Landlord shall not be required to incur out-of-pocket
costs in connection therewith.

  D. COVENANTS, CONDITIONS AND RESTRICTIONS: This Lease is subject to the effect
of (i) any covenants, conditions, restrictions, easements, mortgages or deeds of
trust, ground leases, rights of way of record and any other documents of record;
and (ii) any zoning laws of the city, county and state where the Building is
situated (collectively referred to herein as "Restrictions") and Tenant will
conform to and will not violate the terms of any such Restrictions.

4.  TERM AND RENTAL:

  A. BASE MONTHLY RENT: The term ("Lease Term") shall be for eighty four (84)
months, commencing on February 1, 1999 (the "Commencement Date") and ending
January 31, 2006, ("Expiration Date"). In addition to all other

                                     Page 3
<PAGE>
 
sums payable by Tenant under this Lease commencing on the Commencement Date
(which may be extended as set forth in Section 6 of this Lease), Tenant shall
pay as base monthly rent ("Base Monthly Rent") for the Premises according to the
following schedule:

  Months 01 - 12:           $200,554.00 per month
  Months 13 - 24:           $208,576.00 per month
  Months 25 - 36:           $216,919.00 per month
  Months 37 - 48:           $225,596.00 per month
  Months 49 - 60:           $234,619.00 per month
  Months 61 - 72:           $244,004.00 per month
  Months 73 - 84:           $253,764.00 per month

Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term.  All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction (except as specifically set forth in this Lease) and
without prior notice or demand, at the address specified in Section 1 of this
Lease or at such place or places as may be designated in writing by Landlord
during the Lease Term.  Base Monthly Rent for any period less than a calendar
month shall be a pro rata portion of the monthly installment based on a thirty
(30) day month.  On or before July 15, 1998, Tenant shall pay Landlord the sum
of Two Hundred Thousand Five Hundred Fifty Four and No/100 Dollars ($200,554.00)
as prepaid rent for the first month of the Lease.

  B. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which is
extremely difficult to ascertain. Such costs include but are not limited to:
administrative, processing, accounting, and late charges which may be imposed on
Landlord by the terms of any contract, revolving credit, mortgage, or trust deed
covering the Premises. Accordingly, if any installment of Base Monthly Rent or
other sum due from Tenant shall not be received by Landlord or its designee
within ten (10) days after the rent is due, Tenant shall pay to Landlord a late
charge equal to five (5%) percent of such overdue amount, which late charge
shall be due and payable on the same date that the overdue amount was due. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant, excluding
interest and attorneys fees and costs. If any rent or other sum due from Tenant
remains delinquent for a period in excess of thirty (30) days then, in addition
to such late charge, Tenant shall pay to Landlord interest on any rent that is
not paid when due at the Agreed Interest Rate specified in Section 20.J
following the date such amount became due until paid; provided, however, that
interest shall not accrue on any late charge. Acceptance by Landlord of such
late charge shall not constitute a waiver of Tenant's default with respect to
such overdue amount nor prevent Landlord from exercising any of the other rights
and remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
Base Monthly Rent, then the Base Monthly Rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding any provision
of this Lease to the contrary.

  C. SECURITY DEPOSIT: Prior to the July 31, 1998, Tenant shall deposit with
Landlord the sum of One Million Two Hundred Thousand and No/100 Dollars
($1,200,000.00) ("Security "Deposit"). Notwithstanding the foregoing, Landlord
agrees that in lieu of a cash security deposit, Tenant may deposit a letter of
credit or certificate of deposit ("CD") in a form reasonably acceptable to
Landlord. Landlord shall be entitled to draw against the letter of credit or CD
at any time that Tenant has committed a material default and breach of this
Lease as defined in Section 13 of this Lease, provided only that Landlord
certifies to the issuer of the letter of credit or CD under penalty of perjury
that Tenant is in default (beyond any applicable notice and applicable cure
period) under the Lease. Tenant shall keep the letter of credit or CD in effect
during the entire Lease Term, as the same may be extended or terminated, plus a
period of four (4) weeks after expiration or sooner termination of the Lease
Term. At least thirty (30) days prior to expiration of any letter of credit or
CD, the term

                                     Page 4
<PAGE>
 
thereof shall be renewed or extended for a period of at least one (1) year.
Tenant's failure to so renew or extend the letter of credit or CD shall be a
material default of this Lease by Tenant. In the event Landlord draws against
the letter of credit or CD, Tenant shall replenish the existing letter of credit
or CD or cause a new letter of credit or CD to be issued such that the aggregate
amount of letters of credit or CD available to Landlord at all times during the
Lease Term is the amount of the original security deposit, less any deductions
thereof permitted under this Section 4.C.. Notwithstanding the foregoing,
provided Tenant has not been in monetary default (beyond any required written
notice and applicable cure period) under the Lease during the previous 12 month
period, Tenant shall be entitled to reduce the amount of the Security Deposit
annually by Two Hundred Thousand and No/100 Dollars ($200,000.00). In no case,
however, shall the amount of the Security Deposit ever be reduced to less than
Two Hundred Thousand Dollars ($200,000.00) in total. Landlord shall not be
deemed a trustee of the Security Deposit, may use the Security Deposit in
business, and shall not be required to segregate it from its general accounts.
Tenant shall not be entitled to interest on the Security Deposit. If Tenant
defaults (beyond any applicable cure period) with respect to any provisions of
the Lease, including but not limited to the provisions relating to payment of
Base Monthly Rent or other charges, Landlord may, to the extent reasonably
necessary to remedy Tenant's default, use any or all of the Security Deposit
towards payment of the following: (i) Base Monthly Rent or other charges in
default; (ii) any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default including, but not limited to. Tenant's
failure to restore or clean the Premises following vacation thereof as required
under this Lease; and (iii) any other loss or damage which Landlord may suffer
by reason of Tenant's default. Tenant waives the provisions of California Civil
Code Section 1950.7, and all other provisions of law now in force or that become
in force after the date of execution of this Lease, that provide that Landlord
may claim from a security deposit only those sums reasonably necessary to remedy
defaults in the payment of Rent, to repair damage caused by Tenant, or to clean
the Premises. Landlord and Tenant agree that Landlord may, in addition, claim
those sums reasonably necessary to compensate Landlord for any other foreseeable
or unforeseeable loss or damage caused by the act or omission of Tenant or
Tenant's agents, employees, contractors and invitees ("Tenant's Agents"). Tenant
may not assign or encumber the Security Deposit without the consent of Landlord.
Any attempt to do so shall be void and shall not be binding on Landlord. The
Security Deposit shall be returned to Tenant within thirty (30) days after the
Expiration Date or earlier termination of the Lease and surrender of the
Premises to Landlord, less any amount deducted in accordance with this Section,
together with Landlord's written notice itemizing the amounts and purposes for
such deduction. In the event of termination of Landlord's interest in this
Lease, Landlord may deliver or credit the Security Deposit to Landlord's
successor in interest in the Premises and thereupon be relieved of further
responsibility with respect to the Security Deposit.

5.  CONSTRUCTION:
Tenant intends to make certain interior improvements ("Tenant Improvements") to
the Premises prior to the Lease Commencement Date.  As an inducement for Tenant
to enter into this Lease, Landlord has agreed to provide Tenant a work allowance
to be utilized for the cost of Tenant Improvements to be constructed by Tenant
("Work Allowance") in an amount of up to Three Hundred Fifty Thousand and No/100
Dollars ($350,000.00).  The Work Allowance shall be paid by Landlord to Tenant
as payments become due by Tenant to its general contractor(s) performing the
Tenant Improvements. The Tenant Improvements shall not be removed or altered by
Tenant without the prior written consent of Landlord as provided in Section 7.
Tenant shall have the right to depreciate and claim and collect any Investment
tax credits in the Tenant Improvements during the Lease Term. Upon expiration of
the Lease term or any earlier termination of the Lease, the Tenant Improvements
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises, and title thereto shall automatically vest in Landlord
without any payment therefore.

Notwithstanding anything to the contrary in this Lease, the following Tenant
Improvements to be made to the Premises shall at all times remain Tenant's
property and Tenant shall be entitled to all depreciation, amortization and
other tax 

                                     Page 5
<PAGE>
 
benefits with respect thereto:  data center installed by Tenant, all
telecommunications and cabling systems ("Tenant's Property").  Notwithstanding
anything to the contrary in the Lease, Tenant may remove Tenant's Property from
the Premises or alter Tenant's Property at any time, provided (i) Tenant, at
Tenant's expense, repairs any damage caused by such removal and (ii) the
alteration or removal of Tenant's Property does not affect the functionality of
the Building for a typical office/research and development tenant.  Tenant's
repair obligations pursuant this Article shall include (i) patching holes and
repainting wall surfaces, (ii) replacing floor coverings, and (iii)
reconfiguring the electrical, mechanical, and plumbing systems in such a manner
so that the location of the Tenant's Property removed is no longer apparent to
Landlord.  Under no circumstances will Tenant be required to remove any of the
Tenant Improvements from the Premises upon the expiration or sooner termination
of the Lease Term or any extension thereof.  The Term "Alterations" as used in
this Lease does not include the Tenant Improvements.

6.  ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:

  A. DELIVERY AND ACCEPTANCE: Landlord shall deliver possession of the Premises
to Tenant on January 1, 1999 (the "Early Possession Date") for the purpose of
constructing the Tenant Improvements. Tenant shall not be required to pay Base
Monthly Rent or any additional rent for the Premises until the Commencement
Date. If Landlord fails to deliver possession of the Premises to Tenant on the
Early Possession Date, then the Commencement Date shall be delayed by one (1)
day for each day that the Early Possession Date is delayed beyond January 1,
1999 so that in all cases, Tenant has a period of thirty (30) days between the
Early Possession Date and the Commencement Date. If Landlord is unable to
deliver possession of the Premises to Tenant by March 31, 1999, Tenant may
terminate this Lease by written notice to the Landlord, whereupon any monies
previously paid by Tenant to Landlord, including prepaid rent and Security
Deposit, shall be returned to Tenant. Tenant, its agents, employees,
representatives and contractors shall have the right to enter and use the
Premises on and after the Early Possession Date. By the Commencement Date,
Landlord agrees to deliver the Premises in good operating condition and repair,
including the parking lot, roof membrane, HVAC, electrical and plumbing systems.
Tenant shall thereafter accept the Premises as being in good and sanitary order,
condition and repair and accepts the Premises and other improvements in said
condition. Notwithstanding anything to the contrary in this Lease, Landlord
represents and warrants to Tenant that on the Commencement Date, the Premises
and all improvements thereon (with the exception of Tenant Improvements
constructed by Tenant) shall: (i) be free from material defects; and (ii) comply
with all applicable laws, regulations, conditions, covenants and restrictions,
or other promulgations of lawful governmental authority including, without
limitation, Title 24 of the California Administative Code and the Americans with
Disabilities Act. The only exception to the foregoing shall be any compliance
necessitated because of Tenant's construction of Tenant Improvements. Landlord
further warrants that as of the Commencement Date, the HVAC, plumbing,
mechanical, electrical, sewer and heating systems which Tenant will be required
to maintain under the terms of the Lease are in good operating condition and
repair. Landlord hereby assigns to Tenant all warranties with respect to the
Premises which would reduce Tenant's maintenance obligations under the Lease and
shall cooperate with Tenant to enforce all such warranties. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in said condition, subject to all Restrictions and without further
representation or warranty by Landlord beyond those in the Lease.

  B. CONDITION UPON SURRENDER: Tenant further agrees on the Expiration Date or
on the sooner termination of this Lease, to surrender the Premises to Landlord
in good condition and repair, normal wear and tear, acts of God, casualties,
condemnation, Tenant Improvements, Hazardous Materials as defined in Section 12
hereof (other than those used , stored or disposed of in or about the Premises
in violation of "Governmental Regulations" (as defined in Section 7.D) and
Alterations as defined in Section 7.A. made by Tenant which Landlord has
indicated that Tenant shall not be required to remove, excepted. In this regard,
"normal wear and tear" shall be construed to mean wear and

                                     Page 6
<PAGE>
 
tear caused to the Premises by the natural aging process which occurs in spite
of prudent application of the best standards for maintenance, repair
replacement, and janitorial practices, and does not include items of neglected
or deferred maintenance. In any event, Tenant shall cause the following to be
done prior to the Expiration Date or sooner termination of this Lease: (i) all
interior walls shall be painted or cleaned so that they appear freshly painted,
(ii) all tiled floors shall be cleaned and waxed, (iii) all carpets shall be
cleaned and shampooed, (iv) all broken, marred and stained acoustical ceiling
tiles, and any non-conforming replacements thereof by Tenant shall be replaced,
(v) all cabling placed above the ceiling by Tenant or Tenant's contractors shall
be removed, (vi) all windows shall be washed; (vii) the HVAC system shall be
serviced by a reputable and licensed service firm and left in "good operating
condition and repair" as so certified by such firm, and (viii) the plumbing and
electrical systems and lighting shall be placed in good order and repair,
including replacement of any burned out, discolored or broken light bulbs,
ballasts, or lenses. On or before the Expiration Date or sooner termination of
this Lease, Tenant shall remove all its personal property and trade fixtures
from the Premises. All property and fixtures not so removed shall be deemed as
abandoned by Tenant. Tenant shall ascertain from Landlord within ninety (90)
days before the end of the Lease Term whether Landlord will require Tenant to
remove any Alterations made by Tenant at the Premises; provided that Landlord
shall not require Tenant to remove any Alteration which Landlord has previously
indicated may remain at the Premises. If Landlord shall so require, Tenant
shall, at Tenant's sole cost and expense, remove such Alterations as Landlord
requires and shall repair and restore said Premises or such parts thereof before
the Expiration Date to the condition and configuration as of the Commencement
Date or upon the completion of the Tenant Improvements; provided, however, that
Tenant may remove from the Premises all of Tenant's Property (as defined in the
Lease), Tenant's personal property, Tenant's trade fixtures, and any Alterations
which Landlord requires Tenant to remove. Such repair and restoration shall
include causing the Premises to be brought into compliance with all applicable
building codes and laws in effect at the time of the removal to extent such
compliance is necessitated due to Tenant's removal.

  C. FAILURE TO SURRENDER: If the Premises are not surrendered at the Expiration
Date or sooner termination of this Lease in the condition required by this
Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this Section
6.C and Tenant shall indemnify, defend, and hold Landlord harmless against loss
or liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay and costs incurred by Landlord in returning the Premises to the
required condition, plus interest at the Agreed Interest Rate. Any holding over
after the termination or Expiration Date with Landlord's express written
consent, shall be construed as month-to-month tenancy, terminable on thirty (30)
days written notice from either party, and Tenant shall pay as Base Monthly Rent
to Landlord a rate equal to one hundred twenty five percent (125%) of the Base
Monthly Rent due in the month preceding the termination or Expiration Date, plus
all other amounts payable by Tenant under this Lease, which other amounts shall
be paid based on the same formula and schedule as during the Lease Term. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession of
the Premises after expiration or earlier termination of this Lease without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as rent during the holdover period an
amount equal to two hundred percent (200%) of the Base Monthly Rent due in the
month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease, which other amounts shall be paid based on
the same formula and schedule as during the Lease Term. Any holding over shall
otherwise. This provision shall survive the termination or expiration of the
Lease.

7.  ALTERATIONS AND ADDITIONS:

  A. TENANT'S ALTERATIONS: Tenant shall not make, or suffer to be made, any
alteration or

                                     Page 7
<PAGE>
 
addition to the Premises ("Alterations"), or any part thereof, without obtaining
Landlord's prior written consent and delivering to Landlord the proposed
architectural and structural plans for all such Alterations at least fifteen
(15) days prior to the start of construction. If such Alterations affect the
structure of the Building, Tenant additionally agrees to reimburse Landlord its
reasonable out-of-pocket costs incurred in reviewing Tenant's plans, not to
exceed One Thousand Dollars ($1,000.00) per Alteration. Landlord's consent shall
not be unreasonably withheld and if Landlord does not notify Tenant in writing
of its reasonable disapproval of such Alteration within fourteen (14) days
following Tenant's written request for approval and delivery to Landlord of the
proposed plans, then Landlord shall be deemed to have approved the proposed
Alteration. Upon the request of Tenant, Landlord shall, within the 14-day
period, advise Tenant in writing as to whether Landlord shall require removal of
any Alteration in question upon the expiration or earlier termination of the
Lease Term. After obtaining Landlord's consent, Tenant shall not proceed to make
such Alterations until Tenant has obtained all required governmental approvals
and permits, and if requested by Landlord, provides Landlord with a lien and
completion bond, in form reasonably approved by Landlord, to protect Landlord
against mechanics' lien claims. Tenant agrees to provide Landlord written notice
of the anticipated and actual start-date of the work, and a complete set of 
half-size (15" X 21") vellum as-built drawings. All Alterations shall be
constructed in compliance with applicable buildings codes and laws. Any
Alterations, except movable furniture and trade fixtures, shall become at once a
part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense.

The foregoing notwithstanding, Any Alterations made or paid for by Tenant which
are not permanently attached to the Premises shall remain the property of Tenant
and Tenant shall be entitled to all depreciation, amortization and other tax
benefits with respect thereto.  Tenant may remove such Alterations at the
Expiration Date, provided (i) Tenant, at Tenant's expense, repairs any damage
caused by such removal and (ii) the removal of the Alteration does not affect
the functionality of the Building for a typical office/research and development
tenant. Tenant's repair obligations pursuant this Article shall include (i)
patching holes and repainting wall surfaces, (ii) replacing floor coverings, and
(iii) reconfiguring the electrical, mechanical, and plumbing systems in such a
manner so that the location of the Alterations removed is no longer apparent to
Landlord. Landlord shall have no lien or interest whatsoever in any item of
Tenant's Property, Tenant's personal property or Tenant's trade fixtures located
in the Premises or elsewhere, and Landlord hereby waives all such liens and
interests.

  B. FREE FROM LIENS: Tenant shall keep the Premises free from all liens arising
out of work performed, materials furnished, or obligations incurred by Tenant or
claimed to have been performed for Tenant. In the event Tenant fails to
discharge any such lien within ten (10) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs reasonably incurred by Landlord, including reasonable
attorney's fees shall be due from Tenant as additional rent. Notwithstanding
anything to the contrary in this Lease, Tenant may, in good faith, elect to
contest any such lien provided Tenant shall furnish a bond or other security
reasonably acceptable to Landlord within said thirty (30) day period. Upon
furnishing such bond or other security, Landlord shall take no action to
discharge the lien and Tenant shall not then be deemed in default of this Lease.

  C. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: The term Governmental Regulations
shall include all federal, state, county, city or governmental agency laws,
statutes, ordinances, standards, rules, requirements, or orders now in force or
hereafter enacted, promulgated, or issued. The term also includes government
measures regulating or enforcing public access, traffic mitigation,
occupational, health, or safety standards for employers, employees, landlords,
or tenants. Except as otherwise set forth in Section 8 of the Lease, Tenant, at
Tenant's sole expense shall make all repairs, replacements, alterations, or

                                     Page 8
<PAGE>
 
improvements to the Premises needed to comply with all Governmental Regulations
to the extent such repairs, replacements, alterations or improvements are
necessitated due to Tenant's specific and particular use of the Premises or
Tenant's Alterations to the Premises. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action or proceeding against
Tenant (whether Landlord be a party thereto or not) that Tenant has violated any
such law, regulation or other requirement in its use of the Premises shall be
conclusive of that fact as between Landlord and Tenant.


8.  MAINTENANCE OF PREMISES:

  A. LANDLORD'S OBLIGATIONS: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building.

  B. TENANT'S OBLIGATIONS: Subject to Landlord's obligations set forth in this
Lease and the amortization of capital items as set forth in Section 8, Tenant
shall clean, maintain, repair and replace when necessary the Premises and every
part thereof through regular inspections and servicing, including but not
limited to: (i) all plumbing and sewage facilities, (ii) all heating ventilating
and air conditioning facilities and equipment, (iii) all fixtures, interior
walls floors, carpets and ceilings, (iv) all windows, door entrances, plate
glass and glazing systems including caulking, and skylights, (v) all electrical
facilities and equipment, (vi) all automatic fire extinguisher equipment, (vii)
the parking lot and all underground utility facilities servicing the Premises,
(viii) all elevator equipment, (ix) the roof membrane system, and (x) all
waterscape, landscaping and shrubbery. All wall surfaces and floor tile are to
be maintained in an as good a condition as when Tenant took possession free of
holes, gouges, or defacements. With respect to items (ii), (viii) and (ix)
above, Tenant shall provide Landlord a copy of a service contract between Tenant
and a licensed service contractor providing for periodic maintenance of all such
systems or equipment in conformance with the manufacturer's recommendations.
Tenant shall provide Landlord a copy of such preventive maintenance contracts
and paid invoices for the recommended work for which Tenant is responsible if
requested by Landlord.

  C. EXCLUDED COSTS: Notwithstanding anything to the contrary in this Lease, in
no event shall Tenant have any obligation to perform or to pay directly, or to
reimburse Landlord for, all or any portion of the following repairs,
maintenance, improvements, replacements, premiums, claims losses, fees, charges,
costs and expenses (collectively "Costs"), all of which shall be the
responsibility of Landlord.

  i. LOSSES CAUSED BY LANDLORD:  Costs occasioned by the act, omission or
violation by Landlord or its agents, employees, contractors, subcontractors,
tenants, or invitees of Governmental Regulations; or a misrepresentation or
breach of this Lease by Landlord or its agents, employees, contractors,
subcontractors, tenants, or invitees.

  ii.  CASUALTIES AND CONDEMNATIONS:  Costs occasioned by fire, acts of God, or
other casualties or by the exercise of the power of eminent domain, provided
that Tenant will pay insurance deductibles in accordance with Section 9 of this
Lease.

  iii.  REIMBURSABLE EXPENSES:  Costs for which Landlord has a right of
reimbursement from others or for which Landlord actually receives reimbursement.

  iv.  CONSTRUCTION DEFECTS AND COMPLIANCE WITH LAW:  Costs (i) relating to a
failure of the Premises to conform to all Restrictions, underwriters'
requirements or Governmental Regulations as of the Commencement Date; or (ii)
relating to construction defects.

  v. HAZARDOUS MATERIALS:  Except to the extent caused by the disposal, release,
emission or storage of the Hazardous Materials in question by Tenant, its
agents, employees, invitees or contractors in violation of Governmental
Regulations, costs incurred to investigate the presence of any Hazardous
Materials, costs to respond to any claim of Hazardous Material contamination or
damage, costs to remove any Hazardous Material from the Premises, judgments or
other costs incurred in connection with any Hazardous Materials exposure or
releases, or any other cost associated with a Hazardous Material.

                                     Page 9
<PAGE>
 
  vi.  CAPITAL IMPROVEMENTS:  If Tenant's maintenance or repair obligations as
set forth in this Lease would require Tenant to perform or pay for any
individual item which would be properly capitalized under generally accepted
accounting principles and costs in excess of Sixty Thousand Dollars
($60,000.00), then Landlord shall perform such repair or make such replacement
promptly after notification by Tenant and the cost of such item or improvement
shall be allocated as follows:  Landlord and Tenant shall establish the useful
life of the item in question based upon generally accepted accounting
principles.  Tenant shall pay a portion of the cost equal to the actual cost of
such improvement or item paid by Landlord to the third party contractor
performing the maintenance or furnishing the replacement times a fraction, the
numerator of which is the number of months remaining in the initial Lease Term,
and the denominator of which is the useful life of the improvement in months.
Tenant shall make such payment to Landlord within five (5) days after written
demand by Landlord.

Notwithstanding the foregoing, the preceding paragraph shall not apply in cases
where Tenant's obligation to perform or pay for such maintenance or repair is
largely due to Tenant's failure to properly maintain and regularly repair or
service such item.

  D. WAIVER OF LIABILITY: Failure by Landlord to perform any defined services,
or any cessation thereof, when such failure is caused by accident, breakage,
repairs, strikes, lockout or other labor disturbances or labor disputes of any
character or by any other cause, similar or dissimilar, shall not render
Landlord liable to Tenant in any respect, including damages to either person or
property, nor be construed as an eviction of Tenant, nor cause an abatement of
rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
Should any equipment or machinery utilized in supplying the services listed
herein break down or for any cause cease to function properly, upon receipt of
written notice from Tenant of any deficiency or failure of any services,
Landlord shall use reasonable diligence to repair the same promptly, but Tenant
shall have no right to terminate this Lease and shall have no claim for rebate
of rent or damages on account of any interruptions in service occasioned thereby
or resulting therefrom. Tenant waives the provisions of California Civil Code
Sections 1941 and 1942 concerning the Landlord's obligation of tenantability and
Tenant's right to make repairs and deduct the cost of such repairs from the
rent. Except due to the active negligence or willful misconduct of Landlord,
its, agents, employees or contractors, Landlord shall not be liable for a loss
of or injury to person or property, however occurring, through or in connection
with or incidental to furnishing, or its failure to furnish, any of the
foregoing.

9.  HAZARD INSURANCE:

  A. TENANT'S USE: Tenant shall not use or permit the Premises, or any part
thereof, to be used for any unlawful purpose; and no use of the Premises shall
be made or permitted, nor acts done, which will cause an increase in premiums
for the insurance to be maintained by Landlord (unless Tenant agrees to pay the
cost of such increase) or a cancellation of any insurance policy covering the
Premises or any part thereof, nor shall Tenant sell or permit to be sold, kept,
or used in or about the Premises, any article prohibited by the standard form of
fire insurance policies. Tenant shall, at its sole cost, comply with all
reasonable requirements of any insurance company or organization necessary for
the maintenance of reasonable fire and public liability insurance covering the
Premises, excluding structural improvements or alterations not related to
Tenant's specific and particular use.

  B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in force fire
and extended coverage insurance in so-called "all risk" form in an amount equal
to the replacement cost of the Building (and all Tenant Improvements but not
including any of Tenant's Property or Alterations paid for by Tenant from
sources other than the Work Allowance) as determined by Landlord's insurance
company's appraisers. If required by Tenant or the holder of the first deed of
trust on the property, such fire and property damage insurance may be endorsed
to cover loss caused by earthquake and/or flood, and shall contain reasonable
deductibles which, in the case of earthquake and flood insurance may be up to
15% of the replacement value of the property. Additionally Landlord may maintain
a policy of (i) commercial general liability insurance insuring

                                    Page 10
<PAGE>
 
Landlord (and such others designated by Landlord) against liability for personal
injury, bodily injury, death and damage to property occurring or resulting from
an occurrence in, on or about the Premises or Project in an amount as Landlord
determines is reasonably necessary for its protection, and (ii) rental lost
insurance for the Premises covering a twelve (12) month period. Tenant agrees to
pay Landlord as additional rent, on demand, the full cost of said insurance as
evidenced by insurance billings to Landlord, and in the event of damage covered
by said insurance, the amount of any deductible under such policy. Payment shall
be due to Landlord within twenty (20) days after written invoice to Tenant. It
is understood and agreed that Tenant's obligation under this Section will be
prorated to reflect the Lease Commencement and Expiration Dates. Notwithstanding
the foregoing, with respect to earthquake insurance for the Premises, Tenant
shall reimburse Landlord for premiums only if such coverage is: (i) requested by
Tenant, or (ii) required by the lender in whose favor a first deed of trust of
the Premises has been granted and is also generally required by institutional
lenders on similar properties in Santa Clara County.

  C. TENANT'S INSURANCE: Tenant agrees, at its sole cost, to insure its personal
property and Alterations for their full replacement value (without depreciation)
and to obtain worker's compensation and public liability and property damage
insurance. Tenant shall also maintain commercial general liability insurance for
occurrences within the Premises with a combined single limit of not less than
Five Million Dollars ($5,000,000.00). Tenant's commercial general liability
insurance shall be primary insurance containing a cross-liability endorsement,
and shall provide coverage on an "occurrence" rather than on a "claims made"
basis. Tenant shall name Landlord and Landlord's lender as an additional insured
on Tenant's commercial general liability policy and shall deliver a copy of the
policies and renewal certificates to Landlord. All such policies shall provide
for thirty (30) days' prior written notice to Landlord of any cancellation,
termination, or reduction in coverage.

  D. WAIVER: Notwithstanding anything to the contrary in this Lease, Landlord
and Tenant hereby waive any rights each may have against the other on account of
any loss or damage sustained by Landlord or Tenant, as the case may be, or to
the Premises or its contents, that is caused or results from a risk which is
actually insured against, which is required to be insured against under this
Lease, or which would normally be covered by a standard form of full replacement
value "all risk" policy of casualty insurance, regardless of whether such loss
or damage is due to the negligence of Landlord or Tenant or of their respective
agents, employees, subtenants, contractors, assignees, invitees or any other
cause. Each party shall use its reasonable best efforts to obtain from their
respective insurance companies a waiver of any right of subrogation which said
insurance company may have against Landlord or Tenant, as the case may be. If
such insurance policy cannot be obtained with such waiver of subrogation or if
such waiver of subrogation is only available at additional cost and the party
for whose benefit the waiver is not obtained does not pay such additional cost,
then the party obtaining such insurance shall immediately notify the other party
of that fact.

10.  TAXES: Tenant shall be liable for and shall pay as additional rental (to
the extent not paid by Tenant directly to the taxing authority), prior to
delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increases due to an increase in assessed value
resulting from a sale, transfer or other change of ownership of the Premises as
it appears on the City and County tax bills during the Lease Term. Tenant's
obligation under this Section shall be prorated to reflect the Lease
Commencement and Expiration Dates. Tenant shall pay such taxes on the later of:
twenty (20) days after written notice from Landlord (which notice shall contain
a copy of the tax bill in question); or (ii) thirty (30) days before the tax
delinquency date. If, at any time during the Lease Term a tax, excise on rents,
business license tax or any other tax, however described, is levied or assessed
against Landlord as a substitute or addition, in whole or in part, for real
estate taxes assessed or

                                    Page 11
<PAGE>
 
imposed on land or Buildings, Tenant shall pay and discharge its pro rata share
of such tax or excise on rents or other tax before it becomes delinquent. In the
event that a tax is placed, levied, or assessed against Landlord and the taxing
authority takes the position that Tenant cannot pay and discharge its pro rata
share of such tax on behalf of Landlord, then at Landlord's sole election,
Landlord may increase the Base Monthly Rent by the exact amount of such tax and
Tenant shall pay such increase. If by virtue of any application or proceeding
brought by or on behalf of Landlord, there results a reduction in the assessed
value of the Premises during the Lease Term, Tenant agrees to reimburse Landlord
for all costs incurred by Landlord in connection with such application or
proceeding up to the amount of tax saving experienced by Tenant as a consequence
thereof. Notwithstanding anything to the contrary herein, Tenant shall not be
required to pay any portion of any tax or assessment: (i) levied on Landlord's
rental income, unless such tax or assessment is imposed in lieu of real property
taxes; (ii) in excess of the amount which would be payable if such tax or
assessment were paid in installments over the longest possible term; (iii)
imposed on land and improvements other than the Premises; or (iv) attributable
to Landlord's net income, inheritance, gift, transfer, franchise or estate
taxes. Tenant may in good faith contest any real property taxes provided that
Tenant indemnifies Landlord from any loss or liability in connection therewith.

11.  UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Landlord
shall not be liable for loss of or injury to person or property, however
occurring, through or in connection with or incidental to furnishing or the
utility company's failure to furnish utilities to the Premises, and Tenant shall
not be entitled to abatement or reduction of any portion of Base Monthly Rent or
any other amount payable under this Lease so long as any failure to provide and
furnish the utilities to the Premises is due to a cause beyond Landlord's
reasonable control.

12.  TOXIC WASTE AND ENVIRONMENTAL DAMAGE:

  A. TENANT'S RESPONSIBILITY: Without the prior written consent of Landlord,
Tenant shall not bring, use, or permit upon the Premises, or generate, create,
release, emit, or dispose (nor permit any of the same) from the Premises any
chemicals, toxic or hazardous gaseous, liquid or solid materials or waste,
including without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or toxicity or substances or materials
which are listed on any of the Environmental Protection Agency's lists of
hazardous wastes or which are identified in Division 22 Title 26 of the
California Code of Regulations as the same may be amended from time to time or
any wastes, materials or substances which are or may become regulated by or
under the authority of any applicable local, state or federal laws, judgments,
ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials"). In order to
obtain documentation, Tenant shall deliver to Landlord its written proposal
describing the toxic material to be brought onto the Premises, measures to be
taken for storage and disposal thereof, safety measures to be employed to
prevent pollution of the air, ground, surface and ground water. Landlord's
approval shall not be unreasonably withheld. In the event Landlord consents to
Tenant's use of Hazardous Materials on the Premises, Tenant represents and
warrants that it shall comply with all Governmental Regulations applicable to
the use, generation, emission and disposal of Hazardous Materials by Tenant at
the Premises, including doing the following: (i) adhere to all reporting and
inspection requirements imposed by Federal, State, County or Municipal laws,
ordinances or regulations and will provide Landlord a copy of any such reports
or agency inspections; (ii) obtain and provide Landlord copies of all necessary
permits required for the use and handling of Hazardous Materials on the
Premises; (iii) enforce Hazardous Materials handling and disposal practices
consistent with industry standards; (iv) surrender the Premises free from any
Hazardous Materials arising from Tenant's bringing, using, permitting,
generating, creating, releasing, emitting or disposing of Hazardous Materials;
and (v) properly close the facility with regard to Hazardous Materials used,
generated, emitted or disposed of by Tenant at the Premises, including the
removal or decontamination of any process piping, mechanical ducting, storage
tanks, containers, or trenches which have come into contact with such Hazardous
Materials and obtain a closure

                                    Page 12
<PAGE>
 
certificate from the local administering agency prior to the Expiration Date.

  B. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant shall, at its sole
cost and expense, comply with all laws pertaining to, and shall with counsel
reasonably acceptable to Landlord, indemnify, defend and hold harmless Landlord
and Landlord's shareholders, directors, officers, employees, partners,
affiliates, and agents from, any claims, liabilities, costs or expenses incurred
or suffered by Landlord arising from the bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials by Tenant or a third
party through the surface soils of the Premises during the Lease Term or the
violation of any Governmental Regulation or environmental law, by Tenant or
Tenant's Agents. Tenant's indemnification and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of
1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or
regulation; (ii) claims, liabilities, costs or expenses pertaining to the
identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers, including the provision of an
alternative public drinking water source; and (iii) all costs of defending such
claims; (iv) losses attributable to diminution in the value of the Premises or
the Building; (v) loss or restriction of use of rentable space in the Building:
(vi) adverse effect on the marketing of any space in the Building; and (vi) all
other liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This indemnification shall
survive the expiration or termination of this Lease.

  C. ACTUAL RELEASE BY TENANT: Tenant agrees to notify Landlord of any lawsuits
or orders which relate to the remedying of or actual release of Hazardous
Materials on or into the soils or ground water at or under the Premises. Tenant
shall also provide Landlord all notices required by Section 25359.7(b) of the
Health and Safety Code and all other notices required by law to be given to
Landlord in connection with Hazardous Materials. Without limiting the foregoing,
Tenant shall also deliver to Landlord, within twenty (20) days after receipt
thereof, any written notices from any governmental agency alleging a material
violation of, or material failure to comply with, any federal, state or local
laws, regulations, ordinances or orders, the violation of which of failure to
comply with poses a foreseeable and material risk of contamination of the ground
water or injury to humans (other than injury solely to Tenant, Tenant's Agents
and employees within the Building).

     In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant, Tenant agrees to
comply, at its sole cost, with all laws, regulations, ordinances and orders of
any federal, state or local agency relating to the monitoring or remediation of
such Hazardous Materials.  In the event of any such release of Hazardous
Materials Tenant shall immediately give verbal and follow-up written notice of
the release to Landlord, and Tenant agrees to meet and confer with Landlord and
its Lender to attempt to eliminate and mitigate any financial exposure to such
Lender and resultant exposure to Landlord under California Code of Civil
Procedure Section 736(b) as a result of such release, and promptly to take
reasonable monitoring, cleanup and remedial steps given, inter alia, the
historical uses to which the Property has and continues to be used, the risks to
public health posed by the release, the then available technology and the costs
of remediation, cleanup and monitoring, consistent with acceptable customary
practices for the type and severity of such contamination and all applicable
laws.  Nothing in the preceding sentence shall eliminate, modify or reduce the
obligation of Tenant under 12.B of this Lease to indemnify and hold Landlord
harmless from any claims liabilities, costs or expenses incurred or suffered by
Landlord.  Tenant shall provide Landlord prompt written notice of Tenant's
monitoring, cleanup and remedial steps.

                                    Page 13
<PAGE>
 
  In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to the provisions of
Section 19.E of this Lease.

  D. ENVIRONMENTAL MONITORING: Landlord and its agents shall have the right to
inspect, investigate, sample and monitor the Premises including any air, soil,
water, ground water or other sampling or any other testing, digging, drilling or
analysis to determine whether Tenant is complying with the terms of this Section
12. If Landlord discovers that Tenant is not in compliance with the terms of
this Section 12, any such costs incurred by Landlord in connection with such
violation, including attorneys' and consultants' fees, shall be due and payable
by Tenant to Landlord within five (5) days following Landlord's written demand
therefore. Notwithstanding the foregoing, Landlord's investigations and/or
monitoring to initially determine whether Tenant is in compliance with this
Section 12 shall not unreasonably interfere with Tenant's intended use of the
Premises.

  E. NO RESPONSIBILITY: Notwithstanding the foregoing or anything in this Lease,
Tenant shall have no responsibility to Landlord, Landlord's employees,
contractors, officers, agents or partners or to any third party for any
Hazardous Material which was not released, stored, disposed of, emitted, or
discharged by Tenant, its agents, invitees, employees and contractors in or
about the Premises and which is or comes to be, present on or about the
Premises, or the soil or groundwater thereof, at any time. Landlord, at its sole
expense, shall promptly comply with all Governmental Regulations, orders,
injunctions, judgments, mandates and directives of any applicable governmental
authority concerning the investigation, removal, monitoring or remediation of
any Hazardous Materials present on the Premises or the groundwater thereof,
except to the extent that the Hazardous Material in question was released,
stored, disposed of, emitted or discharged by Tenant or its employees, invitees,
agents, or contractors in or about the Premises. Landlord hereby waives all
claims, liabilities, costs, expenses or obligations, known or unknown, against
Tenant with respect to Hazardous Materials present on the Premises as of the
Commencement Date or which come to be present on the Premises after the
Commencement Date, except to the extent that the Hazardous Materials in question
were released, emitted, or discharged onto the Premises by Tenant or its
employees, agents, contractors, subcontractors or invitees. In this regard,
Landlord acknowledges that it is aware of and hereby waives the provisions of
California Civil Code Section 1542 (or any similar or successor statute) 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 the settlement with the debtor."

  F. LANDLORD'S REPRESENTATION AND INDEMNITY:     Landlord represents and
warrants, to the best of its knowledge: (i) that as of the Commencement Date,
there do not exist any Hazardous Materials on the Premises or the soil or
groundwater on or beneath the property on which the Premises are a part, and
(ii) no litigation has been brought or threatened, nor any settlements reached
with any governmental or private party, concerning the actual or alleged
presence of Hazardous Materials on or about the Premises, nor has Landlord
received any notice of any violation or any alleged violation of any Hazardous
Materials Laws, pending claims or pending investigations with respect to the
presence of Hazardous Materials on or about the Premises. Except to the extent
that the Hazardous Material in question was released, emitted, used, stored,
manufactured, transported or discharged by Tenant, or its agents, employees,
invitees or contractors in or about the Premises, Landlord shall indemnify and
hold Tenant, its agents, employees, officers, directors, subtenants and assigns
harmless from any claims, liabilities, costs or expenses incurred or suffered by
Tenant related to the removal, investigation, monitoring or remediation of
Hazardous Materials which are present or which

                                    Page 14
<PAGE>
 
come to be present on the Premises except to the extent the presence of such
Hazardous Materials is caused by Tenant or by Tenant's failure to prevent a
third party from dumping Hazardous Materials through the surface of the
Premises. Landlord's indemnification and hold harmless obligations include,
without limitation, (i) claims, liability, costs or expenses resulting from or
based upon administrative, judicial (civil or criminal) or other action, legal
or equitable, brought by any private or public person under common law or under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any
other Federal, State, County or Municipal law, ordinance or regulation, (ii)
claims, liabilities, costs or expenses pertaining to the identification,
monitoring, cleanup, containment, or removal of Hazardous Materials from soils,
riverbeds or aquifers including the provision of an alternative public drinking
water source, (iii) all costs of defending such claims, and (vi) all other
liabilities, obligations, penalties, fines, claims, actions (including remedial
or enforcement actions of any kind and administrative or judicial proceedings,
orders or judgments), damages (including consequential and punitive damages),
and costs (including attorney, consultant, and expert fees and expenses)
resulting from the release or violation. This indemnification shall survive the
expiration or termination of this Lease. In no event shall Landlord be liable
for any consequential damages suffered or incurred by Tenant as a result of any
such contamination.

  G. NOTIFICATION: Landlord and Tenant shall notify the other of the existence
of any reports, recommendations or studies prepared in connection with any
investigation for the presence of Hazardous Materials on or about the Premises
and shall give written notice to the other as soon as reasonably practicable of
(i) any communication received from any governmental authority concerning any
Hazardous Materials which relates to the Premises, and (ii) any contamination of
the Premises by Hazardous Materials which constitutes a violation of any
Hazardous Materials Laws.

  H. ENVIRONMENTAL STUDIES: Tenant shall have the right to conduct a baseline
environmental study at the Premises, including the right to bore holes and take
soils samples, if Tenant so elects.

13.  TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
any rent including additional rent or any other payment due under this Lease by
the date such rent is due, (ii) the abandonment of the Premises by Tenant; (iii)
Tenant's failure to observe and perform any other required provision of this
Lease, where such failure continues for twenty-eight (28) days after written
notice from Landlord of such failure; provided, however, that if the nature of
such default is such that the same cannot reasonably be cured within such 
twenty-eight (28) day period, Tenant shall not be deemed to be in default if
Tenant shall within such period commence such cure and thereafter diligently
prosecute the same to completion; (iv) Tenant's making of any general assignment
for the benefit of creditors; (v) the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty (30) days
after the filing); (vi) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within sixty (60) days; or (vii) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged within
sixty (60) days.

  A. REMEDIES: In the event of any such default by Tenant, then in addition to
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss for the same
period that Tenant proves could have been

                                    Page 15
<PAGE>
 
reasonably avoided; (iii) the worth at time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award exceeds
the amount of such rental loss that Tenant proves could be reasonably avoided;
(iv) any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease, or which in the ordinary course of things would be likely to result
therefrom; including the following: (x) expenses for repairing, altering or
remodeling the Premises for purposes of reletting, (y) broker's fees,
advertising costs or other expenses of reletting the Premises, and (z) costs of
carrying the Premises such as taxes, insurance premiums, utilities and security
precautions. and (v) at Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted by applicable California law.
The term "rent", as used herein, is defined as the minimum monthly installments
of Base Monthly Rent and all other sums required to be paid by Tenant pursuant
to this Lease, all such other sums being deemed as additional rent due
hereunder. As used in (i) and (ii) above, "worth at the time of award" shall be
computed by allowing interest at a rate equal to the discount rate of the
Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used
in (iii) above, "worth at the time of award" shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one (1%) percent.

  B. RIGHT TO RE-ENTER: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises and
remove all persons and property. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
disposed of by Landlord in any manner permitted by law.

  C. ABANDONMENT: If Landlord does not elect to terminate this Lease as provided
in Section 13.A or 13.B above, then the provisions of California Civil Code
Section 1951.4, (Landlord may continue the lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due if Tenant has a right to
sublet and assign, subject only to reasonable limitations) as amended from time
to time, shall apply and Landlord may from time to time, without terminating
this Lease, either recover all rental as it becomes due or relet the Premises or
any part thereof for such term or terms and at such rental or rentals and upon
such other terms and conditions as Landlord in its sole discretion may deem
advisable, with the right to make alterations and repairs to the Premises. In
the event that Landlord elects to so relet, rentals received by Landlord from
such reletting shall be applied in the following order to: (i) the payment of
any indebtedness other than Base Monthly Rent due hereunder from Tenant to
Landlord; (ii) the payment of any cost of such reletting; (iii) the payment of
the cost of any alterations and repairs to the Premises; and (iv) the payment of
Base Monthly Rent due and unpaid hereunder. The residual rentals, if any, shall
be held by Landlord and applied in payment of future Base Monthly Rent as the
same may become due and payable hereunder. In the event the portion of rentals
received from such reletting which is applied to the payment of rent hereunder
during any month be less than the rent payable during that month by Tenant
hereunder, then Tenant shall pay such deficiency to Landlord immediately upon
demand. Such deficiency shall be calculated and paid monthly. Tenant shall also
pay to Landlord, as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not covered
by the rentals received from such reletting.

  D. NO TERMINATION: Landlord's re-entry or taking possession of the Premises
pursuant to 13.B or 13.C shall not be construed as an election to terminate this
Lease unless written notice of such intention is given to Tenant or unless the
termination is decreed by a court of competent jurisdiction. Notwithstanding any
reletting without termination by Landlord because of any default by Tenant,
Landlord may at any time after such reletting elect to terminate this Lease for
any such default.

  E. NON-WAIVER: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to

                                    Page 16
<PAGE>
 
enforce rights and remedies under the previously served notice of default
without giving Tenant any further notice or demand except as expressly required
by this Lease or applicable law. Furthermore, the Landlord's acceptance of rent
from the Tenant when the Tenant is holding over without express written consent
does not convert Tenants Tenancy from a tenancy at sufferance to a month to
month tenancy. No waiver of any provision of this Lease shall be implied by any
failure of Landlord to enforce any remedy for the violation of that provision,
even if that violation continues or is repeated. Any waiver by Landlord of any
provision of this Lease must be in writing. Such waiver shall affect only the
provision specified and only for the time and in the manner stated in the
writing. No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver thereof by
Landlord. No act or conduct of Landlord, including, without limitation, the
acceptance of keys to the Premises, shall constitute acceptance of the surrender
of the Premises by Tenant before the Expiration Date. Only written notice from
Landlord to Tenant of acceptance shall constitute such acceptance of surrender
of the Premises. Landlord's consent to or approval of any act by Tenant which
requires Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

  F. PERFORMANCE BY LANDLORD: If Tenant fails to perform any obligation required
under this Lease or by law or governmental regulation and does not cure such
default within any cure period allowed in this Section 13, Landlord in its sole
discretion may, without further notice, without waiving any rights or remedies
and without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate within ten (10) days of Landlord's written
notice for such payment.

  G. HABITUAL DEFAULT: The provisions of Section 13 notwithstanding, the parties
agree that if Tenant shall have defaulted in the performance of any (but not
necessarily the same) term or condition of this Lease for five or more times
during any twelve (12) month period during the Lease Term, then such conduct
shall, at the election of the Landlord, represent a separate event of default
which cannot be cured by Tenant. Tenant acknowledges that the purpose of this
provision is to prevent repetitive defaults by Tenant, which work a hardship
upon Landlord and deprive Landlord of Tenant's timely performance under this
Lease.

14.  LANDLORD'S  LIABILITY:

  A. LIMITATION ON LANDLORD'S LIABILITY: In the event of Landlord's failure to
perform any of its covenants or agreements under this Lease, Tenant shall give
Landlord written notice of such failure and shall give Landlord thirty (30) days
to cure or commence to cure such failure prior to any claim for breach or
resultant damages; provided, however, that if the nature of the default is such
that it cannot reasonably be cured within the 30-day period, Landlord shall not
be deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion. In addition, upon any such failure
by Landlord, Tenant shall give notice by registered or certified mail to any
person or entity with a security interest in the Premises ("Mortgagee") that has
provided Tenant with written notice of its interest in the Premises, and shall
provide Mortgagee a reasonable opportunity to cure such failure, including such
time to obtain possession of the Premises by power of sale or judicial
foreclosure, if such should prove necessary to effectuate a cure. Tenant agrees
that each of the Mortgagees to whom this Lease has been assigned is an expressed
third-party beneficiary hereof. Tenant waives any right under California Civil
Code Section 1950.7 or any other present or future law relating to the
collection of any payment or deposit from Mortgagee or any purchaser at a
foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser
shall have actually received and not refunded the applicable payment or deposit.
Tenant Further waives any right to terminate this Lease and to vacate the
Premises on Landlord's default under this Lease. Tenant's sole remedy on
Landlord's default is an action for damages or injunctive or declaratory relief.

  B. LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation trust,
partnership, joint venture, unincorporated association or other form

                                    Page 17
<PAGE>
 
of business entity: (i) the obligations of Landlord shall not constitute
personal obligations of the officers, directors, trustees, partners, joint
venturers, members, owners, stockholders, or other principals or representatives
except to the extent of their interest in the Premises. Tenant shall have
recourse only to the interest of Landlord in the Premises or for the
satisfaction of the obligations of Landlord and shall not have recourse to any
other assets of Landlord for the satisfaction of such obligations.

  C. INDEMNIFICATION OF LANDLORD: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify and hold Landlord exempt and harmless from any
damage or injury to any person, or to the goods, wares and merchandise and all
other personal property of any person, arising from the use of the Premises,
Building, and/or Project by Tenant and Tenant's Agents or from the failure of
Tenant to keep the Premises in good condition and repair as herein provided,
except to the extent due to the active negligence or willful misconduct of
Landlord. Further, in the event Landlord is made party to any litigation due to
the acts or omission of Tenant and Tenant's Agents. Tenant will indemnify,
defend (with counsel reasonably acceptable to Landlord) and hold Landlord
harmless from any such claim or liability including Landlord's costs and
expenses and reasonable attorney's fees incurred in defending such claims except
to the extent of the active negligence or willful misconduct of Landlord or its
agents, employees, tenants, contractors, subcontractors or invitees or a breach
of this Lease by Landlord.

15.  DESTRUCTION OF PREMISES:

  A. LANDLORD'S OBLIGATION TO RESTORE: In the event of a damage to or
destruction of the Building or the Premises or any portion thereof by any
casualty during the Lease Term, Landlord shall repair the same to the
approximate condition which existed prior to such destruction provided such
casualty is of a type required to be insured against by Landlord under the terms
of this Lease or actually insured against by Landlord (herein collectively
referred to as an "Insured Casualty").

In the event of damage or destruction of the Premises by a casualty of a type
which is not required to be insured against by Landlord under this Lease, and
which is not actually insured against by Landlord (herein referred to as an
"Uninsured Casualty"), Landlord shall restore the Premises to the same condition
as they were in immediately before such destruction and this Lease shall not
terminate; unless in the case of such Uninsured Casualty the cost of restoration
exceeds ten percent (10%) of the then replacement cost of the Building, in which
case, Landlord may elect to terminate this Lease by giving written notice to
Tenant within fifteen (15) days after determining the replacement cost and
furnishing reasonable evidence thereof to Tenant.  If Landlord so elects to
terminate this Lease, Tenant, within fifteen (15) days after receiving
Landlord's notice to terminate, can elect to pay to Landlord at the time Tenant
notifies Landlord of its election, the difference between ten percent (10%) of
the replacement cost of the Building and the actual cost of restoration, in
which case Landlord shall restore the Premises and this Lease shall not
terminate.  If Landlord so elects to terminate this Lease and Tenant does not
elect to contribute the cost of restoration as provided herein, this Lease shall
terminate.  Tenant shall be entitled to a proportionate reduction of Base
Monthly Rent and additional rent during the period of damage and while repairs
are being made, such proportionate reduction to be based upon the extent to
which the repairs interfere with Tenant's business in the Premises, as
reasonably determined by Landlord.  Landlord's obligations to repair and restore
the Premises or any part therof as set forth in this Lease shall include repair
and restoration of the Tenant Improvements (excluding Tenant's Property).  In no
event shall Landlord be required to replace or restore Alterations, Tenant's
Property, Tenant's fixtures or personal property.  With respect to a destruction
which Landlord is obligated to repair or may elect to repair under the terms of
this Section, Tenant waives the provisions of Section 1932, and Section 1933,
Subdivision 4, of the Civil Code of the State of California, and any other
similarly enacted statute, and the provisions of this Section 15 shall govern in
the case of such destruction.

                                    Page 18
<PAGE>
 
  B. LIMITATIONS ON LANDLORD'S RESTORATION OBLIGATION: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in 180 days from the date of receipt of all governmental approvals
necessary under the laws and regulations of State, Federal, County or Municipal
authorities, as reasonably determined by Landlord, (ii) if the holder of the
first deed of trust or mortgage encumbering the Building elects not to permit
the insurance proceeds payable upon damage or destruction to be used for such
repair or restoration, (iii) the damage or destruction is not fully covered by
the insurance maintained by Landlord, (iv) the damage or destruction occurs in
the last twenty four (24) months of the Lease Term, (v) Tenant is in default
pursuant to the provisions of Section 13, or (vi) Tenant has vacated the
Premises for more than ninety (90) days. In any such event Landlord may elect
either to (i) complete the repair or restoration, or (ii) terminate this Lease
by providing Tenant written notice of its election within sixty (60) days
following the damage or destruction.

16.  CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent and additional rent payable hereunder shall be adjusted so
that Tenant is required to pay for the remainder of the Lease Term only such
portion of Base Monthly Rent and additional rent as the value of the part
remaining after such taking bears to the value of the entire Premises prior to
such taking; but in such event, Tenant shall have the option to terminate this
Lease as of the Vesting Date if the taking or condemnation of the Premises is
such that the remaining space unaffected by the taking or condemnation is not
reasonably suitable for Tenant's use or the conduct of Tenant's business. If
part or all of the Premises be taken, all compensation awarded upon such taking
shall go to Landlord, and Tenant shall have no claim thereto; provided, however,
that nothing contained herein shall be deemed to waive or release Tenant's
interest in any separate award for (i) loss of or damage to Tenant's trade
fixtures, Alterations, or personal property; (ii) interruption of Tenant's
business; (iii) Tenant's loss of goodwill; (iv) Tenant's moving cost; (v)
Tenant's interest in any Tenant Improvements; or (vi) any separate award made to
Tenant for whatever purpose. In the event that this Lease is not terminated by
reason of the condemnation, Landlord at its expense shall repair any damage to
the Premises caused by such condemnation. Tenant hereby waives the provisions of
California Code of Civil Procedures Section 1265.130 and any other similarly
enacted statue, and the provisions of this Section 16 shall govern in the case
of such taking.

17.  ASSIGNMENT OR SUBLEASE:

  A. CONSENT BY LANDLORD: Except as specifically provided in this Section 17 and
except with respect to a permitted transfer pursuant to Section 17.E below,
Tenant may not assign, sublet, hypothecate, or allow a third party to use the
Premises without the express written consent of Landlord. In the event Tenant
desires to assign this Lease or any interest herein including, without
limitation, a pledge, mortgage or other hypothecation, or sublet the Premises or
any part thereof, Tenant shall deliver to Landlord (i) executed counterparts of
any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years (or such shorter period, if three years are not
available), (iii) the nature of the proposed transferee's business to be carried
on in the Premises, (v) all consideration to be given on account of the
Transfer, and (vi) a current financial statement of Tenant. Landlord may
condition its approval of any Transfer to a certification from both Tenant and
the proposed transferee of all consideration to be paid to Tenant in connection
with such Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have a ten (10) day
period following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) terminate this Lease as to the space so
affected as of the date so specified by Tenant, in which case Tenant will be
relieved of all further obligations as to such

                                    Page 19
<PAGE>
 
space; (ii) permit Tenant to assign or sublet such space to the named
assignee/subtenant on the terms and conditions set forth in the notice; or (iii)
refuse consent. If Landlord should fail to notify Tenant in writing of such
election within the 10-day period, Landlord shall be deemed to have elected
option (iii) above. In the event Landlord elects option (i) above, this Lease
shall expire with respect to such part of the Premises on the date upon which
the proposed sublease was to commence, and from such date forward, Base Monthly
Rent and Tenant's Allocable Share of all other costs and charges shall be
adjusted based upon the proportion that the rentable area of the Premises
remaining bears to the total rentable area of the Premises. In the event
Landlord elects option (ii) above, Landlord's written consent to the proposed
assignment or sublease shall not be unreasonably withheld, provided and upon the
condition that: (i) the proposed assignee or subtenant is engaged in a business
that is limited to the use expressly permitted under this Lease; (ii) the
proposed assignee or subtenant is a company with sufficient financial worth and
management ability to undertake the financial obligation of this Lease and
Landlord has been furnished with reasonable proof thereof; (iii) the proposed
assignment or sublease is in form reasonably satisfactory to Landlord; and (iv)
Tenant reimburses Landlord on demand for any reasonable costs that may be
incurred by Landlord in connection with said assignment or sublease, including
the costs of making investigations as to the acceptability of the proposed
assignee or subtenant and legal costs incurred in connection with the granting
of any requested consent. In the event all or any one of the foregoing
conditions are not satisfied, Landlord shall be considered to have acted
reasonably if it withholds its consent.

  B. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent or other economic
consideration actually realized by Tenant under any sublease and assignment, in
excess of the rent payable hereunder and reasonable subletting and assignment
costs incurred by Tenant in connection with the assignment or sublease including
attorney's fees, brokerage commissions and remodeling costs incurred as a direct
result of the sublease, shall be divided and paid fifty percent (50%) to
Landlord and fifty percent (50%) to Tenant. Tenant's obligation to pay Landlord
such percentage constitutes an obligation for additional rent hereunder. The
above provisions relating to Landlord's right to terminate the Lease and
relating to the allocation of bonus rent are independently negotiated terms of
the Lease which constitute a material inducement for the Landlord to enter into
the Lease, and are agreed by the parties to be commercially reasonable. No
assignment or subletting by Tenant shall relieve it of any obligation under this
Lease. Any assignment or subletting which conflicts with the provisions hereof
shall be void.

  C. NO RELEASE: Any assignment or sublease shall be made only if and shall not
be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall be subject to all the
covenants, agreements, terms, provisions and conditions in this Lease and in the
event of an assignment, the assignee assume all the obligations of this Lease on
the part of Tenant to be performed or observed. Notwithstanding any such
sublease or assignment and the acceptance of rent by Landlord from any subtenant
or assignee, Tenant and any guarantor shall remain fully liable for the payment
of Base Monthly Rent and additional rent due, and to become due hereunder, for
the performance of all the covenants, agreements, terms, provisions and
conditions contained in this Lease on the part of Tenant to be performed and for
all acts and omissions of any licensee, subtenant, assignee or any other person
claiming under or through any subtenant or assignee that shall be in violation
of any of the terms and conditions of this Lease, and any such violation shall
be deemed a violation by Tenant. Tenant shall indemnify, defend and hold
Landlord harmless from and against all losses, liabilities, damages, costs and
expenses (including reasonable attorney fees) resulting from any claims that may
be made against Landlord by the proposed assignee or subtenant or by any real
estate brokers or other persons claiming compensation in connection with the
proposed assignment or sublease.

  D. REORGANIZATION OF TENANT: If Tenant is a corporation, the following shall
be deemed an assignment of Tenant's interest in this Lease governed by the
provisions of this Section 17: (i) any dissolution, merger, consolidation, or
other

                                    Page 20
<PAGE>
 
reorganization of or affecting Tenant, whether or not Tenant is the surviving
corporation, or (ii) the sale or transfer to one other person or entity (or to
any group of related persons or entities) stock possessing more than 50% of the
total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors.

  E. PERMITTED TRANSFERS: Notwithstanding anything contained in this Section 17,
so long as Tenant otherwise complies with the provisions of this Article, Tenant
may enter into any of the following transfers (a "Permitted Transfer") without
Landlord's prior consent, and Landlord shall not be entitled to terminate the
Lease or to receive any part of any subrent resulting therefrom that would
otherwise be due pursuant to Sections 17.A and 17.B. Tenant may sublease all or
part of the Premises or assign its interest in this Lease to (i) any corporation
which controls, is controlled by, or is under common control with the original
Tenant to this Lease by means of an ownership interest of more than 50%; (ii) a
corporation which results from a merger, consolidation or other reorganization
in which Tenant is not the surviving corporation, so long as the surviving
corporation has a net worth at the time immediately following such assignment
that is equal to or greater than the net worth of Tenant immediately prior to
such transaction; and (iii) a corporation which purchases or otherwise acquires
all or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time immediately following such assignment
that is equal to or greater than the net worth of Tenant immediately prior to
such transaction. Except as provided in Section 17.D, the sale of Tenant's
capital stock shall not be deemed an assignment, subletting or any other
transfer of the Lease or the Premises.

  F. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant hereby assigns
all rents due from any assignment or subletting to Landlord as security for
performance of its obligations under this Lease, and Landlord may collect such
rents as Tenant's Attorney-in-Fact, except that Tenant may collect such rents
unless a default occurs as described in Section 13 above. A Lease termination
due to Tenant's default shall not automatically terminate an assignment or
sublease then in existence; rather at Landlord's election, such assignment or
sublease shall survive the Lease termination, the assignee or subtenant shall
attorn to Landlord, and Landlord shall undertake the obligations of Tenant under
the sublease or assignment; except that Landlord shall not be liable for prepaid
rent, security deposits or other defaults of Tenant to the subtenant or
assignee, or for any acts or omissions of Tenant and Tenant's Agents.

  G. CONVEYANCE BY LANDLORD: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder; provided that such transferor shall
transfer and deliver Tenant's security deposit to the purchaser at any such sale
or the master tenant of the Premises, and thereupon the transferor shall be
discharged from any further liability in reference thereto.

  F. SUCCESSORS AND ASSIGNS: Subject to the provisions of this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all parties hereto; and all
parties hereto shall be jointly and severally liable hereunder.

18.  OPTION TO EXTEND THE LEASE TERM:

  A. GRANT AND EXERCISE OF OPTION: Landlord grants to Tenant, subject to the
terms and conditions set forth in this Section 18.A, one (1) option ("Option")
to extend the Lease Term for an additional term (the "Option Term"). The Option
Term shall be for a period of sixty (60) months and shall be exercised, if at
all, by written notice to Landlord no earlier than eighteen (18) months prior to
the Expiration Date but no later than nine (9) months prior to the Expiration
Date. If Tenant exercises the Option, all of the terms, covenants and conditions
of this Lease except this Section shall apply during the Option Term, except
that the Base Monthly Rent for the

                                    Page 21
<PAGE>
 
Premises payable by Tenant during the Option Term shall be the greater of either
the average Base Monthly Rent paid by Tenant during the initial Lease Term, or
Ninety Five percent (95%) of the Fair Market Rental as hereinafter defined.
Notwithstanding anything herein to the contrary, if Tenant is in monetary or
material non-monetary default beyond any required written notice and applicable
cure period under any of the terms, covenants or conditions of this Lease either
at the time Tenant exercises the Option or at any time thereafter prior to the
commencement date of the Option Term, Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the expiration date
of this Lease shall be and remain the Expiration Date. As used herein, the term
"Fair Market Rental" is defined as the rental and all other monetary payments,
including any escalations and adjustments thereto (including without limitation
Consumer Price Indexing) that Landlord could obtain during the Option Term from
a third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises in its then condition and under then
applicable laws, rules and regulations, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the Premises
in the locality of the Building. Fair Market Rental shall further take into
account that Tenant is in occupancy and making functional use of the Premises in
its then existing condition. The parties acknowledge that they have agreed to so
set the rent at 95% of the then Fair Market Rent in recognition of and in
consideration for the fact that Landlord shall not incur brokerage commissions,
vacancy costs, and costs for the installation of new tenant improvements
(including recarpeting and repainting) along with other savings, if Tenant
elects to extend the term of this Lease, and that such discount of the full Fair
Market Rent is a reasonable estimate of the savings to be so realized by
Landlord.

  B. DETERMINATION OF FAIR MARKET RENTAL: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the basis for determining the Base Monthly Rent payable by
Tenant during the Option Term. If Tenant elects to resolve the disagreement as
provided in Section 18.C and such procedures are not concluded prior to the
commencement date of the Option Term, Tenant shall pay to Landlord as Base
Monthly Rent the Fair Market Rental as determined by Landlord in the manner
provided above. If the Fair Market Rental as finally determined pursuant to
Section 18.C is greater than Landlord's determination, Tenant shall pay Landlord
the difference between the amount paid by Tenant and the Fair Market Rental as
so determined in Section 18.C within thirty (30) days after such determination.
If the Fair Market Rental as finally determined in Section 18.C is less than
Landlord's determination, the difference between the amount paid by Tenant and
the Fair Market Rental as so determined in Section 18.C shall be credited
against the next installments of rent due from Tenant to Landlord hereunder.

  C. RESOLUTION OF A DISAGREEMENT OVER THE FAIR MARKET RENTAL: Any disagreement
regarding Fair Market Rental shall be resolved as follows:

     1.  Within thirty (30) days after Tenant's response to Landlord's notice
setting forth the Fair Market Rental, Landlord and Tenant shall meet at least
two (2) times at a mutually agreeable time and place, in an attempt to resolve
the disagreement.

     2.  If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental.  Each such appraiser shall arrive at
a determination of Fair Market Rental and submit their conclusions to Landlord
and Tenant 

                                    Page 22
<PAGE>
 
within thirty (30) days after the expiration of the 30-day consultation period
described above.

     3.  If only one appraisal is submitted within the requisite time period, it
shall be deemed as Fair Market Rental.  If both appraisals are submitted within
such time period and the two appraisals so submitted differ by less than ten
percent (10%), the average of the two shall be deemed as Fair Market Rental. If
the two appraisals differ by more than 10%, the appraisers shall immediately
select a third appraiser who shall, within thirty (30) days after his selection,
make and submit to Landlord and Tenant a determination of Fair Market Rental.
This third appraisal will then be averaged with the closer of the two previous
appraisals and the result shall be Fair Market Rental.

     4.  All appraisers specified pursuant to this Section shall be members of
the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley.  Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.

  D. PERSONAL TO TENANT: All Options provided to Tenant in this Lease are
personal and granted to Concentric Network Corporation and any assignees not
requiring Landlord's consent pursuant to Section 17 and are not exercisable by
any third party should Tenant assign or sublet all or a portion of its rights
under this Lease, unless Landlord consents to permit exercise of any option by
any assignee or subtenant, in Landlord's sole and absolute discretion. In the
event Tenant has multiple options to extend this Lease, a later option to extend
the Lease cannot be exercised unless the prior option has been so exercised.

19.  CONDITION PRECEDENT TO LEASE: Landlord and Tenant hereby acknowledge that
Cisco Systems ("Cisco") is currently occupying the Premises as the tenant under
that certain lease between Landlord and Cisco dated February 12, 1990 (the
"Cisco Lease"). Under the Cisco Lease, Cisco has the option ("Option") to extend
the term of the Cisco Lease until December 31, 2003, which Option must be
exercised by Cisco on or before June 30, 1998. If Cisco fails to exercise its
Option, the Cisco Lease will expire December 31, 1998. Notwithstanding anything
to the contrary in this Leases, Landlord and Tenant's obligations under this
Lease are conditioned upon Cisco not exercising its Option. If Cisco exercises
its Option, this Lease shall be null and void and Landlord shall immediately
return to Tenant all monies (including any prepaid rent and any security
deposit) paid by Tenant to Landlord in connection with this Lease. If Cisco
exercises its Option, Landlord shall immediately notify Tenant in writing of
that fact. If Landlord fails to notify Tenant definitively in writing that Cisco
has properly exercised its option to extend the Cisco Lease or that Cisco has
properly waived its right to extend the Cisco Lease on or before July 30, 1998,
Tenant may terminate this Lease within five (5) days thereafter. Upon such
termination, Landlord shall immediately return any prepaid rent and the security
deposit to Tenant.

20.  GENERAL PROVISIONS:

  A. ATTORNEY'S FEES: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.

  B. AUTHORITY OF PARTIES: Tenant represents and warrants that it is a duly
formed corporation and in good standing, and is duly authorized to execute and
deliver this Lease on behalf of said corporation, in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. At Landlord's request,
Tenant shall provide Landlord with corporate resolutions or other proof in a
form acceptable to Landlord,

                                    Page 23
<PAGE>
 
authorizing the execution of the Lease. The individuals executing this Lease on
Landlord's behalf represent and warrant that they have the requisite authority
to sign this Lease and that this Lease is binding on Landlord. Landlord
represents that it owns the Premises and is duly empowered to sign this Lease,
and that the consent of no other party is required to make this Lease binding on
Landlord.

  C. BROKERS: Landlord and Tenant represent they have not utilized or contacted
any real estate broker or finder with respect to this Lease other than Spallino-
Reid Corporate Real Estate Services ("Broker") and Landlord and Tenant each
agree to indemnify, defend and hold the other harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder claiming
through the acts or conduct of the indemnifying party. Landlord shall pay a real
estate commission to Broker pursuant to a separate agreement between Landlord
and Broker.

  D. CHOICE OF LAW: This Lease shall be governed by and construed in accordance
with California law. Venue shall be Santa Clara County.

  E. DISPUTE RESOLUTION: Landlord and Tenant and any other party that may become
a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which for such
claims the parties agree shall be the sole court of competent jurisdiction), any
controversy, dispute, or claim of whatever nature arising out of, in connection
with or in relation to the interpretation, performance or breach of this Lease,
including any claim based on contract, tort, or statute, shall be resolved at
the request of any party to this agreement through a two-step dispute resolution
process administered by J. A. M. S. or another judicial mediation service
mutually acceptable to the parties located in Santa Clara County. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J. A. M. S. or other judicial mediation service
selected. in the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J. A. M. S. mediator and commence the mediation. in
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code (s) 1152.5. The mediation shall be held
in Santa Clara County and in accordance with the existing rules and practice of
J. A. M. S. (or other judicial and mediation service selected). The parties
shall use reasonable efforts to conclude the mediation within sixty (60) days of
the date of either party's request for mediation. The mediation shall be held
prior to any arbitration or court action (other than a claim by Landlord for
unlawful detainer or any claim within the jurisdiction of the small claims court
which are not subject to this mediation/arbitration provision and may be filed
directly with a court of competent jurisdiction). Should the prevailing party in
any dispute subject to this Section 20.E attempt an arbitration or a court
action before attempting to mediate, THE PREVAILING PARTY SHALL NOT BE ENTITLED
TO ATTORNEY'S FEES THAT MIGHT OTHERWISE BE AVAILABLE TO THEM IN A COURT ACTION
OR ARBITRATION AND IN ADDITION THERETO, THE PARTY WHO IS DETERMINED BY THE
ARBITRATOR TO HAVE RESISTED MEDIATION, SHALL BE SANCTIONED BY THE ARBITRATOR OR
JUDGE.

If a mediation is conducted but is unsuccessful, it shall be followed by final
and binding arbitration administered by and in accordance with the then existing
rules and practices of J. A. M. S. or the other judicial and mediation service
selected, and judgment upon any award rendered by the arbitrator(s) may be
entered by any state or federal court having jurisdiction thereof. The parties
to the arbitration shall have those rights of discovery that the arbitrator(s)
deem necessary (after application to the arbitrator(s)) to a full and fair
hearing of the matter. However, in no event shall the parties be entitled to
propound interrogatories or request for admissions during the arbitration
process. The arbitrator shall be a retired judge or a licensed California
attorney. The venue for any such arbitration or mediation shall be in Santa
Clara County, California.

                                    Page 24
<PAGE>
 
  F. ENTIRE AGREEMENT: This Lease and the exhibits attached hereto contains all
of the agreements and conditions made between the parties hereto with respect to
the lease of the Premises and may not be modified orally or in any other manner
other than by written agreement signed by all parties hereto or their respective
successors in interest. This Lease supersedes and revokes all previous
negotiations, letters of intent, lease proposals, brochures, agreements,
representations, promises, warranties, and understandings, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant relating to the lease of the
Premises.

  G. ENTRY BY LANDLORD: Upon twenty-four (24) hours' advance written notice to
Tenant (except in the event of an emergency where no such prior notice shall be
required) and provided that Landlord does not unreasonably interfere with
Tenant's use of the Premises, and subject to Tenant's reasonable safety and/or
security regulations, Tenant shall permit Landlord and his agents to enter into
and upon the Premises at all reasonable times, and except as set forth in this
Lease, without any rent abatement or reduction or any liability to Tenant for
any loss of occupation or quiet enjoyment of the Premises thereby occasioned,
for the following purposes: (i) inspecting and maintaining the Premises; (ii)
making repairs or alterations to the Premises as may be required to fulfill
Landlord's obligations under this Lease; and (iii) performing any obligations of
Landlord under this Lease including remediation of hazardous materials if
determined to be the responsibility of Landlord. Tenant shall permit Landlord
and his agents, at any time within one hundred eighty (180) days prior to the
Expiration Date (or at any time during the Lease if Tenant is in default beyond
any required written notice and applicable cure period hereunder), to place upon
the Premises "For Lease" signs and exhibit the Premises to real estate brokers
and prospective tenants at reasonable hours.

  H. ESTOPPEL CERTIFICATES: At any time during the Lease Term, each party shall,
within ten (10) business days following receipt of written notice from the other
party, execute and deliver to the requesting party a written statement
certifying, if true, the following: (i) that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification); (ii) the date to which rent and other charges are paid in
advance, if any; (iii) acknowledging that there are not, to said party's actual
knowledge, any uncured defaults on the other party's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as such party may reasonably request. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises or a
purchaser of Tenant's assets or leasehold interest. Landlord or Tenant's failure
to deliver such statement within such time shall be conclusive upon the party
not providing the statement that this Lease is in full force and effect without
modification, except as may be represented by the requesting party, and that
there are no uncured defaults in the requesting party's performance. Tenant
agrees to provide, within five (5) business days after receipt of a written
request from Landlord, Tenant's most recent three (3) years audited financial
statements subject to the following: (i) Landlord shall only require such
statements in connection with Landlord's proposed sale or refinance of the
Premises; and (ii) Landlord and any person or entity to whom such financial
statements are provided shall agree in writing to hold such statements in the
strictest confidence.

  I. EXHIBITS: All exhibits referred to are attached to this Lease and
incorporated by reference.

  J. INTEREST: All rent due hereunder, if not paid when within thirty (30) days
after it is due, shall bear interest at the rate of the Reference Rate published
by Bank of America, San Francisco Branch, plus two percent (2%) per annum from
that date until paid in full ("Agreed Interest Rate"). This provision shall
survive the expiration or sooner termination of the Lease. Despite any other
provision of this Lease, the total liability for interest payments shall not
exceed the limits, if any, imposed by the usury laws of the State of California.
Any interest paid in excess of those limits shall be refunded to Tenant by
application of the amount of excess interest paid against any sums owing to
Landlord under this Lease in any order that Landlord requires. If the amount of
excess interest paid exceeds the sums outstanding, the portion exceeding those
sums shall be refunded in cash to Tenant by Landlord. To ascertain whether any

                                    Page 25
<PAGE>
 
interest payable exceeds the limits imposed, any non-principal payment(including
late charges) shall be considered to the extent permitted by law to be an
expense or a fee, premium, or penalty rather than interest.

  K. NO PRESUMPTION AGAINST DRAFTER: Landlord and Tenant understand, agree and
acknowledge that this Lease has been freely negotiated by both parties; and that
in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.

  L. NOTICES: All notices, demands, requests, or consents required or permitted
to be given under this Lease shall be sent in writing by U.S. certified mail,
return receipt requested, or by personal delivery, or by a reputable commercial
overnight courier addressed to the party to be notified at the address for such
party specified in Section 1 of this Lease, or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
prior written notice to the notifying party. Notices given shall be deemed
received (i) if given by certified mail, return-receipt requested, upon receipt
or rejection, (ii) if given by personal delivery, upon signed acknowledgment of
receipt, or (iii) if given by overnight courier, the next business day after
deposit with the courier. When this Lease requires service of a notice, that
notice shall replace rather than supplement any equivalent or similar statutory
notice, including any notices required by Code of Civil Procedure Section 1161
or any similar or successor statute. when a statute requires service of a notice
in a particular manner, service of that notice (or a similar notice required by
this lease) shall replace and satisfy the statutory service-of-notice
procedures, including those required by Code of Civil Procedure Section 1162 or
any similar or successor statute.

  M. PROPERTY MANAGEMENT: In addition, Tenant agrees to pay Landlord along with
the expenses to be reimbursed by Tenant a monthly fee for management services
rendered by either Landlord or a third party manager engaged by Landlord (which
may be a party affiliated with Landlord), in the amount of three percent (3%) of
the Base Monthly Rent.

  N. RENT: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.

  O. REPRESENTATIONS: Tenant acknowledges that except as set forth in this
Lease, neither Landlord nor any of its employees or agents have made any
agreements, representations, warranties or promises with respect to the Premises
or with respect to present or future rents, expenses, operations, tenancies or
any other matter. Except as expressly set forth in this Lease, Tenant relied on
no statement of Landlord or its employees or agents for that purpose.

  P. RIGHTS AND REMEDIES: All rights and remedies hereunder are cumulative and
not alternative to the extent permitted by law, and are in addition to all other
rights and remedies in law and in equity.

  Q. SEVERABILITY: If any term or provision of this Lease is held unenforceable
or invalid by a court of competent jurisdiction, the remainder of the Lease
shall not be invalidated thereby but shall be enforceable in accordance with its
terms, omitting the invalid or unenforceable term.

  R. SUBMISSION OF LEASE: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.

  S. SUBORDINATION: This Lease is subject and subordinate to ground and
underlying leases, mortgages, deeds of trust and security instruments
(collectively "Encumbrances") which may now affect the Premises, to any
covenants, conditions or restrictions of record, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder") require
that this Lease be prior and superior thereto, within ten (10) days after
written request of Landlord to Tenant, Tenant shall execute, have acknowledged
and

                                    Page 26
<PAGE>
 
deliver all reasonable documents or instruments, in the form presented to
Tenant, which Landlord or Holder reasonably deems necessary or desirable to make
the Lease superior thereto. Landlord shall have the right to cause this Lease to
be and become and remain subject and subordinate to any and all Encumbrances
which are now or may hereafter be executed covering the Premises or any
renewals, modifications, consolidations, replacements or extensions thereof, for
the full amount of all advances made or to be made thereunder and without regard
to the time or character of such advances, together with interest thereon and
subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this
Lease as long as Tenant is not then in default (as defined in Section 13 of this
Lease) and continues to pay Base Monthly Rent and additional rent and observes
and performs all provisions of this Lease required to be performed by Tenant.
Within ten (10) days after Landlord's written request, Tenant shall execute any
reasonable documents required by Landlord or the Holder to make this Lease
subordinate to any lien of the Encumbrance. If Tenant fails to do so, then in
addition to such failure constituting a default by Tenant, it shall be deemed
that this Lease is so subordinated to such Encumbrance. Notwithstanding anything
to the contrary in this Section, Tenant hereby attorns and agrees to attorn to
any entity purchasing or otherwise acquiring title to the Premises at any sale
or other proceeding or pursuant to the exercise of any other rights, powers or
remedies under such encumbrance.

Landlord shall cause the existing lender, First California Mortgage, to furnish
to Tenant, within sixty (60) days of the date of both parties' execution of this
Lease, with a written agreement providing for (i) recognition by the lender of
all of the terms and conditions of this Lease, and (ii) continuation of this
Lease upon foreclosure of existing lender's security interest in the Premises.
In the event that Landlord is unable to provide such agreement, Tenant's sole
remedy shall be termination of the Lease, which election shall be made within
fourteen (14) days following the expiration of such sixty (60) day period.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default under this Lease (as
defined in Section 13 of this Lease). Notwithstanding anything to the contrary
in the Lease, subordination of Tenant's leasehold interest to an Encumbrance,
and Tenant's attornment to any party, is conditioned upon Tenant's concurrent
receipt from the lender or ground lessor or Holder in question of an express
written agreement in a form reasonably satisfactory to Tenant providing for (i)
the recognition of all of the terms and conditions of this Lease and providing
for continuation of this Lease upon foreclosure of the Encumbrance or
termination of the ground lease and (ii) the written agreement by such successor
to perform all of the obligations to be performed by Landlord under the Lease on
and after the date of the foreclosure or termination of the ground lease.

  T. APPROVALS: Except as specifically excepted in this Lease, whenever the
Lease requires an approval, consent, designation, determination or judgment by
either Landlord or Tenant, such approval, consent, designation, determination or
judgment shall not be unreasonably withheld or delayed and in exercising any
right or remedy hereunder, each party shall at all times act reasonably and in
good faith.

  U. REASONABLE EXPENDITURES: Any expenditure by a party permitted or required
under the Lease, for which such party is entitled to demand and does demand
reimbursement from the other party, shall be limited to the fair market value of
the goods and services involved, shall be reasonably incurred, and shall be
substantiated by documentary evidence available for inspection and review by the
other party or its representative during normal business hours.

  V. Survival of Indemnities: All indemnification, defense, and hold harmless
obligations of Landlord and Tenant under this Lease shall survive the expiration
or sooner termination of the Lease.

  W. TIME: Time is of the essence hereunder.

  X. WAIVER OF RIGHT TO JURY TRIAL: Landlord and Tenant waive their respective
rights to trial by jury of any contract or tort claim, counterclaim, cross-
complaint, or cause of action in any action, proceeding, or hearing brought by
either party

                                    Page 27
<PAGE>
 
against the other on any matter arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, or Tenant's use or occupancy of
the Premises, including any claim of injury or damage or the enforcement of any
remedy under any current or future law, statute, regulation, code, or ordinance.

  Y. MEMORANDUM OF LEASE: At Tenant's option, a memorandum of this Lease shall
be recorded in a form acceptable to Tenant in the Official Records of Santa
Clara County, California. Landlord agrees to duly execute and acknowledge such
memorandum.

  Z  QUIET ENJOYMENT: Provided Tenant is not in default beyond any required
written notice and applicable cure period, Tenant shall quietly have and hold
the Premises for the Lease Term and any extensions thereof without interference
by Landlord or any party claiming by or through Landlord.

                                    Page 28
<PAGE>
 
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.

LANDLORD:  The Sobrato Group,           TENANT:  Concentric Network Corporation,
a California Limited Partnership        a Delaware Corporation


By: /s/ John Sobrato                    By: /s/ Henry R. Nothhaft
   ------------------------------           --------------------------------
Its:  General Partner                   Its: Chief Executive Officer
     ----------------------------           --------------------------------

                                    Page 29
<PAGE>
 
                             EXHIBIT "A" - PREMISES
                                       

                                        

                                    Page 30