<PAGE>
 
                                                                    EXHIBIT 10.1

                                     LEASE
                                   (Phase I)

     THIS LEASE, dated January 13, 1998 for reference purposes only, is made by
and between REDSKY ENTERPRISES, INC., a California corporation ("Landlord"), and
OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("Tenant").

                                   ARTICLE 1
                                   ---------

                                  DEFINITIONS

     1.1  General:  Any term that is given a special meaning by this Article 1
          -------                                                             
or by any other provision of this Lease (including the exhibits attached hereto)
shall have such meaning when used in this Lease or any addendum or amendment
hereto.
 
     1.2  Target Commencement Date:  The term "Target Commencement Date" shall
          ------------------------                                            
mean May 1, 1998.
 
     1.3  Commencement Date:  The term "Commencement Date" is defined in
          -----------------                                             
paragraph 2.2 hereof.

     1.4  Consumer Price Index:  The term "Consumer Price Index" shall mean the
          --------------------                                                 
Consumer Price Index, for All Urban Consumers, Subgroup "All Items", for All
U.S. Cities (Base Year 1982-84=100), which is currently being published monthly
by the United States Department of Labor, Bureau of Labor Statistics.  If,
however, this Consumer Price Index is changed so that the base year is altered
from that used as of the Commencement Date, then the Consumer Price Index shall
be converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics, to obtain the same
results that would have been obtained had the base year not been changed.  If no
conversion factor is available or if the Consumer Price Index is otherwise
changed, revised or discontinued for any reason, there shall be substituted in
lieu thereof, and the term "Consumer Price Index" shall thereafter refer to, the
most nearly comparable official price index of the United States Government to
obtain substantially the same result as would have been obtained had the
original Consumer Price Index not been changed, revised or discontinued,
Landlord shall select such alternative index subject to Tenant's right to object
in writing within ten (10) days following written notice of such selection.
Tenant's failure to timely object shall conclusively be deemed to be Tenant's
approval of such alternative index.
 
     1.5  Lease Term:  The term "Lease Term" shall mean the term of this Lease,
          ----------                                                           
which shall be for a period of fifteen (15) years commencing on the Commencement
Date and ending on the day immediately preceding the fifteenth (15th)
anniversary of the Commencement Date, unless sooner terminated or extended
pursuant to any provision of this Lease.

     1.6  Improvements:  The term "Improvements" shall collectively mean (i) the
          ------------                                                          
Shell Improvements consisting of one (1) building containing approximately
55,000 square feet of gross 

                                      -1-
<PAGE>
 
leasable area (the "Building") and all paving, landscaping, sidewalks, access
ways, parking and other exterior improvements serving such building located as
shown on Exhibit "B" attached hereto and to be constructed by Landlord pursuant
         -----------                          
to the provisions of Exhibit "C" hereto and (ii) all Interior Improvements to be
                     -----------                          
constructed by Landlord pursuant to Exhibit "C" hereto.
                                    -----------                          

     1.7  Premises:  The term "Premises" shall mean that certain real property
          --------                                                            
containing approximately 3.23 acres of land (the "Land"), more particularly
described on Exhibit "A" attached hereto, and the Improvements thereon.
             -----------                                               

     1.8  Permitted Use:  The term "Permitted Use" shall mean the use of the
          -------------                                                     
Premises for office, research and development and all other legal uses.

     1.9  Tenant's Minimum Liability Insurance Coverage:  The term "Tenant's
          ---------------------------------------------                     
Minimum Liability Insurance Coverage" shall mean Three Million Dollars
($3,000,000).

     1.10 Address for Notices:  The term "Address for Notices" shall mean the
          -------------------                                                
following:

          A.   In the case of Landlord, such term shall mean Redsky Enterprises,
Inc.,  8395 Jackson Road, Suite E, Sacramento,  CA  95826.

          B.   In the case of Tenant, (i) prior to the Commencement Date, such
term shall mean Objective Systems Integrators, Inc., 100 Blue Ravine Road,
Folsom, California, and (ii) after the Commencement Date, such term shall mean
the address of the Premises.

     1.11 Lease:  The term "Lease" shall mean this printed lease, Exhibit "A"
          -----                                                   -----------
(legal description), Exhibit "B" (site plan), Exhibit "C" (Improvement
                     -----------              -----------             
Agreement), Exhibit "D" (List of Landlord Warranties), Exhibit "E" (Phase II
            -----------                                -----------          
land) and Exhibit "F" (Guaranty), all of which are attached hereto and
          -----------                                                 
incorporated herein by this reference.

     1.12 Agreed Interest Rate:  The term "Agreed Interest Rate" shall mean an
          --------------------                                                
annual rate of interest equal to two percent (2%) plus the then prime rate,
reference rate, or base rate from time to time announced by Bank of America,
N.T. & S.A. for commercial loans, but in no event to exceed the maximum rate of
interest allowed by law.

     1.13 Effective Date:  The term "Effective Date" shall mean the date the
          --------------                                                    
last signatory to this Lease whose execution is required to make it binding on
the parties hereto shall have executed this Lease.

     1.14 Law:  The term "Law" shall mean any judicial decision, statute,
          ---                                                            
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal, county, state, federal or other government
agency or authority having jurisdiction over the parties to this Lease or the
Premises, or both, in effect either at the Effective Date of this Lease or any
time during the Lease Term, including, without limitation, any regulation, or
policy of any quasi-official entity or body (e.g., board of fire examiners,
public utilities or special district).

                                      -2-
<PAGE>
 
     1.15 Leasehold Improvements:  The term "Leasehold Improvements" shall mean
          ----------------------                                               
all improvements, additions, alterations and fixtures installed in the Premises
by Tenant at its expense which are not Trade Fixtures and are not Improvements.

     1.16 Lender:  The term "Lender" shall mean (i) any beneficiary, mortgagee,
          ------                                                               
secured party or other holder of any deed of trust, mortgage or other written
security device or agreement affecting Landlord's interest in the Premises, or
(ii) the lessor under any underlying ground lease under which Landlord holds its
interest in the Premises.

     1.17 Private Restrictions:  The term "Private Restrictions" shall mean
          --------------------                                             
recorded covenants, conditions and restrictions, private agreements, reciprocal
easement agreements, and any other recorded instruments affecting the use of the
Premises as they may exist from time to time.

     1.18 Trade Fixtures:  The term "Trade Fixtures" shall mean anything affixed
          --------------                                                        
to the Premises by Tenant at its expense for purposes of trade, manufacture,
ornament or domestic use (except replacement of similar work, or material,
originally installed by Landlord) which can be removed without material injury
to the Premises unless such thing has, by the manner in which it is affixed,
become an integral part of the Premises; provided, however, that all of Tenant's
business equipment and systems, furniture, furnishings, partitioning and signs
shall be deemed Trade Fixtures regardless of how affixed to the Premises.

     1.19 Tenant Affiliate:  The term "Tenant Affiliate" shall mean a
          ----------------                                           
subsidiary, affiliate, division, corporation or other entity controlling,
controlled by or under common control with Tenant.

                                   ARTICLE 2
                                   ---------

                      DEMISE, CONSTRUCTION AND ACCEPTANCE

     2.1  Demise of Premises:  Landlord hereby leases to Tenant, and Tenant
          ------------------                                               
leases from Landlord, for the Lease Term upon the terms and conditions of this
Lease, the Premises.  Tenant's lease of the Premises shall be subject to all
Laws and all Private Restrictions, easements, and other matters of public
record.

     2.2  Commencement Date:  The Lease Term shall begin on the "Commencement
          -----------------                                                  
Date", as that term is defined in this paragraph, which date shall be determined
as follows:

          A.   The Lease Term shall commence on the "Commencement Date", which
shall be the date in which all of the following have occurred: (i) the
Improvements to be constructed by Landlord pursuant to the Improvement
Agreement, executed concurrently with this Lease by Landlord and Tenant and
attached hereto as Exhibit "C", have been Substantially Completed (except for
                   -----------                                               
punch list items which do not interfere with Tenant's use of the Premises); (ii)
Landlord has obtained and delivered to Tenant a Certificate of Occupancy
required for the legal occupancy of the 

                                      -3-
<PAGE>
 
Premises for Tenant's intended use; and (iii) possession of the Premises has
been tendered by Landlord to Tenant.

          B.   The parties acknowledge that the obligation to pay Base Monthly
Rent and Additional Rent will commence as provided in paragraphs 3.1 and 3.2 and
will depend upon the Commencement Date.

          C.   As of the Effective Date, the parties anticipate that the Lease
Term will commence on the Target Commencement Date.  However, the Lease Term
shall begin on the Commencement Date as it is defined pursuant to subparagraph
2.2A above.

     2.3  Delivery and Acceptance of Possession:  Landlord shall use its best
          -------------------------------------                              
efforts to cause the Commencement Date to occur on or before the Target
Commencement Date, or as soon thereafter as reasonably practicable.  However, if
Landlord is unable to cause the foregoing to be done by the indicated time
period for any reason beyond its reasonable control, this Lease shall not be
void or voidable, Landlord shall not be in default, and Landlord shall not be
liable to Tenant for any loss or damage resulting from Landlord's failure or
inability to complete such improvements within the indicated time periods or to
deliver possession of the Premises when required by this Lease.  However, Tenant
shall have the option to terminate this Lease in the event the Commencement Date
has not occurred within that period of time following the Target Commencement
Date that is equal to the sum of the following: (i) one hundred eighty (180)
days; plus (ii) the period of any actual delay in completing the Improvements
experienced by Landlord resulting from delays caused by Tenant or Force Majeure
as described in paragraph 15.8, or any other event or causes beyond Landlord's
reasonable control.

     2.4  Early Occupancy:  Tenant shall have the right to enter the Premises as
          ---------------                                                       
soon as reasonably practicable after that point in time when such entry will not
unreasonably interfere with Landlord's construction of the Improvements and
continuing thereafter until the Commencement Date for the purpose of installing
its personal property, furniture, furnishings, equipment, systems and Trade
Fixtures.  If Tenant enters or permits its contractors to enter the Premises
prior to the Commencement Date, it shall do so upon all of the terms of this
Lease (including its obligations regarding indemnity and insurance) except those
regarding the obligation to pay Base Monthly Rent and Additional Rent, which
shall commence as set forth in Article 3 below.

 
                                   ARTICLE 3
                                   ---------

                                      RENT

     3.1  Base Monthly Rent:  Commencing sixty (60) days following the
          -----------------                                           
Commencement Date and continuing throughout the Lease Term, Tenant shall pay to
Landlord a monthly rent (which rent is referred to as the "Base Monthly Rent"),
in accordance with the following:

                                      -4-
<PAGE>
 
          A.   Commencing sixty (60) days following the Commencement Date and
continuing until the fifth (5th) anniversary of the Commencement Date, the Base
Monthly Rent shall be Ninety-Two Cents ($.92) per square foot per month of
rentable square feet (reasonably determined in accordance with BOMA standards)
within the Building constructed on the Premises (which sum is referred to herein
as the "Initial Base Monthly Rent"):

          B.   Commencing on the fourth (4th) anniversary of the Commencement
Date, and again on the seventh (7th), eleventh (11th) and fourteenth (14th)
anniversaries of such dates (each such day being referred to as the "Rent
Adjustment Date"), the Base Monthly Rent shall be adjusted to equal the product
of the Base Monthly Rent in effect for the calendar month immediately preceding
the Rent Adjustment Date in question plus the Consumer Price Index (or "CPI")
increase for each anniversary of the Lease for the period from the Commencement
Date to the first Rent Adjustment Date, in the case of the first Rental
Adjustment and thereafter, the immediately preceding period between Rent
Adjustment Dates; provided, however, that any such increase in Base Monthly Rent
shall not be greater than two and one-half percent (2.5%) in any year.  Thus,
the CPI increase for any  Rent Adjustment Date shall not exceed in the aggregate
ten percent (10%).  This Paragraph shall not apply during any Option Term.

          C.   By way of example only, assuming (i) the rentable square footage
of the Building is 55,000 square feet, (ii) the initial Base Monthly Rent is
Fifty Thousand, Six Hundred Dollars ($50,600) (55,000 x $.92) and (iii) the
actual increases in the Consumer Price Index (or "CPI") for the first (1st),
second (2nd), third (3rd) and fourth (4th) anniversaries of the Lease Term are
one percent (1%), two percent (2%), two percent (2%) and twenty percent (20%),
respectively, the first (1st) rental adjustment or increase would equal $3,795,
                                                                        ------ 
which amount is calculated as follows:

     (I) FIRST (1ST) ANNIVERSARY INCREASE OF $506 ($50,600 (first (1st) year's
                                             ----                             
Base Monthly Rent) x .01 CPI increase = $506 CPI increase for the first (1st)
anniversary), plus

     (II) SECOND (2ND) ANNIVERSARY INCREASE OF $1,012 ($50,600 (second (2nd)
                                               ------                       
year Base Monthly Rent) x .02 CPI increase = $1,012 CPI increase for the second
(2nd) anniversary), plus

     (III) THE THIRD (3RD) ANNIVERSARY INCREASE OF $1,012 ($50,600 (third (3rd)
                                                   ------                      
year Base Monthly Rent) x .02 CPI increase = $1,012 CPI increase for the third
(3rd) anniversary), plus

     (IV) THE FOURTH (4TH) ANNIVERSARY INCREASE OF $1,265 ($50,600 (fourth (4th)
                                                   ------                       
year Base Monthly Rent) x .025 CPI increase (CPI increase cannot exceed 2.5% for
any year, regardless of actual CPI increase) = $1,265 CPI increase for the
fourth (4th) anniversary), which

     (v) equals a cumulative increase of $3,795 ($506 + $1,012 + $1,012 +
                                         ------                          
$1,265)

          D.   Notwithstanding anything to the contrary in this Lease, if the
actual cost of the Interior Improvements is less than the Interior Improvement
Allowance (as defined in the Tenant Improvement Agreement), then the Base
Monthly Rent payable by Tenant for the Premises shall be 

                                      -5-
<PAGE>
 
reduced as follows: the unused portion of the Interior Improvement Allowance
shall be multiplied by ten and fifty one hundredths percent (10.50%), the amount
of which shall be divided by twelve (12), the product of which shall be deducted
from the Base Monthly Rent for each month of each year of the Lease Term. If the
Base Monthly Rent is adjusted as set forth in this Section 3.1.D., the parties
shall execute an amendment to this Lease, reducing the Base Monthly Rent, in
accordance with this Article 3.

     3.2  Additional Rent:  Commencing on the Commencement Date and continuing
          ---------------                                                     
throughout the Lease Term, Tenant shall pay as additional rent (the "Additional
Rent") (i) Real Property Taxes as required by paragraph 8.2, (ii) insurance
costs pursuant to paragraph 9.3, (iii) any late charges or interest due Landlord
pursuant to paragraph 3.4, (iv) any legal fees and costs due Landlord pursuant
to paragraph 15.10, and (v) any other charges due Landlord pursuant to this
Lease.

     3.3  Payment of Rent:  All rent required to be paid in monthly installments
          ---------------                                                       
shall be paid in advance on the first (1st) day of each calendar month during
the Lease Term.  All rent shall be paid in lawful money of the United States,
and except as otherwise expressly set forth in this Lease, without any
abatement, deduction or offset whatsoever, and without any prior demand
therefor, to Landlord at its address set forth above or at such other place as
Landlord may designate from time to time.  Tenant's obligation to pay rent shall
be prorated at the commencement and expiration of the Lease Term.

     3.4  Late Charge and Interest on Rent in Default:  Tenant acknowledges that
          -------------------------------------------                           
the late payment by Tenant of any monthly installment of Base Monthly Rent or
any Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amount of which are extremely difficult
or impractical to fix.  Such costs and expenses will include, without
limitation, administration and collection costs and processing and accounting
expenses. Therefore, if any such Base Monthly Rent or Additional Rent is not
received by Landlord from Tenant within five (5) days after Tenant has received
written notice from Landlord that payment of such rent has not been received by
Landlord and that such rent is past due, Tenant shall immediately pay to
Landlord a late charge equal to four percent (4%) of such delinquent rent.
Landlord and Tenant agree that this late charge represents a reasonable estimate
of such costs and expenses and is fair compensation to Landlord for its loss
suffered by Tenant's failure to make timely payment.  In addition to said late
charge, if any Base Monthly Rent or Additional Rent is not received by Landlord
from Tenant within thirty (30) days after Tenant has received written notice
from Landlord that such Rent is past due, Landlord shall be entitled to interest
on the past due amount from the thirty-first (31st) day until paid at the Agreed
Interest Rate.  In no event shall this provision for a late charge and interest
be deemed to grant to Tenant a grace period or extension of time within which to
pay any rent or prevent Landlord from exercising any right or remedy available
to Landlord upon Tenant's failure to pay any rent due under this Lease in a
timely fashion, including the right to terminate this Lease.

     3.5  Security Deposit:  In no event shall a security or similar deposit be
          ----------------                                                     
due from Tenant at any time under this Lease.

                                      -6-
<PAGE>
 
                                   ARTICLE 4
                                   ---------

                                USE OF PREMISES

     4.1  Limitation on Type:  Tenant may use the Premises only for the
          ------------------                                           
Permitted Use (as described in Article 1 above) and for no other purpose or use,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld.  Tenant shall not do anything in or about the Premises
which will cause structural injury to the Improvements.  Tenant shall not
operate any equipment within the Premises which will (i) injure, vibrate or
shake the Building, (ii) overload existing electrical systems or other
mechanical equipment servicing the Building, or (iii) impair the efficient
operation of the sprinkler system or the heating, ventilating or air
conditioning ("HVAC") equipment within or servicing the Building, or (iv)
damage, overload or corrode the sanitary sewer system.  Tenant shall not attach,
hang or suspend anything from the ceiling, roof, walls or columns of the
Building or set any load on the floor in excess of approved structural limits as
reasonably defined by Landlord's architect.  Any dust, fumes, or waste products
generated by Tenant's use of the Premises shall be contained and disposed so
that they do not (i) create a fire or health hazard, or (ii) damage the
Premises.  Tenant shall not change the exterior of the Building or make any
penetrations of the exterior or roof of the Building except as approved by
Landlord.  Tenant shall not commit nor permit to be committed any waste in or
about the Premises or any nuisances.

     4.2  Compliance with Laws and Private Restrictions:  Tenant shall not use
          ---------------------------------------------                       
or permit any person to use the Premises in any manner which violates any Laws
or Private Restrictions.  Subject to Article 5 of this Lease, Tenant shall abide
by and promptly observe and comply with all Laws and all Private Restrictions
applicable to Tenant's use or occupancy of the Premises and shall indemnify and
hold Landlord harmless from any liability resulting from Tenant's failure to do
so. (As used in this Article, the term "Tenant" shall include Tenant's
employees, agents and contractors.)  During the Lease Term, Landlord shall not
consent to any amendment of any declaration of covenants, conditions and
restrictions which may affect the Premises without the prior written consent of
Tenant.

     4.3  Insurance Requirements:  Tenant shall not use or permit any person to
          ----------------------                                               
use the Premises in any manner which will cause a cancellation of any insurance
policy covering the Improvements or which poses an unreasonable risk of damage
or injury to the Premises.  Tenant shall not sell, or permit to be kept, used,
or sold in or about the Premises any article which may be prohibited by the
standard form of fire insurance policy.

     4.4  Outside Areas:  No materials, supplies, tanks or containers,
          -------------                                               
equipment, finished products or semi - finished products or raw materials shall
be stored upon or permitted to remain outside of the Premises except in fully
fenced and screened areas outside the Building which have been designed for such
purpose or have been approved in writing by Landlord for such use by Tenant.

                                      -7-
<PAGE>
 
     4.5  Signs:  Tenant shall have the exclusive right to install a monument
          -----                                                              
sign and any exterior signage on the Premises, subject to Landlord's prior
approval of the design and location,  provided such signs comply with all Laws
and Private Restrictions and, subject to the Improvement Agreement attached
hereto as Exhibit "C", are installed at the expense of Tenant.  If Landlord so
          -----------                                                         
elects, Tenant shall, at the expiration or sooner termination of this Lease,
remove all signs installed by it and repair any damage caused by such removal.
Tenant shall at all times maintain such signs in good condition and repair.

     4.6  Parking:  Tenant and its agents, employees, contractors and
          -------                                                    
representatives shall have the exclusive right to use all parking spaces
contained within the Premises.  The Premises shall contain not less than two
hundred thirty-five (235) parking spaces, more particularly described on Exhibit
                                                                         -------
"B" attached hereto and incorporated herein by reference.  In the event Landlord
---                                                                             
is required by any Law to limit or control parking in the Premises, whether by
validation of parking tickets or any other method of assessment, Tenant agrees
to participate in such validation or assessment program under such reasonable
rules and regulations as are from time to time established by Landlord;
provided, however, that in no event shall Tenant be charged for the use of any
parking spaces contained within the Premises.

     4.7  Auctions:  Tenant shall not conduct or permit to be conducted on any
          --------                                                            
portion of the Premises any sale of any kind (except for sales conducted in the
ordinary course of Tenant's business which are conducted entirely within the
Premises), including (i) any public or private auction, fire sale, going-out-of-
business sale, distress sale or other liquidation sale, or (ii) any so-called
"flea market", open-air market or any other similar activity.


                                   ARTICLE 5
                                   ---------

                   TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS

     5.1  Trade Fixtures:  Throughout the Lease Term, Tenant shall provide,
          --------------                                                   
install, and maintain in good condition all Trade Fixtures required in the
conduct of its business in the Premises.  All Trade Fixtures shall remain
Tenant's property.

     5.2  Leasehold Improvements:  Tenant shall not construct any Leasehold
          ----------------------                                           
Improvements or otherwise alter the Premises without Landlord's prior approval
if such action results in the removal or alteration of any material portion of
existing Improvements (including wall and floor coverings, ceilings, lighting
fixtures or other utility installations) and (a) the cost of such construction
or alteration exceeds Fifty Thousand Dollars ($50,000) per work of improvement
or (b) the cost of such Leasehold Improvements done, under construction, or for
which approval is sought during any two (2) calendar year period exceeds Two
Hundred Thousand Dollars ($200,000), and not until Landlord shall have first
approved the plans and specifications therefor, which approval shall be deemed
given if not denied in writing within ten (10) working days after Landlord shall
have received Tenant's request for such approval.  In no event shall Tenant make
any alterations to the Premises which could significantly affect the structural
integrity or the exterior design of the Improvements.  

                                      -8-
<PAGE>
 
Notwithstanding anything to the contrary contained in this Lease, Tenant shall
have the right to reconfigure demountable walls and partitions without
Landlord's prior written consent. All such approved Leasehold Improvements shall
be installed by Tenant at Tenant's expense in substantial compliance with the
approved plans and specifications therefor. All construction undertaken by
Tenant shall be done in accordance with all Laws and in a good and workmanlike
manner using materials of good quality. Tenant shall not commence construction
of any Leasehold Improvements until (i) all required governmental approvals and
permits shall have been obtained, (ii) all requirements regarding insurance
imposed by this Lease have been satisfied, (iii) Tenant shall have given
Landlord at least five (5) days prior written notice of its intention to
commence such construction, (iv) Tenant shall have notified Landlord by
telephone of the commencement of construction on the day it commences, and (v)
if reasonably requested by Landlord, Tenant shall have obtained contingent
liability and broad form builders risk insurance in an amount reasonably
satisfactory to Landlord if there are any perils relating to the proposed
construction not covered by insurance carried pursuant to Article 9. Landlord
shall cause to be made available to Tenant all information maintained by
Landlord or Landlord's architect which relates to the plans for the Building,
including any "as-built" plans for the Building, roof and/or Outside Areas, so
that Tenant can incorporate such information into Tenant's files relating to any
plans for Leasehold Improvements. All Leasehold Improvements shall remain the
property of Tenant during the Lease Term. Tenant shall have the right to remove
any Leasehold Improvements so long as it repairs all damage caused by the
removal thereof and returns the Premises to the condition existing prior to the
installation of such Leasehold Improvements. At the expiration or sooner
termination of the Lease Term, all Leasehold Improvements that Tenant does not
elect to remove shall be surrendered to Landlord as a part of the realty and
shall then become Landlord's property, and Landlord shall have no obligation to
reimburse Tenant for all or any portion of the value or cost thereof; provided,
however, that Tenant shall remove any Leasehold Improvements so designated for
removal by Landlord in accordance with the provisions of paragraph 15.2 if (i)
such Leasehold Improvements were installed without the prior written consent of
Landlord, or (ii) at the time Tenant requested Landlord's consent to such
Leasehold Improvements, Landlord informed Tenant in writing that Landlord would
require that such Leasehold Improvements be removed and the Premises returned to
the condition existing prior to the installation thereof, ordinary wear and tear
excepted, at the expiration or earlier termination of the Lease Term.

          5.3  Alterations Required by Law:  Tenant shall make any alteration,
               ----------------------------                                   
addition or change of any sort, whether structural or otherwise, to the Premises
that is required by any Law because of (i) a particular use of or change of use
made to the Premises by Tenant (which alteration, addition or change is not
generally required to be made by owners or tenants of other properties similar
to the Premises), (ii) Tenant's application for a new permit or governmental
approval, or (iii) Tenant's construction or installation of any Leasehold
Improvements or Trade Fixtures.  Any other alteration, addition or change
required by Law which is not the responsibility of Tenant pursuant to the
foregoing shall be made by Landlord (subject to Landlord's right to
reimbursement from Tenant for certain improvements required by Law as specified
in paragraph 5.4).

          5.4  Landlord's Improvements:  All fixtures, improvements or equipment
               ------------------------                                         
which are installed, constructed on or attached to the Property by Landlord at
its expense shall become a 

                                      -9-
<PAGE>
 
part of the realty and belong to Landlord. Tenant shall pay Additional Rent in
the amount described in subparagraph 5.4B in the event Landlord is required by
Law to make capital improvements required to be constructed in order to comply
with any Law not in effect or applicable to the Premises as of the Effective
Date which are not the responsibility of Tenant pursuant to paragraph 5.3. The
amount of Additional Rent Tenant is to pay with respect to each such capital
improvement shall be determined as follows:

               A.   All costs paid by Landlord to construct such improvements
(including financing costs but excluding reimbursements received from insurers
or other third parties and the cost of any work ordered by the warranty given by
Landlord pursuant to the Improvement Agreement attached hereto as Exhibit "C")
                                                                  ----------- 
shall be amortized on a straight line basis over the useful life of such
improvements (as reasonably determined by Landlord in accordance with generally
accepted accounting principles) with interest on the unamortized balance at the
then prevailing market rate Landlord would pay if it borrowed funds to construct
such improvement from an institutional lender, and Landlord shall inform Tenant
of the monthly amortization payment required to so amortize such costs, and
shall also provide Tenant with the information upon which such determination is
made.

               B.   As Additional Rent, Tenant shall pay an amount equal to such
monthly amortization payment for each month after such improvement is completed
until the first to occur of (i) the expiration of the original Lease Term
(excluding any extended terms), or (ii) the end of the term over which such
costs were amortized, which amount shall be due at the same time the Base
Monthly Rent is due.

          5.5  Liens:  Tenant shall keep the Premises free from any liens, and
               ------                                                         
shall pay when due all bills, arising out of any work performed by or materials
furnished to Tenant, its subtenants, or their respective agents, employees or
contractors relating to Leasehold Improvements in the Premises.  If any such
claim of lien is recorded, Tenant shall bond against or discharge the same
within thirty (30) days after the same has been recorded against the Premises.
Should any lien be filed against the Premises or any action commenced affecting
title to the Premises, the party receiving notice of such lien or action shall
immediately give the other party written notice thereof.  Landlord, within
thirty (30) days after request from Tenant, shall execute and deliver any
document reasonably required by any supplier, lessor or lender of Tenant in
connection with the installation in the Premises of Tenant's personal property
or Tenant's Trade Fixtures pursuant to which Landlord waives any rights it may
have with respect to such personal property or Trade Fixtures.

          5.6  Initial Improvements:  The construction of the initial
               --------------------                                  
Improvements to the Premises shall be governed by the terms of the Improvement
Agreement, attached hereto as Exhibit "C", and not the terms of this Article 5,
                              -----------                                      
except as expressly so stated herein.

                                      -10-
<PAGE>
 
                                   ARTICLE 6
                                   ---------

                             REPAIR AND MAINTENANCE

     6.1  Tenant's Obligation to Maintain:  Except as otherwise provided in
          -------------------------------                                  
Paragraph 6.2, Article 11 and Article 12 of this Lease and the Improvement
Agreement, Tenant shall, at Tenant's sole expense and in accordance with the
terms of this Lease, including Article 5, at all times during the Lease Term,
clean, keep, and maintain in good order, condition, and repair and replace when
necessary, and conduct regular inspections and servicing of, the Premises and
every part thereof, including, but not limited to, (i) the roof membrane (but
excluding the roof structure), (ii) all plumbing and sewage facilities
(including all sinks, toilets, faucets and drains), and all ducts, pipes, vents
or other parts of the HVAC or plumbing system, (iii) all fixtures, interior
walls, floors, carpets and ceilings, (iv) all windows, doors, entrances, plate
glass, showcases and skylights (including cleaning both interior and exterior
surfaces), (v) all electrical facilities and all equipment (including all
lighting fixtures, lamps, bulbs, tubes, fans, vents, exhaust equipment and
systems), (vi) any automatic fire extinguisher equipment in the Premises, (vii)
all landscaping (including any necessary replanting) and irrigation, and (viii)
all parking areas, driveways, sidewalks, and other outside areas within the
Premises (including any necessary painting, striping, patching or resurfacing).
Tenant shall, at Tenant's sole expense and in accordance with the terms of this
Lease, including Article 5, repair any damage to the Premises (including
exterior doors and windows) caused by vandalism or any unauthorized entry.
Tenant shall maintain, repair and replace when necessary all HVAC equipment and
shall keep the same in good condition through regular inspection and servicing.
No less frequently than annually, Tenant shall cause the Building to be
inspected by a licensed HVAC repair and maintenance contractor approved by
Landlord, each of whom shall submit the result of its inspection to Landlord and
Tenant.  Tenant shall perform such maintenance and repair work as is recommended
by such inspector to the extent such work is reasonably necessary to keep the
HVAC equipment in good order, condition, and repair.  All repairs and
replacements required of Tenant shall be promptly made with new materials of
like kind and quality.  If the estimated cost of any item of repair or
replacement is in excess of Fifty Thousand Dollars ($50,000), then Tenant shall
first obtain Landlord's written approval of the scope of work, plans therefor,
materials to be used, and the contractor.

     6.2  Landlord's Obligation to Maintain:  Unless otherwise set forth in this
          ---------------------------------                                     
Lease, during the Lease Term, Landlord shall be responsible for the following,
without right of reimbursement from Tenant (except to the extent any of the
following are caused by Tenant or Tenant's agents, employees or invitees):

          A.   Landlord shall maintain, repair and replace when necessary all
structural parts of the Building (including, without limitation, the foundation,
floor slab, load-bearing walls and roof system (including the roof membrane)).

          B.   Landlord shall correct defects in design and construction of, and
violations of Law relating to, the Improvements (but not Tenant's use and
excluding Tenant's Leasehold 

                                      -11-
<PAGE>
 
Improvements) which Laws existed as of the date the building permits for the
Improvements were issued.

          C.   Landlord shall be responsible for replacing when necessary
because of age or wear and tear any part of the Building, including HVAC
equipment, (excluding Leasehold Improvements and replacements necessitated by
misuse or abuse by Tenant, or Tenant's employees, agents or invitees) and areas
outside of the Building (e.g., replacement of parking area) where (a) the useful
                         ----                                                   
life of the replacement will extend beyond the remaining Lease Term (excluding
options to extend that have not yet been exercised) and (b) the cost of the
replacement (and all other replacements commenced within the same calendar year)
exceeds twenty percent (20 %) of the then prevailing Monthly Base Rent.  If
Landlord is responsible for a replacement, then Landlord shall make such
replacement at its sole expense, but the cost thereof shall be amortized and
Tenant shall pay Additional Rent on account of such amortization in accordance
with the procedures set forth in Article 5.4 of this Lease.  Notwithstanding the
foregoing, this subparagraph C shall not apply to the matters governed by
subparagraphs A and B in this Paragraph 6.2 above, for which Tenant shall have
no reimbursement obligation.
 
     6.3  Warranties.  Landlord shall assign to Tenant for the term of this
          ----------                                                       
Lease the benefit of all warranties available to Landlord which would reduce the
cost of performing the obligations of Tenant pursuant to this Lease.  Landlord
shall cooperate with Tenant in the enforcement of such warranties.  A list of
all warranties relating to the Premises to be assigned by Landlord to Tenant is
set forth in Exhibit "G" which is attached hereto and incorporated herein by
             -----------                                                    
reference.

     6.4  Condition on Delivery.  As of the Commencement Date, Landlord shall
          ---------------------                                              
deliver the Premises in good condition and repair, broom clean, with all
electrical, mechanical, HVAC, plumbing and lighting equipment, systems and
facilities in good working order, condition and repair.

     6.5  Tenant's Negligence:  Tenant shall pay for all damage to the Premises
          -------------------                                                  
caused by the intentional or negligent act or omission of Tenant, its employees,
contractors, or invitees, or by the failure of Tenant to discharge promptly its
obligations under this Lease or to comply with the terms of this Lease, but only
to the extent such damage is not covered by insurance proceeds actually
recovered by Landlord under policies paid for by Tenant, as set forth in Article
9 hereof.  Tenant shall make payment therefor on demand by Landlord.

                                   ARTICLE 7
                                   ---------

                          WASTE DISPOSAL AND UTILITIES

     7.1  Waste Disposal:  Tenant shall store its waste either inside the
          --------------                                                 
Premises or within outside trash enclosures that are (i) fully fenced and
screened in compliance with all Private Restrictions and (ii) designed for such
purpose.  All entrances to such outside trash enclosures shall be kept closed,
and waste shall be stored in such manner as not to be visible from the exterior
of such outside enclosures.  Tenant shall cause all of its waste to be regularly
removed from the Premises at 

                                      -12-
<PAGE>
 
Tenant's sole cost. Tenant shall keep all fire corridors and mechanical
equipment rooms in the Premises free and clear of all obstructions at all times.

     7.2  Hazardous Materials:  Landlord and Tenant agree as follows with
          -------------------                                            
respect to the existence or use of "Hazardous Material" (as defined below) on
the Premises:

          A.   Any handling, transportation, storage, treatment, disposal or use
of Hazardous Materials by Landlord or Tenant on and after the Effective Date in
or about the Premises shall strictly comply with all applicable Hazardous
Materials Laws and shall be conducted in a manner which will not impair the
health of any person on or about the Premises (including, without limitation,
Landlord's and Tenant's employees, agents or invitees).

          B.   Tenant at Tenant's sole expense shall indemnify, defend upon
demand with counsel reasonably acceptable to Landlord, and hold harmless
Landlord and Landlord's shareholders, directors, officers, employees, partners,
affiliates and agents from and against any and all liabilities, losses, claims,
damages, lost profits, diminution in value of the Premises or the Building,
consequential damages, interest, penalties, fines, monetary sanctions,
reasonable attorneys' fees, experts' fees, and court costs, remediation costs,
investigation costs, and other expenses which result from or arise in any manner
whatsoever out of the following:

               (1) The use, storage, release or disposal of Hazardous Materials
on or about the Premises by Tenant, its subtenants, and their respective agents,
employees, or contractors after the Effective Date; and

               (2) The exposure of any person to a Hazardous Material stored,
used, released or disposed of by Tenant, its subtenants, and their respective
agents, employees, or contractors in or about the Premises after the Effective
Date.

          C.   If the presence of Hazardous Materials on the Premises caused or
permitted by Tenant or its agents, employees, or contractors after the Effective
Date results in contamination or deterioration of water or soil resulting in a
level of contamination greater than the levels established by any governmental
agency having jurisdiction over such contamination, then Tenant at Tenant's sole
expense shall promptly take any and all action necessary to clean up such
contamination and return the Premises or Building to the condition that existed
before the introduction of such Hazardous Material by Tenant or its agents,
employees or contractors, to the extent required by applicable Law or to the
extent required by an institutional owner of  real property acting reasonably.
Tenant shall first obtain Landlord's reasonable approval of the proposed
remedial action.  This provision does not limit the indemnification obligations
of Tenant set forth in this Article 7.  Tenant shall further be solely
responsible for, and shall defend, indemnify and hold Landlord and its agents
harmless from and against, all claims, costs and liabilities, including
reasonable attorneys' fees and costs, arising out of or in connection with any
removal, clean-up and restoration work required as a result of any Hazardous
Materials contamination caused by Tenant's use, storage, or disposal of
Hazardous Materials on the Premises during the Lease Term.

                                      -13-
<PAGE>
 
          D.   Landlord and Tenant shall each give written notice to the other
as soon as reasonably practicable of (i) any communication received from any
governmental authority concerning Hazardous Materials which relates to the
Premises, and (ii) any actual or threatened contamination of the Premises by
Hazardous Materials which constitutes a violation of any Hazardous Materials
Law.  At any time during the Lease Term, Tenant shall, within five (5) days
after written request therefor received from Landlord, disclose in writing all
Hazardous Materials that are being used by Tenant on the Premises, the nature of
such use, and the manner of storage and disposal.

          E.   If Landlord has good cause to believe that the Premises has or
may become contaminated by Hazardous Materials, Landlord may cause testing wells
to be installed on the Premises in locations reasonably approved by Tenant, and
may cause the ground water to be tested to detect the presence of Hazardous
Material by the use of such tests as are then customarily used for such
purposes.  If Tenant so requests, Landlord shall supply Tenant with copies of
such test results.  The cost of such tests and of the installation, maintenance,
repair and replacement of such wells shall be paid by Tenant if, and only if,
such tests disclose the existence of Hazardous Material contamination caused by
Tenant's use, storage, release or disposal of Hazardous Materials on the
Premises during the Lease Term.  Tenant shall have the right at any time after
the Effective Date to conduct its own tests of the soil and ground water
underlying the Premises by using wells installed by Landlord or wells installed
by Tenant in locations, by a qualified consultant and in a manner first approved
in writing by Landlord so long as each of the following conditions are
satisfied: (i) such tests are conducted by Tenant at its own expense; (ii) it
repairs any damage caused by such tests; (iii) Landlord shall have the right to
review and monitor the manner in which such tests are conducted; (iv) all such
tests shall be done in a safe and reasonable manner that complies with all laws
and does not in any way cause or allow any Hazardous Materials to contaminate,
or contribute to any existing contamination, if any, upon the property being
tested; and (v) Tenant shall deliver to Landlord copies of the results of any
such tests and shall use reasonable efforts to keep confidential, and to
exercise reasonable controls over its consultants to keep confidential, the
results of such tests (provided that Tenant may make such communications to a
governmental entity if such communications are required by Law to be made by
Tenant, provided that Landlord is notified in advance of such communications.)
 
          F.   Landlord, at its sole cost, shall comply with all Laws regulating
Hazardous Materials affecting the Premises (without right of reimbursement from
Tenant) to the extent that such compliance is not made the responsibility of
Tenant pursuant to subparagraphs 7.2B or 7.2C.

          G.   As used herein, the term "Hazardous Material," means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government.  The term "Hazardous Material," includes, without limitation, any
material or substance which is (i) listed under Article 9 or defined as
hazardous or extremely hazardous pursuant to Article Il of Title 22 of the
California Administrative Code, Division 4, Chapter 20, (ii) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C.  6901 et seq. (42 U.S.C.  6903), (iii) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental

                                      -14-
<PAGE>
 
Response, Compensation and Liability Act, 42 U.S.C.  9601 et seq. (42 U.S.C.
9601), (iv) a pollutant, contaminant, or hazardous, dangerous, or toxic chemical
material, or substance within the meaning of any other applicable federal,
state, or local law, regulation, ordinance, or requirement (including consent
decrees and administrative orders imposing liability or standards of conduct
concerning any hazardous, dangerous, or toxic waste, substance, or material, now
or hereafter in effect), or (v) petroleum products, radioactive material,
including any source, special nuclear, or byproduct material as defined in 42
United States Code Sections 2011-2297g-4; asbestos in any form or condition; and
polychlorinated biphenyls (PCBs) and substances or compounds containing PCBs.

          H.   As used herein, the term "Hazardous Material Law" shall mean any
statute, law, ordinance, or regulation of any governmental body or agency
(including the U.S.  Environmental Protection Agency, the California Regional
Water Quality Control Board, and the California Department of Health Services)
which regulates the use, storage, release or disposal of any Hazardous Material,
or relates to public health and safety and protection of the environment.

          I.   The obligations of Landlord and Tenant under this paragraph 7.2
shall survive the expiration or earlier termination of the Lease Term.  The
rights and obligations of Landlord and Tenant with respect to issues relating to
Hazardous Materials are exclusively established by this paragraph 7.2.  In the
event of any inconsistency between any other part of this Lease and this
paragraph 7.2, the terms of this paragraph 7.2 shall control.

     7.3  Utilities:  Tenant shall promptly pay, as the same become due, all
          ----------                                                        
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other utilities, materials or services furnished directly to or used by
Tenant on or about the Premises during the Lease Term

     7.4  Compliance with Governmental Regulations:  Landlord and Tenant shall
          -----------------------------------------                           
comply with all rules, regulations and requirements promulgated by any national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing, limitation or other control.
Landlord may voluntarily cooperate in a reasonable manner with the efforts of
all governmental agencies or utility suppliers in reducing energy or other
resource consumption, so long as such cooperation does not unreasonably
interfere with Tenant's business or result in Tenant incurring any additional
costs.  Tenant shall not be entitled to terminate this Lease nor to any
abatement in rent by reason of such compliance or cooperation.  Tenant agrees at
all times to cooperate fully with Landlord and to abide by all rules,
regulations and requirements which Landlord may prescribe in order to maximize
the efficient operation of the HVAC system and all other utility systems.


                                   ARTICLE 8
                                   ---------
                                        
                              REAL PROPERTY TAXES

     8.1  Real Property Taxes Defined:  The term "Real Property Taxes" as used
          ---------------------------                                         
herein shall mean (i) all taxes, assessments, levies, and other charges of any
kind or nature whatsoever, general 

                                      -15-
<PAGE>
 
and special, ordinary or extraordinary, foreseen and unforeseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services or benefits,
and any increases resulting from reassessments or resulting from a change in
ownership or any other cause), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed against, or with
respect to the value, occupancy or use of, all or any portion of the Premises
(as now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein, the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of and
located on the Premises, the gross receipts, income, or rentals from the
Premises, or the use of parking areas, public utilities, or energy within the
Premises, and (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Premises
(excluding charges, levies or fees directly related to the use, storage,
disposal or release of Hazardous Materials on the Premises, which subject is
governed by paragraph 7.2 hereof). If at any time during the Lease Term the
method of taxation or assessment of the Premises prevailing as of the Effective
Date shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge (i) on the
value, use or occupancy of the Premises or Landlord's interest therein, or (ii)
on or measured by the gross receipts, income, or rentals from the Premises, on
Landlord's business of leasing the Premises, or computed in any manner with
respect to the operation of the Premises, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Premises, then only that part of such Real
Property Tax that is fairly allocable to the Premises shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include any estate, inheritance,
transfer, gift, excise, capital stock or franchise taxes of Landlord or the
local, state or federal net income tax imposed on Landlord's income from all
sources.

     8.2  Tenant's Obligation to Reimburse:  As Additional Rent, Tenant shall
          --------------------------------                                   
pay to Landlord all Real Property Taxes which become due during the Lease Term.
Tenant shall pay such Real Property Taxes (i) within thirty (30) days after
being billed for the same by Landlord, or (ii) no later than ten (10) days
before such Real Property Tax becomes delinquent, whichever last occurs.  If
requested by Tenant in writing within thirty (30) days of receipt of a bill for
Real Property Taxes, Landlord shall furnish Tenant with such evidence as is
reasonably available to Landlord with respect to the amount of any Real Property
Tax which is part of such bill.  Tenant may not withhold payment of such bill
pending receipt and/or review of such evidence.  As provided in paragraph 3.3,
Tenant's obligation to pay Real Property Taxes pursuant to this paragraph shall
be prorated at the commencement and expiration of the Lease Term.  If any Lender
requires Landlord to impound Real Property Taxes on a periodic basis during the
Lease Term, then Tenant, on notice from Landlord indicating this requirement,
shall pay a sum of money toward its liability under this Article to Landlord on
the same periodic basis in accordance with the Lender's requirements.  Landlord
shall impound the Real Property Tax payments received from Tenant in accordance
with the requirements of the Lender (if any).  If any assessments are levied
against the Property, Landlord may elect either 

                                      -16-
<PAGE>
 
to pay the assessment in full or to allow the assessment to go to bond. If
Landlord pays the assessment in full, Tenant shall pay to Landlord each time
payment of Real Property Taxes is made a sum equal to that which would have been
payable (as both principal and interest) had Landlord allowed the assessment to
go to bond.

     8.3  Tenant's Right to Contest:  Tenant shall have the right, by
          -------------------------                                  
appropriate proceedings, to protest or contest any assessment or reassessment of
Real Property Taxes or any change in the tax rate.  Landlord shall notify Tenant
in writing of any change in the assessments or the tax rate within sufficient
time to allow Tenant to review and, if it so desires, to contest or protest such
change.  Tenant shall notify Landlord in writing within sixty (60) days after
receipt of Landlord's notice if Tenant elects to make a contest or protest.  In
the contest or proceedings, Tenant may act in its own name and/or the name of
Landlord and Landlord will, at Tenant's request and provided Landlord is not put
to any expense thereby, cooperate with Tenant in any way Tenant may reasonably
require in connection with such contest.  If Tenant does not pay the Real
Property Taxes when due which are the subject of such protest or contest, before
the commencement of the proceeding or contest Tenant shall furnish to Landlord a
surety bond issued by an insurance company qualified to do business in
California.  The amount of the bond shall equal 125% of the total amount of Real
Property Taxes in dispute.  The bond shall hold Landlord and the Property
harmless from any damage arising out of the proceeding or contest and shall
insure the payment of any judgment that may be rendered.  Any contest conducted
by Tenant under this paragraph shall be at Tenant's expense and if interest or
late charges become payable with respect to Real Property Taxes as the result of
such contest or protest, Tenant shall reimburse Landlord for the same.

     8.4  Taxes on Tenant's Property:  Tenant shall pay before delinquency any
          --------------------------                                          
and all taxes, assessments, license fees and public charges levied, assessed or
imposed against the property of Tenant situated within the Premises which become
due during the Lease Term.  On demand by Landlord, Tenant shall furnish Landlord
with satisfactory evidence of these payments.


                                   ARTICLE 9
                                   ---------

                                   INSURANCE

     9.1  Tenant's Insurance:  Tenant shall maintain insurance complying with
          ------------------                                                 
all of the following:

          A.   Tenant shall procure, pay for and keep in full force and effect
the following:

               (1) Comprehensive general liability insurance against liability
for personal injury, bodily injury, death and damage to property occurring in or
about, or resulting from an occurrence in or about, the Premises with combined
single limit coverage of not less than the amount of Tenant's Minimum Liability
Insurance Coverage, which insurance shall contain (i) a "contractual liability"
endorsement insuring Tenant's performance of Tenant's obligation to indemnify
Landlord contained in paragraph 10.3, and (ii) a "fire legal liability"
endorsement;

                                      -17-
<PAGE>
 
               (2) Fire and property damage insurance against loss caused by
fire, extended coverage perils, pressure vessel boiler insurance, sprinkler
leakage, if applicable, vandalism, malicious mischief and such other additional
perils as now are or hereafter may be included in a standard extended coverage
endorsement from time to time in general use in the county in which the Premises
are located, insuring Tenant's personal property, inventory, Trade Fixtures and
Leasehold Improvements within the Premises for the full actual replacement cost
thereof; and
 
               (3) Such other insurance that is reasonably required by Landlord
and customarily carried by tenants of similar property in the area at the time.

          B.   Each policy of insurance required to be carried by Tenant
pursuant to this paragraph other than the insurance described by subparagraph
9.1A(2) shall name Landlord and such other parties in interest as Landlord
reasonably designates as additional insureds; (ii) shall be primary insurance
which provides that the insurer shall be liable for the full amount of the loss
up to and including the total amount of liability set forth in the declarations
without the right of contribution from any other insurance coverage of Landlord;
(iii) shall be in a form reasonably satisfactory to Landlord; (iv) shall be
carried with companies reasonably acceptable to Landlord; (v) shall provide that
such policy shall not be subject to cancellation or lapse except after at least
thirty (30) days prior written notice to Landlord; (vi) shall contain a cross
liability endorsement; (vii) shall contain a waiver by the insurer of any right
to subrogation against Landlord, its agents, employees and contractors which
might arise by reason of any payment under such policy or by reason of any act
or omission of Landlord, its agents, employees or contractors; and (viii) shall
contain a "severability" clause.  If Tenant has in full force and effect a
blanket policy of liability insurance with the same coverage for the Premises as
described above, as well as other coverage of other premises and properties of
Tenant, or in which Tenant has some interest, some blanket insurance shall
satisfy the requirements hereof.

          C.   A copy of each paid-up policy evidencing the insurance required
to be carried by Tenant pursuant to this paragraph (appropriately authenticated
by the insurer) or a certificate of the insurer, certifying that such policy has
been issued, providing the coverage required by this paragraph, and containing
the provisions specified herein, shall be delivered to Landlord prior to the
time Tenant or any of its contractors enters the Premises and upon renewal of
such policies, but not less than thirty (30) days prior to the expiration of the
term of such coverage.  If Landlord's lender or insurance advisor reasonably
determines at any time that the amount of coverage required for any policy of
insurance Tenant is to obtain pursuant to this paragraph is not adequate, then
Tenant shall increase such coverage for such insurance to such amount as
Landlord's lender, insurance advisor or counsel reasonably deems adequate, not
to exceed the level of coverage commonly carried by comparable businesses
similarly situated for such insurance.

     9.2  Landlord's Insurance:  Landlord shall have the following obligations
          --------------------                                                
and options regarding insurance:

                                      -18-
<PAGE>
 
          A.   Landlord shall maintain a policy or policies of fire and property
damage insurance in so-called "all risk" form (including such perils as are
commonly covered by such form of coverage) insuring Landlord (and such others as
Landlord may designate) against loss of rents (including Monthly Base Rent and
Additional Rent) for a period of not less than twelve (12) months and from
physical damage to the Improvements with coverage of not less than the full
replacement cost thereof.  Landlord may so insure the Improvements separately,
or may insure the Improvements with other property owned by Landlord which
Landlord elects to insure together under the same policy or policies.  Such fire
and property damage insurance, at Landlord's election, (i) may provide coverage
for physical damage to the Improvements so insured up to the then full
replacement cost thereof, (ii) may be endorsed to cover loss caused by such
additional perils against which Landlord may reasonably elect to insure,
including earthquake and/or flood (to the extent such insurance is available on
commercial reasonable terms), (iii) may contain reasonable "deductibles" which
in the case of the "all-risk" insurance shall not exceed Twenty-Five Thousand
Dollars ($25,000) without the prior approval of Tenant and which, in the case of
earthquake and flood insurance, may be up to ten percent (10%) of the
replacement value of the property insured or such higher amount as is then
commercially reasonable, and (iv) may contain additional endorsements or
coverage reasonably required by Landlord or any Lender, including an "agreed
amount" endorsement, demolition insurance, and difference in condition coverage.
Landlord shall not be required to cause such insurance to cover any Trade
Fixtures, Leasehold Improvements or any inventory or other personal property of
Tenant.

          B.   Landlord may maintain a policy or policies of comprehensive
general liability insurance insuring Landlord (and such others as are 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 with combined single limit coverage in such amount as Landlord may from
time to time determine is reasonably necessary for its protection.

          C.   Each policy of insurance required to be carried or actually
carried pursuant to subparagraph 9.2A shall contain a waiver by the insurer of
any right to subrogation against Tenant, its agents, employees, contractors,
subtenants, successors and assigns which might arise by reason of any payment
under such policy or by reason of any act or omission of Tenant, its agents,
employees, contractors, subtenants, successors and assigns; (ii) shall provide,
if the policy is a blanket policy, that the amount of insurance proceeds
available under such policy shall not be reduced, due to other losses insured
against by the same policy, to less than the amount of insurance Landlord is
required to maintain pursuant to this Lease; and (iii) shall contain a
"severability" clause (where applicable).

     9.3  Tenant's Obligation to Reimburse:  The cost of the insurance premiums
          --------------------------------                                     
carried pursuant to paragraph 9.2 shall be paid by Tenant within ten (10) days
after written request therefor from Landlord.  Tenant shall also be liable for
the "deductibles" with respect to any loss or losses covered by insurance
carried by Landlord pursuant to paragraph 9.2 of this Lease, provided that the
aggregate amount of such "deductibles" per casualty does not exceed an amount
equal to Ten Percent (10%) of the replacement cost of the Improvements
("Tenant's Share of Deductibles").  If the deductibles are greater than the
amount equal to Tenant's Share of Deductibles and Tenant refuses to 

                                      -19-
<PAGE>
 
pay such excess amount, Landlord may (i) terminate this Lease or (ii) keep the
Lease is full force and effect and pay such excess amount at its sole cost and
expense, without any right of reimbursement from Tenant. If the "deductibles"
are less than or equal to Tenant's Share of Deductibles or if Landlord does not
elect to terminate this Lease, Tenant shall pay Tenant's Share of Deductibles to
Landlord as follows: (i) an amount equal to one (1) month's Monthly Base Rent
shall be paid to Landlord within ten (10) days after Tenant receives written
notice from Landlord of the total deductible due and owing; and (ii) the rest of
"deductibles" owed by Tenant (not to exceed ten percent (10%) of the replacement
cost of the Improvements minus an amount equal to one (1) month's Base Monthly
Rent) shall be amortized in accordance with Paragraph 5.4 of this Lease.

     9.4  Release and Waiver of Subrogation:  Notwithstanding anything to the
          ---------------------------------                                  
contrary in this Lease:  the parties hereto release and waiver their respective
rights of recovery against each other, and their respective agents, employees,
contractors, invitees, successors, subtenants and assigns and from any liability
for injury to any person or damage to property that is caused by or results from
any risk insured against under any valid and collectible insurance policy
carried by either of the parties which contains a waiver of subrogation by the
insurer and is in force at the time of such injury or damage or any insurance
policy required to be maintained under this Lease, regardless of the negligence
or willful misconduct of the entity so released; provided, however, that any
such person or entity shall not be released from such liability to the extent
any damages resulting from such injury or damage are not covered by the recovery
obtained by the insured from such insurance, but only if the insurance in
question permits such partial release in connection with obtaining a waiver of
subrogation from the insurer.  This release shall be in effect only so long as
the applicable insurance policy contains a clause to the effect that this
release shall not affect the right of the insured to recover under such policy.
Each party shall use its best efforts to cause each insurance policy obtained by
it to provide that the insurer waives all right of recovery by way of
subrogation against the other party and its agents and employees in connection
with any injury or damage covered by such policy.  However, if any insurance
policy cannot be obtained with such a waiver of subrogation, or if such waiver
of subrogation is only available at additional cost and the party for whose
benefit the waiver is to be obtained does not pay such additional cost, then the
party obtaining such insurance shall notify the other party of that fact and
thereupon shall be relieved of the obligation to obtain such waiver of
subrogation rights from the insurer with respect to the particular insurance
involved.


                                   ARTICLE 10
                                   ----------

                            LIMITATION ON LANDLORD'S
                            LIABILITY AND INDEMNITY

     10.1 Limitation on Landlord's Liability:  Landlord shall not be liable to
          ----------------------------------                                  
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent, for any injury to Tenant, its agents, employees, contractors or
invitees, damage to Tenant's property, or loss to Tenant's business resulting
from any (i) failure or interruption of any HVAC or other utility system or
service; (ii) failure to furnish or delay in furnishing any utilities or
services when such failure or delay 

                                      -20-
<PAGE>
 
is caused by Acts of God or the elements, labor disturbances of any character,
any other accidents or other conditions beyond the reasonable control of
Landlord; (iii) maintenance, repairs or improvements to the Premises; (iv)
limitation, curtailment, rationing or restriction on the use of water or
electricity, gas or any other form of energy or any services or utility serving
the Premises; or (v) vandalism or forcible entry by unauthorized persons.
Notwithstanding the foregoing, Landlord shall be liable for any such injury,
damage or loss which is caused by Landlord's negligence or willful misconduct of
which Landlord has actual notice and a reasonable opportunity to cure but which
it fails to so cure to the extent such injury, damage or loss is not covered by
insurance proceeds actually received. This exculpation clause shall survive the
expiration or earlier termination of the Lease until all claims are barred, and
shall not be interpreted or construed as an attempt by Landlord to be relieved
of all liability arising out of a nondelegable duty on the part of Landlord.
Tenant acknowledges that this Section 10.1 was negotiated with the Landlord,
that the consideration for it is fair and adequate, and that Tenant had a fair
opportunity to negotiate, accept, reject, modify or alter it.

     10.2 Limitation on Tenant's Recourse:  So long as the Landlord is a
          -------------------------------                               
corporation, trust, partnership, joint venture, unincorporated association or
other form 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 of such business entity, and (ii) Tenant shall have recourse
only to the assets of such business entity for the satisfaction of such
obligations and not against the assets of such officers, directors, trustees,
partners, joint venturers, members, owners, stockholders, principals or
representatives, other than to the extent of their interests in the assets owned
by such business entity.

     10.3 Indemnification of Landlord:  Tenant shall hold harmless, indemnify
          ---------------------------                                        
and defend Landlord, and its employees, agents and contractors, with competent
counsel reasonably satisfactory to Landlord, from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage (i) resulting from any cause or causes whatsoever (other than the
negligence or willful misconduct of Landlord) occurring in or about the Premises
after the Commencement Date, or (ii) resulting from the negligence or willful
misconduct of Tenant, its agents, employees and contractors, wherever and
whenever the same may occur.  The provisions of this paragraph shall survive the
expiration or sooner termination of this Lease with respect to any claims or
liability occurring prior to such expiration or sooner termination.

     10.4 Indemnification of Tenant:  Notwithstanding anything contained in this
          -------------------------                                             
Lease to the contrary, Tenant shall neither release Landlord from, nor indemnify
Landlord with respect to, and Landlord shall indemnify and hold harmless Tenant
from all losses, costs, claims and damages (including reasonable attorneys'
fees) arising from or relating to: (i) the negligence or willful misconduct of
Landlord or its agents, employees or contractors; or (ii) a breach of Landlord's
obligations under this Lease.

                                      -21-
<PAGE>
 
                                   ARTICLE 11
                                   ----------

                               DAMAGE TO PREMISES

     11.1 Landlord's Duty to Restore:  If the Premises are damaged by any peril
          --------------------------                                           
after the Effective Date of this Lease, Landlord shall restore the Premises
unless the Lease is terminated by Landlord pursuant to paragraph 11.2 or by
Tenant pursuant to paragraph 11.3.  All insurance proceeds available from the
fire and property damage insurance carried by Landlord pursuant to paragraph 9.2
shall be paid to and become the property of Landlord.  If this Lease is
terminated pursuant to either paragraphs 11.2 or 11.3, then all insurance
proceeds available from insurance carried by Tenant which covers loss to
property that is Landlord's property or would become Landlord's property on
termination of this Lease shall be paid to and become the property of Landlord.
If this Lease is not so terminated, then upon receipt of the insurance proceeds
(if the loss is covered by insurance) and the issuance of all necessary
governmental permits, Landlord shall commence and diligently prosecute to
completion the restoration of the Premises, to the extent then allowed by Law,
to substantially the same condition in which the Premises were immediately prior
to such damage.  Landlord's obligation to restore shall be limited to the
Premises and Improvements constructed by Landlord as they existed as of the
Commencement Date, excluding any Leasehold Improvements, Trade Fixtures and/or
personal property constructed or installed by Tenant in the Premises.  Tenant
shall forthwith replace or fully repair all Leasehold Improvements installed by
Tenant and existing at the time of such damage or destruction, to the extent
required by Tenant for its business operations in the Premises.

     11.2 Landlord's Right to Terminate:  Landlord shall have the right to
          -----------------------------                                   
terminate this Lease in the event any of the following occurs, which right may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty (30) days after the date of such damage:

          A.   The Improvements are damaged by an Insured Peril within the last
three (3) years of the Lease Term (or Option Term) to such an extent that the
estimated cost to restore equals or exceeds seventy-five percent (75%) of the
then actual replacement cost of the Premises;

          B.   The Improvements are damaged by an Uninsured Peril, to such an
extent that the estimated cost to restore (in excess of the proceeds available,
if any) exceeds ten percent (10%) of the replacement cost of the Premises;
provided, however, that Landlord may not terminate the Lease pursuant to this
subparagraph 11.2B if Tenant agrees in writing to pay the amount by which the
restoration cost exceeds ten percent (10%) of the replacement cost of the
Premises and deposits an amount equal to the estimated amount of such excess
with Landlord within thirty (30) days after Landlord has notified Tenant of its
election to terminate the Lease pursuant to this subparagraph 11.2B;

          C.   The Improvements are damaged by any peril within twelve (12)
months of the last day of the Lease Term (or Option Term) to such an extent that
the estimated cost to restore exceeds an amount equal to six (6) times the Base
Monthly Rent then due; provided, however, that Landlord may not terminate this
Lease pursuant to this subparagraph 11.2C if Tenant, at the time of 

                                      -22-
<PAGE>
 
such damage, has a then valid written option to extend the Lease Term and Tenant
exercises such option to extend the Lease Term within thirty (30) days following
the date of such damage; or

          D.   The Improvements are damaged by any peril and, because of the
Laws then in force, may not be restored at reasonable cost to substantially the
same condition in which they were prior to such damage because of a substantial
increase in the cost of restoration directly related to changes in Laws that
have occurred since the Improvements were constructed which substantial increase
is not covered by insurance proceeds actually recovered by Landlord; provided,
however, that Landlord may not terminate the Lease pursuant to this subparagraph
11.2D if (i) Tenant agrees in writing to pay the additional restoration costs
directly related to changes in Laws that have occurred since the Improvements
were constructed to the extent it is not covered by insurance proceeds actually
recovered by Landlord, and Tenant deposits such amount within thirty (30) days
after Landlord has exercised its option to terminate the Lease, or (ii) the
Improvements may be redesigned in a manner that does not materially change their
size, configuration or value which redesign would result in Landlord being able
to restore the Improvements at reasonable cost and would not result in there
being insufficient insurance proceeds actually recovered by Landlord so long as
Landlord and Tenant reach agreement upon such redesign within sixty (60) days
after Landlord has exercised its option to terminate the Lease.  For purposes of
this subparagraph 11.2D, a "substantial increase in the cost of restoration"
shall mean an increase of ten percent (10%) or more over what the restoration
costs would have been had no changes in the Laws occurred since the Improvements
were originally constructed.

          E.   If Tenant elects to make a deposit to avoid a termination of this
Lease by Landlord pursuant to subparagraph 11.2B or 11.2D, the following shall
apply to such deposit: (i) the deposit may be in the form of cash or an
irrevocable letter of credit; (ii) any irrevocable letter of credit provided by
Tenant to satisfy this requirement must be payable to Landlord, be in the amount
of the required deposit, be in form reasonably acceptable to Landlord, and
provide for the disbursal of funds to Landlord upon Landlord's certification
that the same are needed to pay for restoration costs actually incurred; and
(iii) the deposit shall be disbursed to Landlord as it is needed to pay
restoration costs as they come due on a progress payment basis in accordance
with good construction lending practices, and Tenant shall take such action as
is necessary to cause the deposit to be so disbursed.

          F.   As used herein, the following terms shall have the following
meanings:

               (1) The term "Insured Peril" shall mean a peril actually insured
against for which the insurance proceeds are sufficient (except for any
"deductible" amount specified by such insurance) to restore the Improvements
under then-existing building codes to the condition existing immediately prior
to the damage;

               (2) The term "Uninsured Peril" means a peril not actually insured
against, or a peril actually insured against but for which the insurance
proceeds are for any reason (except for any "deductible" amount specified by
such insurance and complying with this Lease) insufficient to

                                      -23-
<PAGE>
 
restore the Premises under then-existing building codes to the condition
existing immediately prior to the damage.

     11.3 Tenant's Right to Terminate:  If the Improvements are damaged by any
          ---------------------------                                         
peril and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to paragraph 11.2, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed.  Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate on or before the later to occur of the thirtieth (30) day after the
date of such damage or Tenant receives from Landlord the estimate of the time
needed to complete such restoration:

          A.   The Improvements are damaged by any peril and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration of
the Improvements under then-existing building codes to the condition existing
immediately prior to the damage cannot be substantially completed within one (1)
year after the date of such damage or the Improvements are not in fact restored
to said condition within said one (1) year period; or

          B.   The Improvements are damaged by any peril within twelve (12)
months of the last day of the Lease Term and in the reasonable opinion of
Landlord's architect or construction consultant the restoration of the
Improvements under then-existing building codes to the condition existing
immediately prior to the damage cannot be substantially completed within ninety
(90) days after the date of such damage or are not in fact restored to said
condition within said ninety (90) day period.

     11.4 Abatement of Rent:  In the event of damage to the Improvements, the
          -----------------                                                  
Base Monthly Rent and Additional Rent shall be temporarily abated from the date
of the damage until the date of substantial completion of restoration of the
Improvements, in proportion to the degree to which Tenant's use of the Premises
is impaired by such damage and only to the extent that Landlord is reimbursed
from the proceeds of rental interruption insurance as provided for herein.
Tenant shall not be entitled to any compensation or damages from Landlord for
loss or interruption of Tenant's business or property loss or for any
inconvenience or annoyance caused by such damage or restoration.  Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.


                                   ARTICLE 12
                                   ----------

                                  CONDEMNATION

     12.1 Termination by Landlord:  Landlord shall have the right to terminate
          -----------------------                                             
this Lease if, as a result of a taking by means of the exercise of the power of
eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) all of the Premises is so 

                                      -24-
<PAGE>
 
taken, (ii) more than twenty-five percent (25%) of the area of the Building is
so taken, or (iii) more than fifty percent (50%) of the land area of the
Premises is so taken. Any such right to terminate by Landlord must be exercised
within a reasonable period of time after the condemnor has commenced judicial
action or entered into a binding agreement to effect such taking, using all
reasonable efforts to provide Tenant with at least one hundred eighty (180) days
prior notice of the date upon which possession is to be taken by the condemnor.
If Landlord so exercises such option to terminate, such termination shall be
effective as of the date possession is taken by the condemnor

     12.2 Termination by Tenant:  Tenant shall have the right to terminate this
          ---------------------                                                
Lease if, as a result of any taking by means of the exercise of the power of
eminent domain (including any voluntary sale or transfer by Landlord to any
condemnor under threat of condemnation), (i) all of the Premises is so taken,
(ii) twenty-five percent (25%) or more of the area of the Building is so taken
and that part of the Building that remains cannot be restored within a
reasonable period of time and thereby made reasonably suitable for the continued
operation of the Tenant's business, or (iii) there is a taking of the land area
of the Premises and, as a result of such taking, Landlord cannot provide parking
spaces within walking distance of the Premises equal in number to at least
ninety percent (90%) of the number of spaces that existed prior to the
condemnation, whether by rearrangement of the remaining parking areas (including
construction of multi-deck parking structures or restriping for compact cars
where permitted by Law) or by alternative parking facilities on other land.
Tenant must exercise such right within one hundred and eighty (180) days after
Tenant has been notified in writing by Landlord that the condemnor has commenced
judicial action or entered into a binding agreement to effect such taking.  If
Tenant so exercises such option to terminate, such termination shall be
effective on the date that possession is taken by the condemnor.

     12.3 Restoration and Abatement of Rent:  If any part of the Premises is
          ---------------------------------                                 
taken by condemnation and this Lease is not terminated, then Landlord shall
restore the remaining portion of the Premises to substantially the same
condition in which they existed as of the Commencement Date, excluding any
Leasehold Improvements, Trade Fixtures and/or personal property constructed or
installed by Tenant.  Thereafter, except in the case of a temporary taking, as
of the date possession is taken the Base Monthly Rent and Additional Rent shall
be reduced in the proportion to the degree to which Tenant's use of the Premises
is impaired by such damage.

     12.4 Temporary Taking:  If any portion of the Premises is temporarily taken
          ----------------                                                      
for nine (9) months or less, this Lease shall remain in effect, but Tenant shall
be entitled to recover any award that is made for such taking.  If any portion
of the Premises is temporarily taken by condemnation for a period which exceeds
nine (9) months or which extends beyond the natural expiration of the Lease
Term, then Tenant shall have the right to terminate this Lease, effective on the
date possession is taken by the condemnor.

     12.5 Division of Condemnation Award:  Any award made as a result of any
          ------------------------------                                    
condemnation of the Premises shall belong to and be paid to Landlord, and Tenant
hereby assigns to Landlord all of its right, title and interest in any such
award; provided, however, that Tenant shall be entitled to receive any
condemnation award for any temporary taking where this Lease is not terminated
as a result of such taking or that is made directly to Tenant (i) for the taking
of personal property or 

                                      -25-
<PAGE>
 
Trade Fixtures of Tenant, (ii) for the interruption of Tenant's business or its
moving costs, (iii) for loss of Tenant's goodwill, (iv) the value of any
Leasehold Improvements installed at Tenant's expense which Tenant has the right
to remove, or (v) the unamortized value of Leasehold Improvements installed at
Tenant's expense which Tenant does not have the right to remove. The rights of
Landlord and Tenant regarding any condemnation shall be determined as provided
in this Article, and each party hereby waives the provisions of Section 1265.130
of the California Code of Civil Procedure and the provisions of any similar law
hereinafter enacted allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the Premises.

                                   ARTICLE 13
                                   ----------

                              DEFAULT AND REMEDIES

     13.1 Events of Tenant's Default:  Tenant shall be in default of its
          --------------------------                                    
obligations under this Lease if any of the following events (an "Event of
Default") occurs:

          A.   Tenant shall have failed to pay Base Monthly Rent or any
Additional Rent when due and such failure is not cured within five (5) days
after receipt of written notice from Landlord specifying such failure to pay; or

          B.   Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Base Monthly Rent
or Additional Rent, and Tenant shall have failed to cure such breach within
thirty (30) days after receipt of written notice from Landlord specifying the
nature of such breach where such breach could reasonably be cured within said
thirty (30) day period, or fails to commence such cure within said thirty (30)
day period and thereafter continuously with due diligence to prosecute such cure
to completion where such breach could not reasonably be cured within said thirty
(30) day period.  Notwithstanding anything to the contrary in this Section
13.1B, in the event Tenant fails to perform any of its obligations under this
Lease and such failure poses imminent danger of materially interfering with
Landlord's business or causing injury to persons or property, if Tenant does not
commence the cure of such default within five (5) days after written notice from
Landlord specifying the nature of such default, then Landlord may immediately
take action to cure such default, and Tenant shall reimburse Landlord for all
reasonable costs incurred by Landlord in connection with curing such default
within five (5) days after receipt of a written demand therefor; or

          C.   Tenant shall have made a general assignment of its assets for the
benefit of its creditors; or
 
          D.   Tenant shall have permitted the sequestration or attachment of,
or execution on, or the appointment of a custodian or receiver with respect to,
all or any substantial part of the property of Tenant or any property essential
to the conduct of Tenant's business, and Tenant shall have failed to obtain a
return or release of such property within sixty (60) days thereafter or prior to
sale pursuant to such sequestration, attachment or levy, whichever is earlier;
or

                                      -26-
<PAGE>
 
          E.   A court shall have made or entered any decree or order with
respect to Tenant, or Tenant shall have submitted to or sought a decree or order
(or a petition or pleading shall have been filed in connection therewith) which:
(i) grants or constitutes (or seeks) an order for relief, appointment of a
trustee, or confirmation of a reorganization plan under the bankruptcy laws of
the United States; (ii) approves as properly filed (or seeks such approval of) a
petition seeking liquidation or reorganization under said bankruptcy laws or any
other debtor's relief law or statute of the United States or any state thereof;
or (iii) otherwise directs (or seeks) the winding up or liquidation of Tenant;
and such petition, decree or order shall have continued in effect for a period
of sixty (60) or more days; or

     13.2 Landlord's Remedies:  Upon the occurrence of an Event of Default by
          -------------------                                                
Tenant, Landlord shall have the following remedies, in addition to all other
rights and remedies provided by any Law or equity or otherwise provided in this
Lease, to which Landlord may resort cumulatively or in the alternative:

          A.   Landlord may, at Landlord's election, keep this Lease in effect
and enforce by an action at law or in equity all of its rights and remedies
under this Lease, including (i) the right to recover the rent and other sums as
they become due by appropriate legal action, (ii) the right but not the
obligation to make payments required of Tenant or perform Tenant's obligations
and the right to be reimbursed by Tenant for the cost thereof with interest at
the Agreed Interest Rate from the date the sum is paid by Landlord until
Landlord is reimbursed by Tenant, and (iii) the right to bring an action in law
or equity to enforce Landlord's rights and remedies, including the remedies of
injunctive relief and specific performance to compel Tenant to perform its
obligations under this Lease.

          B.   Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice (the "Termination
Date").   Tenant shall surrender possession to Landlord on or before the
Termination Date.  Any termination under this subparagraph shall not relieve
Tenant from its obligation to pay sums then due Landlord under the terms of this
Lease, including any obligation of Tenant to indemnify Landlord set forth in
this Lease, or from any claim against Tenant for damages or rent previously
accrued or then accruing.  In no event shall any one or more of the following
actions by Landlord, in the absence of a written election by Landlord to
terminate this Lease, constitute a termination of this Lease: (i) appointment of
a receiver or keeper in order to protect Landlord's interest hereunder; (ii)
consent to any subletting of the Premises or assignment of this Lease by Tenant,
whether pursuant to the provisions hereof or otherwise; (iii) any action taken
to maintain and preserve the Premises; or (iv) any action taken to relet the
Premises or any portions thereof, for the account of Tenant and in the name of
Tenant.

          C.   If an Event of Default occurs and Tenant abandons the Premises,
this Lease shall not terminate unless Landlord gives Tenant written notice of
its election to so terminate this Lease.  No act by or on behalf of Landlord
intended to mitigate the adverse effect of such breach, including those
described by the third sentence of subparagraph 13.2B immediately preceding,
shall constitute a termination of Tenant's right to possession unless Landlord
gives Tenant written notice of termination.  Should Landlord not terminate this
Lease by giving Tenant written notice, Landlord 

                                      -27-
<PAGE>
 
may enforce all its rights and remedies under this Lease, including the right to
recover the rent as it becomes due under the Lease as provided in California
Civil Code Section 1951.4 as in effect on the Effective Date of this Lease.

          D.   In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date of this
Lease.  For purposes of computing damages pursuant to Section 1951.2, an
interest rate equal to the Agreed Interest Rate shall be used where permitted.
Such damages shall include without limitation:
               (1) The worth at the time of award of any unpaid Rent which had
been earned as of the Termination Date, to be computed by allowing interest at
the Agreed Rate (but in no case greater than the maximum amount of interest
permitted by Law);

               (2) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned between the Termination Date and the
time of award exceed the amount of such rental loss that Tenant proves could
have been reasonably avoided, to be computed by allowing interest at the Agreed
Rate (but in no case greater than the maximum amount of interest permitted by
Law);
               (3) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%); and

               (4) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom.

               (5) For purposes of this Article, (i) the term "rent" includes
the Base Monthly Rent and all Additional Rent, and (ii) if it becomes necessary
to determine the amount of Additional Rent that would have become due had Tenant
not breached its obligations under this Lease, all such Additional Rent shall be
computed on the basis of the average monthly amount thereof accruing during the
Lease Term as of the date of termination.

     13.3 Landlord's Default and Tenant's Remedies:  In the event Landlord fails
          ----------------------------------------                              
to perform any of its obligations under this Lease and fails to cure such
default within thirty (30) days after written notice from Tenant specifying the
nature of such default where such default could reasonably be cured within said
thirty (30) day period, or fails to commence such cure within said thirty (30)
day period and thereafter continuously with due diligence to prosecute such cure
to completion where such default could not reasonably be cured within said
thirty (30) day period, then Tenant shall have all rights and remedies that
exist at law or in equity, including without limitation the right to compel
Landlord to perform its obligations and/or to recover damages caused by such
failure to perform.  Notwithstanding the foregoing, in the event Landlord fails
to perform any of its obligations under this Lease and such failure poses
imminent danger of materially interfering with Tenant's business or causing
injury to persons or property, if Landlord does not commence the cure of such

                                      -28-
<PAGE>
 
default within five (5) days after written notice from Tenant specifying the
nature of such default, then Tenant may immediately take action to cure such
default, and Landlord shall reimburse Tenant for all reasonable costs incurred
by Tenant in connection with curing such default within five (5) days after
receipt of a written demand therefor.  Tenant waives the provisions of Sections
1931(2), 1941 and 1942 of the California Civil Code and/or any similar or
successor law regarding Tenant's right to terminate this Lease or to make
repairs and deduct the expenses of such repairs from the rent due under the
Lease.

     13.4 Waiver:  One party's consent to or approval of any act by the other
          ------                                                             
party requiring the first party's consent or approval shall not be deemed to
waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party.  The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord.  No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring.  The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.  No
receipt by Landlord of a lesser payment than any amount due under this Lease
shall be considered to be other than on account of the earliest amount due, and
no endorsement or statement on any check or letter accompanying a payment or
check shall be considered an accord and satisfaction.  Landlord may accept
checks or payments without prejudice to Landlord's right to recover all amounts
due and pursue all other remedies provided for in this Lease.  Landlord's
receipt of monies from Tenant after giving notice to Tenant terminating this
Lease shall in no way reinstate, continue, or extend the Lease Term or affect
the Termination Notice given before the receipt of those monies.  After serving
notice terminating this Lease, filing an action, or obtaining final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of that Rent shall not waive or affect such prior notice, action, or
judgment.


                                   ARTICLE 14
                                   ----------

                           ASSIGNMENT AND SUBLETTING

     14.1 By Tenant:  The following provisions shall apply to any assignment,
          ---------                                                          
subletting or other transfer by Tenant or any subtenant or assignee or other
successor in interest of the original Tenant (collectively referred to in this
paragraph as "Tenant"):

          A.   Tenant shall not do any of the following (collectively referred
to herein as a "Transfer"), whether voluntarily, involuntarily or by operation
of law, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed: (i) sublet all or any part of the Premises
or allow it to be sublet, occupied or used by any person or entity other than
Tenant; (ii) assign its interest in this Lease; (iii) transfer any right
appurtenant to this Lease or the Premises; or (iv) mortgage or encumber the
Lease (or otherwise use the Lease as a security device) in 

                                      -29-
<PAGE>
 
any manner. Any Transfer so approved by Landlord shall not be effective until
Tenant has delivered to Landlord an executed counterpart of the document
evidencing the Transfer which (i) is in a form reasonably approved by Landlord,
(ii) contains the same terms and conditions as stated in Tenant's notice given
to Landlord pursuant to subparagraph 14.1B below, and (iii) in the case of an
assignment contains the agreement of the proposed transferee to assume all
obligations of Tenant related to the Transfer arising after the effective date
of such Transfer. If Landlord fails to respond in writing to Tenant's request
for Landlord's consent to a Transfer within fifteen (15) days of receipt of such
request, Landlord will be deemed to have consented to such Transfer. Any
attempted Transfer without Landlord's consent shall constitute a default by
Tenant and shall be voidable at Landlord's option. Landlord's consent to any one
Transfer shall not constitute a waiver of the provisions of this paragraph 14.1
as to any subsequent Transfer nor a consent to any subsequent Transfer. No
Transfer, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay the rent and to perform all of the other
obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from any person shall not be deemed to be a waiver by Landlord of any
provision of this Lease nor to be a consent to any Transfer.

          B.   Tenant shall give Landlord at least fifteen (15) days prior
written notice of any desired Transfer and of the proposed terms of such
Transfer including but not limited to (i) the name and legal composition of the
proposed transferee; (ii) a current financial statement of the transferee, and
(if readily available) an audited financial statement of the transferee for a
period ending not more than one year prior to the proposed effective date of the
Transfer, all of which statements are prepared in accordance with generally
accepted accounting principles; (iii) the nature of the proposed transferee's
business to be carried on in the Premises; and (iv) such other information as
may be reasonably requested by Landlord.  Tenant's notice shall not be deemed to
have been served or given until such time as Tenant has provided Landlord with
all information reasonably requested by Landlord pursuant to this subparagraph
14.1B.  Tenant shall immediately notify Landlord of any modification to the
proposed terms of such Transfer.

          C.   If Tenant is a corporation, the sale or transfer in the aggregate
over the Lease Term of a controlling percentage of the capital stock of Tenant,
shall be deemed a voluntary assignment of Tenant's interest in this Lease;
provided, however, that the foregoing shall not apply to corporations the
capital stock of which is publicly traded.  The phrase "controlling percentage"
means the ownership of and the right to vote stock possessing more than fifty
percent (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.  If Tenant is a partnership, any withdrawal or substitution (whether
voluntary, involuntary or by operation of law, and whether occurring at one time
or over a period of time) of any partner(s) owning fifty percent (50%) or more
(cumulatively) of any interest in the capital or profits of the partnership, or
the dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.

          D.   Notwithstanding anything contained in this Article 14, so long as
Tenant otherwise complies with the provisions of this paragraph, Tenant may
enter into any of the following transfers (a "Permitted Transfer") without
Landlord's prior written consent:

                                      -30-
<PAGE>
 
               (1) Tenant may sublease all or part of the Premises or assign its
interest in this Lease to any Tenant Affiliate (as defined in paragraph 1.19).

               (2) Tenant may assign its interest in the Lease to 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 of such assignment that is equal to or greater than the
net worth of Tenant at the time of transfer.

               (3) Tenant may assign this Lease to 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 of such assignment
that is equal to or greater than the net worth of Tenant at the time of
transfer.
 
     14.2 By Landlord:   Following Substantial Completion of the Improvements
          ------------                                                       
and correction and repair of any deficiencies thereof listed on the punch list
(as said terms are defined in, and in accordance with, the Improvement Agreement
attached hereto as Exhibit "C"), Landlord and its successors in interest shall
                   -----------                                                
have the right to transfer its interest in the Premises at any time thereafter
and to any person or entity provided such transferee expressly assumes in
writing all of Landlord's obligations and liabilities pursuant to the Lease.  In
the event of any such transfer, the Landlord originally named herein (and, in
the case of any subsequent transfer, the transferror) from the date of such
transfer, shall be automatically relieved, without any further act by any person
or entity, of all liability for the performance of the obligations of the
Landlord hereunder which may accrue after the date of such transfer.  After the
date of any such transfer, the term "Landlord" as used herein shall mean the
transferee of such interest in the Premises.


                                   ARTICLE 15
                                   ----------

                               GENERAL PROVISIONS

     15.1 Landlord's Right to Enter:  Landlord and its agents may enter the
          -------------------------                                        
Premises at any reasonable time upon at least twenty four (24) hours' prior
written notice (except in the case of emergency) for the purpose of (i)
inspecting the same; (ii) posting notices of non-responsibility, (iii) supplying
any service to be provided by Landlord to Tenant, (iv) showing the Premises to
prospective purchasers, mortgagees or tenants (provided, however, that Landlord
may only show the Premises to prospective tenants during the last six (6) months
of the Lease Term or at any time after an Event of Default has occurred and is
continuing), (v) making necessary alterations, additions or repairs, (vi)
performing Tenant's obligations when Tenant has failed to do so after written
notice from Landlord, (vii) placing upon the Premises ordinary "for lease" signs
(during the last six (6) months of the Lease Term only) or "for sale" signs,
and/or (viii) in case of an emergency.  During any such entry, Landlord (i)
shall be accompanied by a representative of Tenant (if Tenant requests and
provides such representative), (ii) shall comply with all security procedures of
Tenant while therein, and (iii) shall at all times minimize interference with
Tenant's business and use of the Premises.  In the event of an emergency,
Landlord shall have the right to use any and all means Landlord may deem

                                      -31-
<PAGE>
 
necessary and proper to open the doors of the Premises.  Any entry into the
Premises or portions thereof obtained by Landlord by said means shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises or any portion thereof.

     15.2 Surrender of the Premises:  Immediately prior to the expiration or
          -------------------------                                         
upon the sooner termination of this Lease, Tenant shall remove all Tenant's
Trade Fixtures and other personal property, and shall vacate and surrender the
Premises to Landlord in the same condition as existed at the Commencement Date,
reasonable wear and tear, damage caused by fire, other perils or condemnation
and damage caused by Landlord's negligence or willful misconduct excepted, with
all interior walls cleaned, all carpets shampooed and cleaned, all HVAC
equipment within the Premises in operating order and in good repair, and all
floors cleaned, all to the reasonable satisfaction of Landlord.  If Landlord so
requests, Tenant shall, prior to the expiration or sooner termination of this
Lease, remove any Leasehold Improvements designated by Landlord and repair all
damage caused by such removal if Tenant is required to so remove such Leasehold
Improvements pursuant to paragraph 5.2.  If the Premises are not so surrendered
at the termination of this Lease, Tenant shall be liable to Landlord for all
reasonable costs incurred by Landlord in returning the Premises to the required
condition, plus interest on all such costs incurred at the Agreed Interest Rate.

     15.3 Holding Over:  This Lease shall terminate without further notice at
          ------------                                                       
the expiration of the Lease Term.  Any holding over by Tenant after expiration
of the Lease Term shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the Premises except as expressly provided in
this Lease.  Any holding over after such expiration with the consent of Landlord
shall be construed to be a tenancy from month to month on the same terms and
conditions herein specified insofar as applicable except that Base Monthly Rent
shall be increased to an amount equal to one hundred twenty-five percent (125%)
of the Base Monthly Rent required during the last month of the Lease Term.

     15.4 Subordination:  The following provisions shall govern the relationship
          -------------                                                         
of this Lease to any underlying lease, mortgage or deed of trust which now or
hereafter affects the Premises, and any renewal, modification, consolidation,
replacement or extension thereof (a "Security Instrument"):

          A.   This Lease is subject and subordinate to all Security Instruments
existing as of the Effective Date.  However, if any Lender so requires, this
Lease shall become prior and superior to any such Security Instrument.

          B.   At Landlord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as an Event of Default has not occurred
and is not continuing, unless this Lease is otherwise terminated pursuant to its
terms.  No subordination of this Lease to a Security Instrument shall be
effective until the holder of a Security Instrument executes a non-disturbance
agreement in favor of Tenant that is in a form reasonably acceptable to Tenant.

                                      -32-
<PAGE>
 
          C.   Tenant shall execute any document or instrument reasonably
required by Landlord or any Lender to make this Lease either prior or
subordinate to a Security Instrument.  Tenant's failure to execute any such
document or instrument within ten (10) days after written demand therefor shall
constitute a default by Tenant.

     15.5 Tenant's Attornment:  Tenant shall attorn (i) to any purchaser of the
          -------------------                                                  
Premises at any foreclosure sale or private sale conducted pursuant to any
security instrument encumbering the Premises, (ii) to any grantee or transferee
designated in any deed given in lieu of foreclosure, or (iii) to the lessor
under any underlying ground lease should such ground lease be terminated
provided any such purchaser, grantee, transferee or ground lessor agrees to
recognize all of Tenant's rights, interests and options under this Lease in
writing.

     15.6 Mortgagee Protection:  In the event of any default on the part of the
          --------------------                                                 
Landlord, Tenant will use reasonable efforts to give notice by registered mail
to any Lender or lessor under any underlying ground lease whose name and address
has been provided to Tenant in writing and shall offer such Lender or lessor a
reasonable opportunity to cure the default, including time to obtain possession
of the Premises by power of sale or judicial foreclosure or other appropriate
legal proceedings, if such should prove necessary to effect a cure.

     15.7 Estoppel Certificates and Financial Statements:  At all times during
          ----------------------------------------------                      
the Lease Term, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party an estoppel certificate,
(i) certifying that this Lease is unmodified and in full force and effect or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to the certifying party's knowledge, any
uncured defaults on the part of any party hereunder or, if there are uncured
defaults, specifying the nature of such defaults and (iv) certifying such other
information about the Lease as may be reasonably required by the requesting
party.  A failure to deliver an estoppel certificate within ten (10) days after
delivery of a request therefor shall be a conclusive admission that, as of the
date of the request for such statement, (i) this Lease is unmodified except as
may be represented by the requesting party in said request and is in full force
and effect, (ii) there are no uncured defaults in the requesting party's
performance, and (iii) no rent has been paid in advance.  At any time during the
Lease Term, Tenant shall, upon ten (10) days' prior written notice from
Landlord, provide Tenant's most recent financial statement and financial
statements covering the twenty-four (24) month period prior to the date of such
most recent financial statement to any existing Lender or to any potential
Lender or buyer of the Premises; provided, however, that so long as Tenant is a
public company the stock of which is publicly traded, Tenant shall only be
obligated to provide to Landlord such financial information as has been made
available to the public in filings with the Securities and Exchange Commission.
Such statements shall be prepared in accordance with generally accepted
accounting principles and, if such is the normal practice of Tenant shall be
audited by an independent certified public accountant.  Landlord shall use
reasonable efforts to keep confidential all financial statements delivered to it
by Tenant pursuant to this paragraph and shall cause any potential Lender or
buyer of the Premises to whom such statements are delivered to also agree to use
reasonable efforts to keep such statements confidential.

                                      -33-
<PAGE>
 
     15.8 Force Majeure:  Any prevention, delay or stoppage due to strikes,
          -------------                                                    
lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of the party obligated to
perform (except financial inability) shall excuse the performance, for a period
equal to the period of any said prevention, delay, or stoppage, of any
obligation hereunder except the obligation of Tenant to pay rent or any other
sums due hereunder.

     15.9 Notices:  Any notice required or desired to be given regarding this
          -------                                                            
Lease shall be in writing and shall be personally served, or in lieu of personal
service may be given by mail.  If served by mail, such notice shall be deemed to
have been given (i) on the third business day after mailing if such notice was
deposited in the United States mail, certified and postage prepaid, return-
receipt requested addressed to the party to be served at its Address for Notices
stated in paragraph 1.10, and (ii) in all other cases when actually received.
Either party may change its address by giving notice of same in accordance with
this paragraph.

     15.10  Attorneys' Fees:  In the event either Landlord or Tenant shall bring
            ---------------                                                     
any action or legal proceeding for an alleged breach of any provision of this
Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect
or establish any term or covenant of this Lease, the prevailing party shall be
entitled to recover as a part of such action or proceeding, or in a separate
action brought for that purpose, reasonable attorneys' fees and court costs as
may be fixed by the court.

     15.11  Corporate Authority:  Each individual executing this Lease on behalf
            -------------------                                                 
of Landlord and Tenant represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
the bylaws of said corporation and that this Lease is binding upon said
corporation in accordance with its terms.  Tenant and Landlord shall, within
thirty (30) days after execution of this Lease, deliver to the other party a
certified copy of the resolution of the board of directors of said corporation
authorizing or ratifying the execution of this Lease.

     15.12  Miscellaneous:  Should any provision of this Lease prove to be
            -------------                                                 
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect.  Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.  The captions used in this Lease are for convenience only and shall not
be considered in the construction or interpretation of any provision hereof.
Any executed copy of this Lease shall be deemed an original for all purposes.
This Lease shall, subject to the provisions regarding assignment, apply to and
bind the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context
implies.  If Tenant consists of more than one person or entity, then all members
of Tenant shall be jointly and severally liable hereunder.  This Lease shall be
construed and enforced in accordance with the laws of the State of California.
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Landlord or Tenant.  When the context of this Lease requires, the neuter gender
includes the masculine, the feminine, a partnership or corporation or joint

                                      -34-
<PAGE>
 
venture, and the singular includes the plural.  The terms "shall", "will" and
"agree" are mandatory.  The term "may" is permissive.  When a party is required
to do something by this Lease, it shall do so at its sole cost and expense
without right of reimbursement from the other party unless specific provision is
made therefor.  Where Tenant is obligated not to perform any act, Tenant is also
obligated to restrain any others within its control from performing said act,
including subtenants, agents, contractors and employees.  Landlord shall not
become or be deemed a partner nor a joint venturer with Tenant by reason of the
provisions of this Lease.

     15.13  Termination by Exercise of Right:  If this Lease is terminated
            --------------------------------                              
pursuant to its terms by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate thirty (30) days after the date the right to terminate is properly
exercised (unless another date is specified in that part of the Lease creating
the right, in which event the date so specified for termination shall prevail),
the rent and all other charges due hereunder shall be prorated as of the date of
termination, and except as otherwise set forth in this Lease neither Landlord
nor Tenant shall have any further rights or obligations under this Lease except
for those that have accrued prior to the date of termination.  This paragraph
does not apply to a termination of this Lease by Landlord as a result of a
default by Tenant.

     15.14  Brokerage Commissions:  Each party hereto represents and warrants to
            ---------------------                                               
the other that it has not had any dealings with any real estate brokers, leasing
agents or salesmen, or incurred any obligations for the payment of real estate
brokerage commissions or finder's fees which would be earned or due and payable
by reason of the execution of this Lease, other than CB Commercial Real Estate
Group, Inc.  Landlord will be responsible for paying any leasing commission that
is owed to CB Commercial Real Estate Group, Inc. as a result of the execution of
this Lease or exercise any Option to Extend this Lease.

     15.15  Obligation to Act Reasonably:  Whenever the consent or approval of a
            ----------------------------                                        
party to this Lease is required to be obtained before the other party to this
Lease may take an action, such consent or approval shall not be unreasonably
withheld or delayed.

     15.16  Entire Agreement:  This Lease constitutes the entire agreement
            ----------------                                              
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein.  Tenant acknowledges that
neither Landlord nor Landlord's agent(s) has made any representation or warranty
as to (i) whether the Premises may be used for Tenant's intended use under
existing Law or (ii) suitability of the Premises or the Common Area for the
conduct of Tenant's business.  Tenant expressly waives all claims for damages by
reason of any statement, representation, warranty, promise or other agreement of
Landlord or Landlord's agent(s), if any, not contained in this Lease or in any
addendum, exhibit or amendment hereto.  No subsequent change or addition to this
Lease shall be binding unless in writing and signed by the parties hereto.

     15.17  Memorandum of Lease:  Within thirty (30) days after the Effective
            -------------------                                              
Date, Landlord and Tenant shall execute and cause to be acknowledged a
memorandum of this Lease in form suitable for recordation in the Official
Records of Sacramento County, which memorandum shall be recorded.  Upon the
expiration or earlier termination of this Lease, if Landlord so requests, Tenant
shall execute 

                                      -35-
<PAGE>
 
and deliver to Landlord in recordable form a quitclaim deed describing the
Premises for the purpose of removing of record the memorandum of lease recorded
in accordance with the provisions of this paragraph.

     15.18  Successors.  This Lease shall be binding on the parties hereto and
            ----------                                                        
on their respective heirs, successors and assigns (to the extent the Lease is
assignable).

     15.19  Time.  Time is of the essence for the performance of each term,
            ----                                                           
covenant and condition of this Lease.

     15.20  Governing Law.  This Lease shall be construed and enforced in
            -------------                                                
accordance with the laws of the State of California.

     15.21  Exhibits.  All exhibits attached hereto and referred to herein are
            --------                                                          
incorporated herein by this reference.


                                   ARTICLE 16
                                   ----------

                              OPTION TO TERMINATE

     16.1 Options:  Notwithstanding anything to the contrary in this Lease,
          -------                                                          
Tenant shall have the right to terminate this Lease, without any obligation to
pay any termination fee or other monetary penalty, on the date which is (i) the
tenth (10th) anniversary of the Commencement Date and (ii) on each anniversary
of the Commencement Date thereafter prior to the Expiration Date (the
"Termination Date"), provided that Tenant delivers written notice to Landlord at
least nine (9) months prior to the Termination Date of its intention to
terminate this Lease and specifying the date of termination that Tenant has
chosen (a "Notice of Termination").  If Tenant gives Landlord a Notice of
Termination in accordance with this Paragraph 16.1, this Lease shall terminate
at 12:00 midnight on the Termination Date.  Notwithstanding anything to the
contrary in this Lease, if Tenant exercises its option to extend the term of
this Lease under Article 17 of this Lease, Tenant's option to terminate this
Lease under this section 16.1 shall terminate.

     16.2 Effect on Phase II Lease:  Landlord and Tenant are contemplating
          ------------------------                                        
entering into a second lease for another portion of real property located
adjacent to the Premises (the "Phase II Lease"), more particularly described on
                                                                               
Exhibit "E" attached hereto and incorporated herein by reference.  Landlord and
-----------                                                                    
Tenant hereby agree that if Tenant exercises its right to terminate this Lease
in accordance with Paragraph 16.1 above, said exercise shall have no effect
whatsoever on the Phase II Lease.

                                      -36-
<PAGE>
 
                                   ARTICLE 17
                                   ----------

                                OPTION TO EXTEND

     17.1 Tenant shall have two (2) options to extend the Lease Term, each for a
period of five (5) years (each of which is referred to herein as an "Option
Term").  Each option may be exercised only by written notice delivered to
Landlord not later than nine (9) months prior to the expiration of the then
existing Lease Term.  Tenant may not exercise any of such options at any time
that there exists an Event of Default that is capable of being cured but has not
been cured by Tenant.  In all respects, the terms, covenants and conditions of
this Lease shall remain unchanged during each Option Term, except that the Base
Monthly Rent payable during each Option Term shall be adjusted in accordance
with Paragraph 17.2, and there shall be no further option to extend the Lease
Term at the end of the second (2nd) Option Term.

     17.2 The Base Monthly Rent payable during each Option Term shall be ninety
percent (90%) of the "Fair Market Rent for the Premises" (as defined in
Paragraph 17.4) as of the first day of the Option Term in question.

     17.3 Promptly following exercise of each option to extend, the parties
shall meet and endeavor to agree upon the Fair Market Rent of the Premises.  If
within fifteen (15) days after exercise of any of the options, the parties
cannot agree upon the Fair Market Rent for the Premises as of the first day of
the Option Term in question, the parties shall submit the matter to binding
appraisal in accordance with the following procedure except that in any event
neither party shall be obligated to start such procedure sooner than eight (8)
months before the expiration of the Lease Term.  Within thirty (30) days after
exercise of the option (but not sooner than eight (8) months before the
expiration of the Lease Term), the parties shall either (i) jointly appoint an
appraiser for this purpose or (ii) failing this joint action, separately
designate a disinterested appraiser.  No person shall be appointed or designated
an appraiser unless he has at least five (5) years experience in appraising
major commercial property in Sacramento County and is a member of a recognized
society of real estate appraisers.  If within thirty (30) days after the
appointment the two appraisers reach agreement on the Fair Market Rent for the
Premises as of the first day of the Option Term in question, that value shall be
binding and conclusive upon the parties.  If the two appraisers thus appointed
cannot reach agreement on the question presented within thirty (30) days after
their appointment, then the appraisers thus appointed shall appoint a third
disinterested appraiser having like qualifications.  If within thirty (30) days
after the appointment of the third appraiser a majority of the appraisers agree
on the Fair Market Rent of the Premises as of the first day of the Option Term
in question, that value shall be binding and conclusive upon the parties.  If
within thirty (30) days after the appointment of the third appraiser a majority
of the appraisers cannot reach agreement on the question presented, then the
three appraisers shall each submit their independent appraisal to the parties,
the appraisal farthest from the median of the three appraisals shall be
disregarded, and the mean average of the remaining two appraisals shall be
deemed to be the Fair Market Rent of the Premises as of the first day of the
Option Term in question and shall be binding and conclusive upon the parties.
Each party shall pay the fees and expenses of the appraiser appointed by it and
shall share equally the fees and expenses of the third appraiser.  If the two
appraisers appointed by the 

                                      -37-
<PAGE>
 
parties cannot agree on the appointment of the third appraiser, they or either
of them shall give notice of such failure to agree to the parties and if the
parties fail to agree upon the selection of such third appraiser within ten (10)
days after the appraisers appointed by the parties give such notice, then either
of the parties, upon notice to the other party, may request such appointment by
the American Arbitration Association or, on its failure, refusal or inability to
act, may apply for such appointment to the presiding judge of the Superior Court
of Sacramento County, California.

     17.4 For purposes of this Paragraph, the term "Fair Market Rent for the
Premises" shall mean the going market rental for the Premises (assuming use is
limited to the Permitted Use) in its then existing condition, "as is" based upon
rents charged for comparably equipped space in buildings containing between
30,000 and 100,000 square feet, located within a five (5) mile radius of the
Premises, taking into account all Improvements in the Premises made by Landlord
(but adjusting for the age and then condition of such Improvements and the fact
that Landlord is not obligated to make any further improvements before or during
the Option Term in question) using as a guide equivalent space in the size range
specified above of similar age, construction, quality, use and location.  There
shall be excluded from any determination of "Fair Market Rent of the Premises"
the rental value attributable to any Leasehold Improvements constructed by
Tenant with its own funds, or attributable to any Interior Improvements (as
defined in the Improvement Agreement attached hereto as Exhibit "C") paid for by
                                                        -----------             
Tenant in excess of the Interior Improvement Allowance, and all Trade Fixtures
and personal property of Tenant located in the Premises.  Any determination of
"Fair Market Rent of the Premises" shall take into account rental concessions
then prevailing in the market for similar space (e.g., "free rent," lease
                                                 ----                    
assumptions, payment of moving expenses, etc.).

     17.5 The provisions of this Paragraph 17.5 shall only apply if each of the
following conditions is satisfied:  (i) Tenant has exercised the option to
extend the Lease Term in question at least nine (9) months before the expiration
of the Lease Term; and (ii) prior to the time Landlord and Tenant have each
nominated an appraisal pursuant to Paragraph 17.3, Tenant has made a written
offer to Landlord to establish the Base Monthly Rent at a specific amount,
Landlord has not accepted such offer in writing, and the amount so offered by
Tenant is ninety percent (90%) of the amount the Base Monthly Rent would be
pursuant to Paragraph 17.2 based upon the results of the appraisal procedure
described in Paragraph 17.3.  If the Base Monthly Rent for any Option Term is
established by appraisal conducted pursuant to Paragraph 17.3 hereof and if
Tenant does not, in its sole discretion, approve the Fair Market Rent for the
Premises established for the Option Term in question as so established by
appraisal, then Tenant may rescind its exercise of the option in question by
giving Landlord written notice of such election to rescind within fifteen (15)
days after the Fair Market Rent for the Premises for the Option Term in question
is so established by appraisal.  If Tenant so timely rescinds its exercise of
the option in question, then (i) the Lease shall terminate on the later to occur
of either one hundred and eighty (180) days after Tenant's notice of rescission
is delivered to Landlord or on the date the Lease would otherwise have
terminated absent such exercise of the option in question by Tenant; and (ii)
Tenant shall pay all costs incurred by Landlord in participating in any
appraisal to establish the Fair Market Rent for the Premises for the Option Term
in question.

                                      -38-
<PAGE>
 
                                   ARTICLE 18
                                   ----------

                              CONDITIONS TO LEASE

     Tenant's obligations under, and the effectiveness of, this Lease are
conditioned upon the following:
 
     18.1 Guaranty:  Landlord hereby agrees to cause Carl D. Panattoni, Rodney
          --------                                                            
B. Johnson and Ben Catlin (the "Guarantors") to personally, and jointly and
severally, guarantee all of Landlord's obligations and liabilities under this
Lease in accordance with the terms and conditions of that certain Guaranty, a
copy of which is attached hereto as Exhibit "F" (the "Guaranty").  Said
                                    -----------                        
Guarantors shall execute the Guaranty and their individual spouses, if any,
shall execute a Consent(s) to Guaranty and shall deliver both the Guaranty and
Consent(s) to Guaranty (if any) to Tenant concurrently upon execution and
delivery of this Lease by Landlord and Tenant.  This Lease is conditioned upon
the Guarantors' execution and deliver of the Guaranty (and Consent(s) to
Guaranty, if any) to Tenant on or before the Effective Date of this Lease.  If
the Guarantors fail to execute and deliver the Guaranty and Consent(s) to
Guaranty, if applicable, to Tenant on or before the Effective Date of this Lease
in the form attached hereto as Exhibit "F", Tenant shall have the right, in its
                               -----------                                     
sole discretion, to terminate this Lease upon written notice to Landlord,
whereupon Landlord's and Tenant's obligations under this Lease shall terminate,
except for any obligations which survive termination of this Lease, as expressly
set forth in this Lease, and except that (a) Landlord shall refund any prepaid
Rent to Tenant and (b) Landlord shall be required to sell the Premises to Tenant
upon such termination in accordance with Article 19 below.

     18.2 Subdivision of Parcel:  The parties hereby acknowledge that the
          ---------------------                                          
Premises are presently part of a larger parcel of land which is currently in the
process of being subdivided.  The parties hereby agree that this Lease is
conditioned upon (a) the approval by the City of Folsom of that certain
subdivision map for the entire parcel prepared by Murray Smith & Associates
Engineering, Inc. dated September, 1997, as may be amended by Tenant (the
"Subdivision Map"), (b) the recording of said Subdivision Map, and (c) the
establishment of the Land as a separate legal parcel.  If any of the foregoing
conditions do not occur on or before February 1, 1998, Tenant shall have the
right, in its sole discretion, to terminate this Lease upon written notice to
Landlord, whereupon Landlord's and Tenant's obligations under this Lease shall
terminate, except for any obligations which survive termination of this Lease,
as expressly set forth in this Lease, and except that (a) Landlord shall refund
any prepaid Rent to Tenant and (b) Landlord shall be required to sell the
Premises to Tenant upon such termination in accordance with Article 19 below.

     18.3 Purchase of Premises:  The parties hereby agree that this Lease is
          --------------------                                              
conditioned upon Landlord's purchase of, and acquiring title to, the Land once
the Subdivision Map has been approved and recorded and the Land constitutes a
separate legal parcel.  If Landlord fails to purchase the Land, Tenant shall
have the right, in its sole discretion, to terminate this Lease upon written
notice to Landlord, whereupon Landlord's and Tenant's obligations under this
Lease shall terminate, except for any obligations which survive termination of
this Lease, as expressly set forth in this Lease, and except that Landlord shall
refund any prepaid Rent to Tenant.

                                      -39-
<PAGE>
 
     18.4   Construction Approvals:  The parties hereby agree that this Lease is
            ----------------------                                              
conditioned upon Landlord obtaining a Building Permit, Site Plan Approval and
Site Development Permit for the Premises in connection with the completion of
the Improvements by the dates set forth in Section 14 of the Improvement
Agreement (attached hereto as Exhibit "C").  If Landlord fails to obtain such
                              -----------                                    
approvals, Tenant shall have the right, in its sole discretion, to terminate
this Lease upon written notice to Landlord, whereupon Landlord's and Tenant's
obligations under this Lease shall terminate, except for any obligations which
survive termination of this Lease, as expressly set forth in this Lease, and
except that (a) Landlord shall refund any prepaid Rent to Tenant and (b)
Landlord shall be required to sell the Premises to Tenant upon such termination
in accordance with Article 19 below.

                                  ARTICLE 19
                                  ----------

               LANDLORD'S OBLIGATION TO SELL PREMISES TO TENANT

     If Tenant terminates this Lease under Article 18 prior to substantial
completion of the Improvements (as defined in the Improvement Agreement attached
hereto as Exhibit "C") and Landlord has acquired title to the Land from Tenant,
          -----------                                                          
Landlord shall be required to sell the Land to Tenant for the same purchase
price and upon the same terms and conditions that Landlord purchased the Land
from Tenant within thirty (30) days from the date Tenant notifies Landlord in
writing of its election to terminate the Lease.  If Tenant terminates this Lease
prior to substantial completion of the Improvements and Landlord has not
acquired title to the Land, then notwithstanding anything to the contrary
contained in any purchase agreement for the Land between Landlord and Tenant,
Landlord shall not have the right to purchase the Land from Tenant.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date of
this Lease.

AS LANDLORD:                        AS TENANT:
REDSKY ENTERPRISES, INC.,           OBJECTIVE SYSTEMS INTEGRATORS,
a California corporation            INC., a Delaware corporation


By: /s/ Linda M. Stanley               By: /s/ David M. Allen
Title: President                       Title: VP & CEO
Date: 1/13/98                          Date: 1/9/98

                                      -40-
<PAGE>
 
                                  EXHIBIT "A"
                                  -----------

                   LEGAL DESCRIPTION FOR A PORTION OF LOT 3,
                   "LAKE FOREST INDUSTRIAL PARK (142B.M.12)"
                CITY OF FOLSOM, COUNTY OF SACRAMENTO, CALIFORNIA

                                        
All that portion of Lot 3 as said Lot is shown on that certain Plat of "LAKE
FOREST"

INDUSTRIAL PARK" filed in the office of the Recorder, County of Sacramento,
State of

California in Book 142 of Maps, Map No. 12 more particularly described as
follows:

Beginning at the Southeast corner of said Lot; thence from said Point of
beginning along the southeasterly and southwesterly lines of said Lot the
following five courses: 1) South 54 (degrees) 36'19" West 147.13 feet; 2) along
the arc of a curve to the left having a radius of 520.00 feet said Arc being
subtended by a chord bearing South 49 (degrees) 57'49" West 84.15 feet to a
point of reverse curvature; 3) along the arc of a curve to the right having a
radius of 25.00 feet, said Arc being subtended by a chord bearing South 87
25'37" West 33.52 feet; 4) North 50 (degrees) 28'08" West 7.78 feet; and 5)
along the arc of a curve to the left having a radius of 430.00 feet, said Arc
being subtended by a chord bearing North 65 (degrees) 45'50" West 226.86 feet;
North 08 (degrees) 16'30" East 68.23 feet; thence North 35 (degrees) 23'41" West
112.04 feet; thence North 14 (degrees) 24'32" West 23.40 feet; thence North 75
(degrees) 35'28" East 193.07 feet; thence North 14 (degrees) 24'46" West 23.40
feet; thence North 75 (degrees) 35'28" East 130.50 feet to a point on the
easterly line of said Lot; thence along said Easterly line South 14 (degrees)
24'32" East 332.35 feet to the point of beginning.


                                     # # #

Murrary Smith & Associates             (SEAL)                October  9, 1997
Engineering, Inc.                                            97044

                                      -41-
<PAGE>
 
                                  EXHIBIT "B"
                                  -----------

                                CITY OF FOLSOM
                       IMPROVEMENT PLANS FOR OSI-FOLSOM
                                   PHASE  1



                          PROJECT MAP - 071-0020-022

                                      -42-
<PAGE>
 
                                  EXHIBIT "C"
                                  -----------
                                        
                             IMPROVEMENT AGREEMENT
                             ---------------------
                                   (PHASE I)
                                        
     THIS IMPROVEMENT AGREEMENT (the "Agreement") is made part of that Lease
dated for reference purposes as of January  __, 1998 (the "Lease") by and
between REDSKY ENTERPRISES, INC., a California corporation ("Landlord"), and
OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("Tenant").
Landlord and Tenant agree that the following terms are a part of the Lease:

     1.   Purpose of Improvement Agreement:  The purpose of this Agreement is to
          --------------------------------                                      
set forth the rights and obligations of Landlord and Tenant with respect to the
construction of the Improvements on the Premises.

     2.   Definitions:  As used in this Agreement, the following terms shall
          -----------                                                       
have the following meanings, and terms which are not defined below, but which
are defined in the Lease and used in this Agreement, shall have the meanings
ascribed to them by the Lease:

          A.   Architect:  The term "Architect" as used in connection with the
               ---------                                                      
Building Work (as defined below) shall mean Kado Associates and the term
"Architect" as used in connection with the Interior Improvements shall mean CHMD
Architects or such other architect selected by Tenant.

          B.   Shell and Site Work Specifications:  The term "Shell and Site
               ----------------------------------                           
Work Specifications" shall mean those specifications for Shell and Site Work to
be constructed by Landlord which are described by Exhibit "C-1" and Exhibit "C-
                                                  -------------     -----------
2" to the Lease.
--              
 
          C.   Building Plans:  The term "Building Plans" shall mean plans for
               --------------                                                 
the Shell and Site Work.
 
          D.   Building Work:  The term "Building Work" shall collectively refer
               -------------                                                    
to the Shell and Site Work.

          E.   Interior Improvement Specifications:  The term "Interior
               -----------------------------------                     
Improvement Specifications" shall mean those specifications for Interior
Improvements to be constructed by Landlord which are described on Exhibit "C-2"
                                                                  -------------
to the Lease.

          F.   Interior Improvement Allowance:  The term "Interior Improvement
               ------------------------------                                 
Allowance" shall mean an amount equal to Twenty-Six Dollars and 25/100 Cents
($26.25) per rentable square foot of the Building (reasonably determined in
accordance with BOMA standards) for all Interior Improvements and an additional
Five Thousand Dollars ($5,000.00) for Tenant's signs.

                                      -43-
<PAGE>
 
          G.   Final Cost Estimate:  The term "Final Cost Estimate" shall mean
               -------------------                                            
an estimate of Improvement Costs for the Interior Improvements based upon final
plans and specifications for such Interior Improvements.

          H.   Improvements:  The term "Improvements" shall mean collectively
               ------------                                                  
the Shell and Site Work and the Interior Improvements.

          I.   Improvement Costs:  The term "Improvement Costs" shall mean for
               -----------------                                              
the Interior Improvements (to the extent applicable) the following "Included
Costs", but not the following "Excluded Costs":

               (1) "Included Costs" shall mean the lesser (a) of the Final Cost
Estimate, as the same may be adjusted by approved change orders, or (b) the
total of the following hard and soft costs:  (i) payments pursuant to the
Construction Contract for the Interior Improvements for labor and materials
furnished for construction of the Interior Improvements, including normal
contingency fees approved by Tenant, made in accordance with Paragraph 5 hereof;
(ii) reasonable fees paid to architects, engineers and other construction
professionals (excluding employees or any affiliate of Landlord) for services
required in connection with the design and construction of the Interior
Improvements; (iii) fees paid by Tenant to architects, space planners,
designers, inspectors and other construction professionals in connection with
the Interior Improvements; (iv) utility connection charges; (v) the amounts paid
to governmental authorities or agencies for inspections and issuance of building
permits and approvals for the Interior Improvements; and (vi) the cost of
changes to the Final Interior Improvement Plans required by Law.

               (2) "Excluded Costs" shall mean (i) charges and expenses for
changes to the Interior Improvement plans, as the case may be, which have not
been approved in writing by Tenant; (ii) wages, labor and overhead for overtime
and premium time, unless approved in advance by Tenant in writing; (iii)
additional costs and expenses incurred on account of any contractor's or
subcontractor's default or construction defects, the negligent act or omission
or willful misconduct of Landlord or Landlord's agents, employees or
contractors, or Landlord's breach of the Lease; (iv) principal, interest and
fees for construction or permanent financing; (v) management or other general
overhead costs incurred by Landlord; (vi) costs for which Landlord receives (or
could have received using reasonable efforts) reimbursement from others
(including, without limitation, insurers or warrantors); (vii) costs of
management, design and all other services provided by employees or any affiliate
of Landlord, and the cost of any administration, profit and overhead for
Landlord or any of its employees or any affiliates; and (viii) any cost
associated with a casualty or act of God. All of the Excluded Costs shall be the
sole obligation of Landlord.

          J.   Law or Laws:  The term "Law" or "Laws" shall mean all laws
               -----------                                               
(including without limitation, The Americans With Disabilities Act of 1990),
building codes, ordinances, regulations, title covenants, conditions and
restrictions and casualty underwriters requirements.

                                      -44-
<PAGE>
 
          K.   Preliminary Cost Estimate:  The term "Preliminary Cost Estimate"
               -------------------------                                       
shall mean an estimate of Improvement Costs for the Interior Improvements based
upon initial or revised preliminary plans and specifications for the Interior
Improvements.

          L.   Shell and Site Work:  The term "Shell and Site Work" shall mean
               -------------------                                            
all work described in Exhibits "C-1" and "C-2".
                      ------------------------ 

          M.   Substantial Completion and Substantially Complete: The terms
               -------------------------------------------------           
"Substantial Completion" and "Substantially Complete" shall each mean the date
when all of the following have occurred with respect to the Improvements in
question: (i) the construction of the Improvements in question has been
substantially completed in accordance with the requirements of this Lease except
for minor punch list items which do not materially interfere with Tenant's
ability to use the Premises; (ii) the Building Department of the City of Folsom
(the "City") has completed a final inspection of such Improvements and has
"signed off" the building inspection card approving such work as complete; and
(iii) there are no incomplete items or defects in construction of the
Improvements in question which would materially interfere with Tenant's ability
to use such Improvements for their intended purpose.
 
          N.   Interior Improvements:  The term "Interior Improvements" shall
               ---------------------                                         
mean all permanent partitions, sidelights, interior windows, walls, wall
coverings, HVAC equipment, roof screen, lighting, ceilings, utility fixtures,
fire sprinklers, electrical and mechanical distribution and other improvements
installed in or on the Building to the extent such improvements are not included
in Shell and Site Work and are specified on the Final Interior Improvement Plans
(as hereinafter defined).

     3.   Schedule of Performance:  Landlord and Tenant desire to cause the
          -----------------------                                          
Improvements to be Substantially Completed by September 1, 1998 (the "Target
Commencement Date").  Achieving Substantial Completion of the Improvements by
the Target Commencement Date requires that certain objectives be met within
certain time periods.  A schedule of certain critical dates relating to
Landlord's and Tenant's respective obligations regarding the construction of the
Improvements that must be adhered to in order to achieve Substantial Completion
of all Improvements by the Target Commencement Date is attached hereto as
Exhibit "C-4" (the "Schedule of Performance").  Landlord and Tenant shall each
-------------                                                                 
be obligated to use reasonable efforts to perform their respective obligations
within the time periods set forth in the Schedule of Performance and elsewhere
in this Agreement; provided, however, that the time periods for such performance
shall be extended by events constituting causes beyond the reasonable control of
the party obligated to perform.  The parties acknowledge that the Schedule of
Performance is only an estimate of the time needed to complete certain stages of
the construction process, and the failure of either party to accomplish any step
in the process set forth in the Schedule of Performance shall not constitute a
default by either party unless such failure constitutes a breach of the
obligation of a party to use reasonable efforts to perform its obligations
within the time periods set forth in the Schedule of Performance and elsewhere
in this Agreement, subject to the provisions of Paragraphs 9 and 10 hereof.

                                      -45-
<PAGE>
 
     4.   Construction of the Building Work:  Landlord shall perform the
          ---------------------------------                             
Building Work in accordance with the following:

          A.     Final Building Plans: The Building Work shall be constructed in
                 --------------------                                           
accordance with the Final Building Plans, a description of which is set forth on
                                                                                
Exhibit C-"3" attached hereto and incorporated herein by reference, (subject to
-------------                                                                  
change orders approved in accordance with Paragraph 8 of this Agreement) and
otherwise in accordance with the terms and conditions of this Agreement.

          B.     Governmental Approvals:  As soon as the Final Building Plans
                 ----------------------                                      
have been approved by Landlord and Tenant, Landlord shall apply for a building
permit for the Building Work, and shall diligently prosecute to completion such
approval process in a time frame consistent with the Schedule of Performance.

          C.   Commencement of Building Work:  On or before the due date
               -----------------------------                            
specified in the Schedule of Performance, Landlord shall commence construction
of the Building Work and shall diligently prosecute such construction to
completion, using all reasonable efforts to achieve Substantial Completion of
the Building Work by the due date specified in the Schedule of Performance.

     5.   Construction of Interior Improvements:  Landlord shall construct the
          -------------------------------------                               
Interior Improvements in accordance with the following:

          A.   Development and Approval of Preliminary Interior Improvement
               ------------------------------------------------------------
Plans:  On or before the due date specified in the Schedule of Performance,
-----                                                                      
Tenant shall prepare and deliver to Landlord for its review and approval
preliminary plans for the Interior Improvements which are consistent with and
conform to the Interior Improvement Specifications (the "Preliminary Interior
Improvement Plans").  On or before the due date specified in the Schedule of
Performance, Landlord shall either approve such plans or notify Tenant in
writing of its specific objections to the Preliminary Interior Improvement Plans
or its proposed modifications to such plans.  If Landlord so objects or proposes
modifications, Tenant shall revise the Preliminary Interior Improvement Plans to
address such objections in a manner consistent with the parameters for the
Interior Improvements set forth in this Agreement and shall resubmit such
revised Preliminary Interior Improvement Plans as soon as reasonably practicable
to Landlord for its approval.  When such revised Preliminary Interior
Improvement Plans are resubmitted to Landlord, it shall either approve such
plans and estimate or notify Tenant of any further objections in writing within
five (5) business days after receipt thereof.  If Landlord has further
objections to the revised Preliminary Interior Improvement Plans, the parties
shall meet and confer to develop Preliminary Interior Improvement Plans for the
Interior Improvements that are acceptable to both Landlord and Tenant within
five (5) business days after Landlord has notified Tenant of its second set of
objections.  In the event Tenant and Landlord do not resolve all objections
within such five (5) business day period, Landlord and Tenant shall immediately
cause Landlord's architect to meet and confer with Tenant's architect or
construction consultant, who shall apply the standards set forth in this
Agreement, including the requirement, at Landlord's direction, that the Interior
Improvements consist of improvements of general utility spread evenly throughout
the Premises, to resolve Landlord's objections and incorporate such 

                                      -46-
<PAGE>
 
resolution into the Preliminary Interior Improvement Plans, which process
Landlord and Tenant shall cause to be completed within five (5) business days
after the conclusion of the five (5) business day period referred to in the
immediately preceding sentence.

          B.   Development and Approval of Preliminary Cost Estimate for
               ---------------------------------------------------------
Interior Improvement Plans:  On or before the due date specified in the Schedule
--------------------------                                                      
of Performance, Landlord shall prepare and deliver to Tenant for its review and
approval a Preliminary Cost Estimate for the Interior Improvements.  On or
before the due date specified in the Schedule of Performance, Tenant shall
either approve such cost estimate or notify the Landlord in writing of its
specific objections to the cost estimate or its proposed modifications to reduce
costs.  If Tenant so objects or proposes modifications, Landlord shall revise
the Preliminary Cost Estimate to address such suggested cost savings in a manner
consistent with the parameters for the Interior Improvements set forth in this
Agreement and shall resubmit such revised Preliminary Cost Estimate as soon as
reasonably practicable to Tenant for its approval.  When such revised
Preliminary Cost Estimate is resubmitted to Tenant, it shall either approve such
plans and estimate or notify Landlord of any further objections in writing
within five (5) business days after receipt thereof.  If Tenant has further
objections to the revised Preliminary Cost Estimate, the parties shall meet and
confer to develop a Preliminary Cost Estimate for the Interior Improvements that
is acceptable to both Landlord and Tenant within five (5) business days after
Tenant has notified Landlord of its second set of objections.  In the event
Tenant and Landlord do not resolve all objections within such five (5) business
day period, Landlord and Tenant shall immediately cause Landlord's architect to
meet and confer with Tenant's architect or construction consultant, who shall
apply the standards set forth in this Agreement to resolve Tenant's objections
and incorporate such resolution into the Preliminary Cost Estimate, which
process Landlord and Tenant shall cause to be completed within five (5) business
days after the conclusion of the five (5) business day period referred to in the
immediately preceding sentence.

          C.   Development and Approval of Final Tenant Plans:  Once the
               ----------------------------------------------           
Preliminary Interior Improvement Plans have been approved by Landlord and Tenant
(including all changes made to resolve Landlord's objections approved by
Landlord's architect and Tenant's architect or construction consultant pursuant
to subparagraph 5A), Tenant shall complete and submit to Landlord for its
approval final working drawings for the Interior Improvements by the due date
specified in the Schedule of Performance.  Landlord shall approve the final
plans for the Interior Improvements or notify Tenant in writing of its specific
objections by the due date specified in the Schedule of Performance.  If
Landlord so objects or proposes modifications, the parties shall confer and
reach agreement upon final working drawings for the Interior Improvements within
five (5) business days after Landlord has notified Tenant of its objections.  In
the event Tenant and Landlord do not resolve all of Landlord's objections within
such five (5) business day period, Landlord and Tenant shall immediately cause
Landlord's architect to meet and confer with Tenant's architect or construction
consultant, who shall apply the standards set forth in this Agreement to resolve
Landlord's objections and incorporate such resolution into the Final Interior
Improvement Plans, which process Landlord and Tenant shall cause to be completed
within five (5) business days after the conclusion of the five (5) business day
period referred to in the immediately preceding sentence.  The final working
drawings so approved by Landlord and Tenant (including all changes made to

                                      -47-
<PAGE>
 
resolve Tenant's objections approved by Landlord's architect and Tenant's
architect or construction consultant) are referred to herein as the "Final
Interior Improvement Plans".

          D.   Development and Approval of Final Cost Estimate:  Once the Final
               -----------------------------------------------                 
Interior Improvement Plans have been approved by Landlord and Tenant (including
all changes made to resolve Landlord's objections approved by Landlord's
architect and Tenant's architect or construction consultant pursuant to
subparagraph 5C), Landlord shall complete and submit to Tenant for its approval
a Final Cost Estimate for the Interior Improvements by the due date specified in
the Schedule of Performance.  Tenant shall approve the Final Cost Estimate for
the Interior Improvements or notify Landlord in writing of its proposed
modifications to reduce costs by the due date specified in the Schedule of
Performance.  If Tenant so objects or proposes modifications, the parties shall
confer and reach agreement upon the Final Cost Estimate for the Interior
Improvements within five (5) business days after Tenant has notified Landlord of
its objections.  In the event Tenant and Landlord do not resolve all of Tenant's
objections within such five (5) business day period, Landlord and Tenant shall
solicit three (3) competitive bids to construct the Interior Improvements.
Tenant shall have the right to select the contractor who shall apply the
standards set forth in this Agreement to resolve Tenant's objections and
incorporate such resolution into the Final Cost Estimate, which process Landlord
and Tenant shall cause to be completed within five (5) business days after the
conclusion of the five (5) business day period referred to in the immediately
preceding sentence.  The estimate so approved by Landlord and Tenant is referred
to herein as the Final Cost Estimate.

          E.   Building Permit:  As soon as the Final Interior Improvement Plans
               ---------------                                                  
have been approved by Landlord and Tenant, Landlord shall apply for a building
permit for the Interior Improvements, and shall diligently prosecute to
completion such approval process.
 
          F.   Commencement of Interior Improvements:  On or before the due date
               -------------------------------------                            
specified in the Schedule of Performance, Landlord shall commence construction
of the Interior Improvements and shall diligently prosecute such construction to
completion, using all reasonable efforts to achieve Substantial Completion of
the Interior Improvements by the due date specified in the Schedule of
Performance.

          G.   Cap on Interior Improvement Allowance:
               ------------------------------------- 

Notwithstanding the amount of the Interior Improvement Allowance, Landlord
hereby agrees that the cost of the Interior Improvements may exceed the cost of
the total Interior Improvement Allowance by an amount equal to Two Dollars
($2.00) per rentable square foot of the Building (reasonably determined in
accordance with BOMA standards).  Accordingly, the total Interior Improvement
Allowance required to be paid by Landlord shall not exceed Twenty-Eight Dollars
and 25/100 ($28.25) per rentable square foot of the Building (reasonably
determined in accordance with BOMA standards) (the "Allowance Cap"), subject to
Tenant's obligation to reimburse Landlord for the amount in excess of the
Interior Improvement Allowance pursuant to Section 13.C of this Agreement.  If
the Interior Improvements that Tenant desires to construct in the Building will
cost in excess of the Allowance Cap, Landlord shall still be required to
construct said Interior 

                                      -48-
<PAGE>
 
Improvements, however, Tenant shall be required to make arrangements with
Landlord for the payment of the cost to construct said Interior Improvements in
excess of the Allowance Cap.

     6.   Construction Contract:  The following shall govern the manner in which
          ---------------------                                                 
the construction contract shall be let by Landlord for the construction of the
Improvements:

          A.  Landlord shall engage Loorz, Inc. as general contractor to
construct the Improvements in strict accordance with the terms of a general
construction contract that is mutually acceptable to both Landlord and Tenant.
Prior to entering into any construction contract for the construction of the
Improvements, Landlord shall deliver a copy of the contract to Tenant.  Tenant
shall have the right to review and approve all construction contracts relating
to the Interior Improvements prior to execution by Landlord.

          B.   All subcontractors for the Interior Improvements shall be chosen
by a competitive bid process where (i) Tenant shall have the right to approve
subcontractors who bid on specific parts of the job, (ii) the subcontract shall
be awarded to the lowest responsible bidder unless Landlord and Tenant otherwise
agree, and (iii) Tenant and Landlord shall each have the right to cause a
subcontract to be re-bid if it does not approve the low bid.  Tenant shall have
a right to review and approve all bid documents prior to submission to
subcontractors.

     7.   General Design and Construction Obligations:  The following shall
          -------------------------------------------                      
govern the construction of the Improvements:

          A.   In developing the Final Interior Improvement Plans, Landlord and
Tenant shall designate and select material and equipment which can be obtained
with normal lead times.  If at any time during the plan development process or
the course of construction, it becomes apparent that a particular material or
item of equipment is not or will not be obtainable within a period of time that
will enable Landlord to complete construction by the date specified by the
Schedule of Performance, the parties shall meet and confer to find a substitute
therefor which will enable Landlord to comply with the Schedule of Performance.

          B.   No approval by Tenant (or its representative) of any plan or
specification, or of completion of the construction work performed by Landlord,
shall constitute a waiver of any item required herein (except as otherwise
specifically required by this Agreement or as specifically noted as eliminated
or changed in the written approval given by Tenant), or a waiver or release of
Landlord from the warranty given by it pursuant to paragraph 12 hereof.

          C.   During the course of construction, Landlord shall arrange for all
inspections of the progress of the construction of the Improvements by all
authorities having jurisdiction over such construction required in order to
obtain all necessary approvals and certificates with respect to such
construction.  Landlord shall make available to Tenant reports of all such
inspections and the status of such approvals and certificates as well as copies
thereof upon request.

                                      -49-
<PAGE>
 
          D.   Risk of loss of the Premises prior to the Commencement Date of
the Lease shall be borne by Landlord.  At all times prior to the Commencement
Date, Landlord at its sole cost and expense shall maintain so-called contingent
liability and broad form "builder's risk" insurance with coverage in an amount
equal to the replacement cost of the Building plus the Final Cost Estimate for
the Interior Improvements.  If the Final Cost Estimate for the Interior
Improvements exceeds the Interior Improvement Allowance, Tenant shall be
designated as a named insured on said insurance policy and the "deductible"
thereunder shall not exceed $25,000.  If the Premises is damaged or destroyed
prior to the Commencement Date, Landlord shall promptly and diligently complete
construction of the Building and Improvements in accordance with this Agreement,
and all insurance proceeds with respect to the loss shall be paid to an
independent depository, reasonably acceptable to Landlord and Tenant, for
disbursement to the contractors completing the Building and Improvements as the
work progresses and in accordance with customary institutional lending
practices.  If the Premises are damaged or destroyed following the Commencement
Date, the parties obligations to repair or replace shall be as set forth in the
damage and destruction provisions in the Lease.

          E.   Landlord shall submit to Tenant on a monthly basis an accounting
of all Improvement Costs.  Tenant shall have the right to audit the books,
records and supporting documents of Landlord during normal business hours, after
giving Landlord at least five (5) days prior notice to the extent reasonably
necessary to determine the accuracy of any accounting.  Within sixty (60) days
after Substantial Completion of the Premises, Landlord shall render to Tenant a
final and detailed accounting of all Improvement Costs paid by Landlord and
Tenant, certified as true and correct by Landlord.  Tenant shall have the same
audit rights as set forth above with respect to the monthly accountings.  If
such audit discloses that any overpayment or underpayment was made by Tenant,
there shall be an adjustment between Landlord and Tenant as soon as reasonably
practicable such that each shall only be required to contribute the payment of
costs to the extent provided for in this Agreement.

     8.   Changes to Approved Plans:  Once the Final Building Plans and the
          -------------------------                                        
Final Interior Improvement Plans have been approved by Landlord and Tenant,
neither shall have the right to order extra work or change orders with respect
to the construction of the Improvements without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed, provided
there is a reasonable basis for such change or such change is required by any
Law.  All extra work or change orders requested by either Landlord or Tenant
shall be made in writing, shall specify any added or reduced cost and/or
construction time resulting therefrom, and shall become effective and a part of
the Final Building Plans or Final Interior Improvement Plans, as applicable,
once approved in writing by both parties.  Notwithstanding the foregoing, a
change order may be deemed authorized by Landlord and Tenant if it is approved
by the authorized representative of both Landlord and Tenant during the course
of a regularly held construction meeting and is documented by contemporaneous
written minutes of such meeting which are subsequently distributed to Landlord
and Tenant within a reasonable period of time after the conclusion of the
meeting.  If a change order requested by Tenant results in a net increase in the
cost of constructing the Interior Improvements, Tenant shall pay the amount of
such increase caused by the change order requested by Tenant at the time the
change order is approved by both Landlord and Tenant if and to the extent such
change 

                                      -50-
<PAGE>
 
order causes the Improvement Costs for the Interior Improvements to exceed the
Interior Improvement Allowance. If a change order to the Interior Improvements
is required by Law and results in a net increase in the cost of the Interior
Improvements, Tenant shall pay the amount of such increase at the time the
change order is approved by Tenant if and to the extent such change order causes
the Improvement Costs for the Interior Improvements to exceed the Interior
Improvement Allowance. If a change order requested by Landlord results in a net
increase in the cost of constructing the Improvements, Landlord shall pay the
amount of such increase at its sole cost and expense.

     9.   Delay in Completion Caused by Tenant:  The parties hereto acknowledge
          ------------------------------------                                 
that the date on which Tenant's obligation to pay the Base Monthly Rent and the
Additional Rent would otherwise commence may be delayed because of (i) Tenant's
failure to submit plans for the Interior Improvements in accordance with the
Schedule of Performance, (ii) Tenant's failure to promptly review and approve
the plans for the Interior Improvements in accordance with the Schedule for
Performance, or (iii) change orders requested by Tenant and approved by Landlord
(up to the amount of time delay specified in the written change order signed by
Tenant).  It is the intent of the parties hereto that the commencement of
Tenant's obligation to pay the Base Monthly Rent and all Additional Rent not be
delayed by delays caused by Tenant, and in the event it is so delayed, Tenant's
obligation to pay the Base Monthly Rent and all Additional Rent shall commence
as of the date it would otherwise have commenced absent delays caused by Tenant,
provided that within a reasonable period of time after learning of the
occurrence of any such delay, Landlord notifies Tenant in writing of the fact
that such delay has occurred and the known or anticipated extent of any such
delay.  As used in this Agreement, the term "delays caused by Tenant" shall mean
the number of days of actual delay caused by Tenant after receipt of notice
thereof from Landlord in accordance with the preceding sentence (provided,
however, that any delay attributable to a change order shall be limited to the
amount of delay in construction time specified in the change order approved and
signed by Tenant), in connection with the matters described in clauses (i)
through (iii) of the first sentence of this paragraph.

     10.  Delay in Completion Not Caused by Tenant:  The following shall apply:
          ----------------------------------------                             

          A.   Except as provided in Article 2 of the Lease, the Lease shall not
be void or voidable by Landlord or Tenant, nor shall Landlord be liable to
Tenant for any loss or damage resulting from failure to cause the Improvements
to be Substantially Completed on or before the Target Commencement Date.
Notwithstanding anything to the contrary in the Lease:  Landlord shall not be
entitled to an extension of the Target Commencement Date as a result of delays
caused by any of the following: (i) rain or other weather conditions (except to
the extent it damages the Improvements and such damage would not have been
prevented by normal precautions customarily employed on comparable construction
projects); (ii) delays caused by any contractor or subcontractor; (iii)
inability to obtain labor, materials, fuels or reasonable substitutes therefor
unless Landlord can demonstrate that it acted reasonably in ordering such items
but was unable to obtain such items on schedule after so acting; or (iv)
Landlord's default under this Lease.

                                      -51-
<PAGE>
 
          B.   In addition to any other remedy it may have, Tenant shall have
the option to terminate this Lease if construction is not commenced for any
reason (other than delays caused by Tenant) on or before December 1, 1997.

     11.  Delivery of Possession, Punch List, and Acceptance Agreement:  As soon
          ------------------------------------------------------------          
as the Improvements are Substantially Completed, Landlord and Tenant shall
together inspect the Improvements.  After such inspection has been completed,
each party shall sign an acceptance agreement which shall (i) include a list of
all "punch list" items which the parties agree are to be corrected by Landlord
and (ii) shall state the Commencement Date.  As soon as such inspection has been
completed and such acceptance agreement executed, Landlord shall deliver
possession the Premises to Tenant.  Landlord shall use reasonable efforts to
complete and/or repair such "punch list" items within thirty (30) days after
executing the acceptance agreement.  Notwithstanding anything contained herein,
Tenant's obligation to pay Base Monthly Rent and the Additional Rent shall
commence as provided in the Lease, regardless of whether Tenant completes such
inspection or executes such acceptance agreement.

     12.  Standard of Construction and Warranties:  Landlord hereby makes the
          ---------------------------------------                            
following warranties:

          A.   Landlord warrants that the Improvements (excluding the Interior
Improvements) shall be designed substantially in accordance with, and all
materials and equipment shall conform to, (i) all Laws in effect when the design
for the Improvements in question were completed, and (ii) the requirements of
Exhibit "C-1" and "C-2".  Landlord makes no warranty regarding the design of the
-----------------------                                                         
Interior Improvements.

          B.   Landlord warrants that the Improvements shall be constructed in a
good and workmanlike manner substantially in accordance with the Final Building
Plans (as modified by change orders approved by Landlord and Tenant), the Final
Interior Improvement Plans (as modified by change orders approved by Landlord
and Tenant), all CC&R's, and all Laws.  Except as otherwise reasonably approved
by Tenant, all materials and equipment furnished shall be new, of good quality,
and installed in accordance with the vendor's or manufacturer's specifications,
instructions and requirements.

          C.   Landlord warrants that the roof of the Improvements shall be
designed and constructed in accordance with subparagraphs 12A and 12B and
notwithstanding anything to the contrary in the Lease or this Agreement, said
warranty shall survive until the tenth (10th) anniversary of the Commencement
Date.  Landlord will assign all rights under the roof warranty to Tenant and
will cooperate with Tenant in enforcing such warranties.

          D.   Landlord warrants that all materials and equipment furnished
shall be fully paid for and be free of liens or chattel mortgages, subject to
Landlord's right to contest in good faith any mechanic's lien.

                                      -52-
<PAGE>
 
          E.   Once Landlord is notified in writing of any breach of the above-
described warranty, Landlord shall promptly commence the cure of such breach and
complete such cure with diligence at Landlord's sole cost and expense.
Notwithstanding anything contained herein, the warranties made by Landlord
pursuant to paragraphs 12A and 12B shall not apply to any defect in design or
construction which is discovered and of which Landlord receives written notice
from Tenant after the first (1st) anniversary of the Commencement Date.  With
respect to defects to which Landlord's warranty does not apply, Tenant shall
have the benefit of any construction or equipment warranties existing in favor
of Landlord that would assist Tenant in correcting such defect and in
discharging its obligation regarding the repair and maintenance of the Premises.
Landlord shall inform Tenant in writing of all written construction and
equipment warranties existing in favor of Landlord which affect the
Improvements, which list of warranties shall be attached to the Lease as Exhibit
                                                                         -------
"D".  Landlord shall cooperate with Tenant in enforcing such warranties and in
---                                                                           
bringing any suit that may be necessary to enforce liability with regard to any
defect to which Landlord's warranty does not apply so long as Tenant pays all
costs reasonably incurred by Landlord in so acting.  The provisions of this
paragraph 12 shall not affect or modify provisions stated elsewhere in the Lease
concerning the allocation of responsibility for the repair, maintenance, and
replacement of the Premises.

     13.  Payment of Improvement Costs:  The Improvement Costs for the
          ----------------------------                                
Improvements shall be paid as follows:

          A.   Shell and Site Work:  Landlord shall construct and pay for, at
               -------------------                                           
its sole cost and expense, all costs of the Shell and Site Work, except for
change orders requested by Tenant and completed by Landlord, pursuant to the
change order procedure provided for in paragraph 8 of this Agreement.
 
          B.   Interior Improvements:  Landlord shall apply the full amount of
               ---------------------                                          
the Interior Improvement Allowance to the Improvement Costs for the Interior
Improvements.  If the Improvement Costs for the Interior Improvements exceed the
Interior Improvement Allowance, Tenant shall pay such excess cost as provided in
subparagraph C below.

          C.   Payment of Excess Costs:
               ----------------------- 
 
          (1) If Improvement Costs for the Interior Improvements exceed the
Interior Improvement Allowance, Tenant shall pay the cost in excess of the
Interior Improvement Allowance ("Tenant's Contribution") in installments, with
each installment to be paid within five (5) days after Landlord notifies Tenant
in writing that a progress payment toward the Interior Improvements is to be
made, and the installment due shall be an amount which bears the same
relationship to the amount of the Improvement Costs for the Interior
Improvements that are to be paid, as Tenant's Contribution bears to the total of
all estimated Improvement Costs for the Interior Improvements.  Notwithstanding
the foregoing, in no event shall Tenant be required to contribute to the
Improvement Costs for the Interior Improvements any amount in excess of the
Final Cost Estimate for the Interior Improvements (plus any increases in cost
approved by Tenant pursuant to the change order procedure provided for in
paragraph 8 of this Agreement).

                                      -53-
<PAGE>
 
          (2) If it is estimated that Tenant will be required to make a cash
contribution toward the Interior Improvement Costs based on the Final Cost
Estimates for the Interior Improvements, such amount must be placed in escrow or
made available in the form of a letter of credit.  During the course of
construction, Tenant shall contribute to each progress payment its pro rata
share of the amount due for the Interior Improvements in question.

          (3) If the Interior Improvement Allowance is not fully utilized in
accordance with the foregoing, the balance of any such allowance shall reduce
the Base Monthly Rent otherwise due under the Lease as provided in Paragraph
3.1.D. of the Lease.

     14.  Conditions Precedent for the Benefit of Tenant.  The obligations of
          ----------------------------------------------                     
Tenant under this Lease are expressly conditioned upon the satisfaction of the
following conditions precedent (prior to the times stated below:)

          A.   Site Development Permit.  On or before December 1, 1997, Landlord
               -----------------------                                          
shall have received a site development permit from the City of Folsom containing
no conditions which are unacceptable to either Landlord or Tenant.

          B.   Site Plan Approval.  On or before December 1, 1997, Landlord and
               ------------------                                              
Tenant shall have approved in writing a site plan for the Premises in detail
sufficient to obtain site plan development approval from the City of Folsom.

          C.   Building Permits.  On or before March 1, 1998, Tenant shall have
               ----------------                                                
reasonably determined to its satisfaction that all necessary governmental
approvals and permits to allow construction of all Improvements required by this
Lease will be available to Landlord.
 
     Each of the conditions described in this Paragraph 14 is for the benefit of
Tenant and may be waived only by Tenant.  If any of the foregoing conditions has
not been satisfied or waived by Tenant within the applicable time period, then
Tenant shall have the option to terminate this Lease upon written notice to
Landlord, whereupon Landlord and Tenant's obligations under this Lease shall
terminate, except that (a) Landlord shall refund any prepaid Rent and (b)
Landlord shall, within thirty (30) days from date of Tenant's notice of
termination, sell the Premises to Tenant for the same purchase price and upon
the same terms and conditions upon which Landlord purchased the Premises from
Tenant in accordance with Article 19 of the Lease.

LANDLORD:                                TENANT:

REDSKY ENTERPRISES, INC.,                OBJECTIVE SYSTEMS INTEGRATORS,
a California corporation                 INC., a Delaware corporation

By: /s/ Linda M. Stanley                 By: /s/ David M. Allen
Title: President                         Title: VP & CEO
Date: 1/13/98                            Date: 1/9/98

                                      -54-
<PAGE>
 
                                 EXHIBIT "C-1"
                                 -------------

                  OSI SPECIFIC BUILDING REQUIREMENTS - PHASE I
                  --------------------------------------------

                                        
I. SITE REQUIREMENTS
   -----------------

A.   Paving

     1.   2" AC over 4" Class II AB*

B.   Traffic Areas

     1.   2-1/4" AC over 5" Class II AB*

C.   Walkways

     1.   4" concrete

* per geotechnical report

D.   Vegetation Control

     All Areas

E.   Landscaping and Irrigation

     Per code. Landscaping allowance is $80,200. Tenant expects accent
     landscaping at building entries and building connections.

F.   Trash Enclosure

     Split face CMU block with metal gate and man gate.

G.   Lighting

     Per code.  Metal halide, parking.
     Accent building lighting.

H.   Signage

     $5,000.00 allowance for Tenant.

                                      -55-
<PAGE>
 
I.   Site and Building Design

     Site and building design to allow for subdivision of building.


II.  SHELL REQUIREMENTS
-----------------------

A.   Structure  [ Image should present value conscious tenant without
ostentation ]

     1.   Two (2) story concrete tilt-up construction

     2.   Rigid steel with concrete on a steel deck. (100 lb. p.s.f. live load
          with an additional 20 lb. p.s.f. partition load minimum.)

     3.   Roofing

          (i)  Four (4) ply minimum with cap sheet. Type 5 felt and two-ply
               flashing.

          (ii) Minimum ten (10) year non-prorated warranty - labor and materials
 
     4.   Slab

          (i)  4" concrete minimum over 6" base with vapor barrier

     5.   Two (2) 4" conduits from utility vault to each building. Two (2) 4"
          conduit between buildings.

     6.   Exterior Panel Finish:  Painted (tex coat) concrete with architectural
          relief

     7.   Glazing: Continuous horizontal band covering 33 - 40% of surface. 1/4"
          minimum high performance reflective glazing with anodized aluminum
          system.

     8.   Mechanical and roof equipment to be fully screened by parapet or solid
          screen materials.

     9.   Exterior walls to have metal stud furring and insulation as part of
          shell construction.

     10.  Doors

          (i)  All exit doors to be hollow metal with hollow metal frames, self-
               locking and weather-sealed (3'-0" x 8'-0" x 1-3/4")

                                      -56-
<PAGE>
 
          (ii) Provide one (1) pair 9'-0" storefront doors.

     11.  Insulation:  Building envelope to be Title 24 approved.

    *12.  Electrical per Building

          (i)  2,000 amp, 480 volt, 3 phase main service to each building with
               one (1) point of distribution on each floor, centrally located,
               at a minimum. Equipment to include all switch gear, transformers,
               subpanels at each distribution point. Core area fully
               operational. Site to be fully operation.

     13.  HVAC

          (I)  165 total tons.

          (ii) Main supply air distribution.

     14.  Plumbing

          (i)  Waste return line and water supply line - first and second level
               parallel through center of building.

     15.  Fire/Life Safety

          (I)  Provide NFPA sprinkler system including ADA fire alarm system.



*Tenant credit due for difference of this final specification to original
specification. Electrical originally called for 2,400 amps.


III. CORE REQUIREMENTS
     -----------------

Secondary Building
------------------

A.   Lobby (developer designed subject to OSI approval)

     1.   Elevator by national manufacturer (2,500 lb. minimum, bi-parting
doors)

     2.   Open staircase

     3.   Two (2) public telephones in alcove

                                      -57-
<PAGE>
 
     4.   Water fountains per current UPC requirements.

     5.   All handicapped and code requirements to be met.


B.   Restrooms (One (1) set per floor)

     1.   The building will have on each floor as part of shell:

          Mens - Three (3) toilets  Womens - Five (5) toilets
                 Three (3) urinals           Four (4) sinks
                 Four (4) sinks
 
     2.   Floors and walls (3/4 height) tiled with accent pattern (standard Dal-
          Tile or equivalent) (Premium quality with full color selection
          required in Primary Building)

     3.   Hard ceiling with lighting soffits and accent lighting.
          
     4.   Vanities to be 3/4" thick solid surfacing material with integral back
          splash to 6" with under-counter mounted porcelain china lavatories,
          counters supported by concealed steel tube framing system to provide
          integral front apron to conceal plumbing. Provide mirrors full length
          of vanity from back splash to ceiling or soffit.

     5.   Baked enamel ceiling mounted metal toilet partitions (standard colors)
          
     6.   Wall hung toilet fixtures
          
     7.   Provide recessed stainless steel toilet accessories, including but not
          limited to, towel, toilet tissue, napkin seat cover dispensers, liquid
          soap dispensers mounted, waste disposal units for towels, napkin,
          napkin dispenser and grab bars as required. (Minimum 9' ceiling;
          minimum 8' doors).

     8.   Floor drain with slope to drain in each restroom.
          
     9.   All handicapped and code requirements to be met.
          
C.   Utilities
          
     1.   Telecommunication Distribution Points (One (1) per floor in central
          lobby area per specifications):
          
          *    All walls should be covered with 3/4" A-C plywood, 8' high

                                      -58-
<PAGE>
 
          *    Minimum lighting 50 foot candles
          
          *    Minimum one (1) air change per hour.
          
          *    One (1) standard fourplex and one (1) dedicated fourplex
               electrical outlet at each distribution point.

          *    Two (2) 4" conduits connecting first and second floor telephone
               rooms.
          
     2.   Electric, telephone, service, equipment rooms to have full height
          partition walls to slab above with 3-5/8" metal stud @ 16" oc with
          5/8" gypsum type x each side painted with sound insulation. (One (1)
          per floor, minimum 9" ceilings; minimum 8' door)
                     -------              -------

     3.   Telephone and electrical rooms to have VCT commercial grade tile with
          rubber cove base.
          
     4.   Janitor's closet to be semi-gloss paint with a service sink with
          stainless steel back splash and floor drain.

D.   Signage

     All exit signage and other signage in core area to be per code and
     handicapped requirements.

E.   Stairwells

     Two (2) independent stairwells in addition to lobby.

                                      -59-
<PAGE>
 
                                 EXHIBIT "C-2"
                                 -------------

                                  SPACE PLAN

                                      -60-
<PAGE>
 
                                 EXHIBIT "C-3"
                                 -------------



The building plans titled "Objective Systems Integrators, Inc. Phase I - Site
and Shell Plans", prepared by E.M. Kado Associates, Project # 971500, submitted
for approval on November 12, 1997.

                                      -61-
<PAGE>
 
                                 EXHIBIT "C-4"
                                 -------------

                            SCHEDULE OF PERFORMANCE

            Action                                              Responsible
            Items                  Due Date                        Party
------------------             ----------------                 -----------
1.  Submit application for           Completed                  Landlord
    architectural review
    permit to Tenant for
    approval

2.  Approval of architectural        Completed                  Tenant
    review application

3.  Submit application for           Completed                  Landlord
    architectural review
    permit to City

4.  Delivery of Preliminary          Completed                  Landlord
    Building Plans to
    Tenant

5.  Approval of Preliminary          Completed                  Tenant
    Building Plans by
    Tenant

6.  Delivery of Final Building       Completed                  Landlord
    Plans

7.  Approval of Final                Completed                  Tenant
    Building Plans by   
    Tenant

8.  Submit application for           Completed                  Landlord
    building permit for
    the Building Work

9.  Commencement of con-             Completed                  Landlord
    struction of Building
    Work

10. Delivery to Landlord of          Completed                  Tenant
    Preliminary Interior
    Improvement Plans

11. Delivery to Tenant of            Completed                  Landlord
    Preliminary Cost
    Estimates

12. Approval of Preliminary          Completed                  Tenant
    Cost Estimate

                                      -62-















<PAGE>
 
<TABLE> 
<S>                                  <C>                                            <C> 
13.  Delivery to Landlord of         On or before January 1, 1998                   Tenant
     Final Interior
     Improvement Plans

14.  Delivery to Tenant    of        Within 30 working days after receipt of        Landlord
     Final Cost Estimate             Plans

15.  Approval of Final Cost          Within 10 working days after receipt of        Tenant
     Estimate                        Plans

16.  Submit application for          Within 5 working days after Final Interior     Landlord
     building permit to              Improvement Plans and Final Cost Estimate
     City                            have been approved, assuming no major
                                     changes and all value engineering completed
 
17.  Commencement of                 No later than 5 working days after receipt     Landlord
     construction of                 of permit and completion of water-proof
     Interior                        shell
     Improvements

18.  Substantial                     The Improvements for which Landlord is         Landlord
     Completion of the               responsible shall be Substantially
     Improvements                    Completed no later than 160 days after
                                     receipt of Interior Improvement permit and
                                     completion of water-proof shell
</TABLE>

                                     -63-
<PAGE>
 
                                  EXHIBIT "D"
                                  ---------- 

                         LIST OF LANDLORD'S WARRANTIES
                          To be provided by Landlord



                                      -64-
<PAGE>
 
                                  EXHIBIT "E"
                                  -----------

                          DESCRIPTION OF PHASE II LAND


                                      -65-
<PAGE>
 
                                  EXHIBIT "F"
                                  -----------

                                    GUARANTY
                                        

     FOR VALUE RECEIVED, the undersigned (hereinafter referred to individually
and collectively as "Guarantor" whether one or more) hereby jointly and
severally guarantee unto Objective Systems Integrators, Inc., a Delaware
corporation ("Tenant"), the full and timely performance of all obligations of
the "Landlord", under that certain Lease (Phase I) ("Lease") entered into by and
between Redsky Enterprises, Inc., a California corporation ("Landlord") and
Tenant, dated as of ___________________________, 199____, for the period
commencing on the Effective Date of the Lease and ending on the Guaranty
Termination Date (as defined herein) ("Guaranty Term").

     1.   GUARANTY. In consideration of the execution of the Lease by Tenant and
          as a material inducement to Tenant to execute the Lease, during the
          Guaranty Term Guarantor hereby irrevocably, unconditionally,
          absolutely, jointly and severally guarantee the payment in full in
          cash when due and the complete and timely performance of (a) all
          payments of all sums which may from time to time be due and owing by
          Landlord to Tenant under the Lease, and (b) all terms and conditions
          to be performed and observed by Landlord under the Lease
          (collectively, the "Guaranteed Obligations").

     2.   GUARANTOR'S OBLIGATIONS/GUARANTY TERM. During the Guaranty Term, if
          Landlord at any time fails to make any payment when due under the
          Lease or fails to perform or comply with any other term or condition
          of the Lease, Guarantor shall, upon demand from Tenant, pay, perform
          and comply with the same. This Guaranty shall be continuing and shall
          only terminate on the Guaranty Termination Date (as defined herein).
          The "Guaranty Termination Date" shall be the date which is one year
          following the Lease Commencement Date ("Guaranty Termination Date").
          In the event that Tenant seeks to enforce any of its rights under this
          Guaranty and demands payment or performance from Guarantor, such
          demand and Guarantor's compliance therewith shall not release,
          extinguish, exonerate or in any way affect or diminish Guarantor's
          continuing obligations under this Guaranty. Guarantor's liability
          under this Guaranty shall continue following the Guaranty Termination
          Date for the Guaranteed Obligations, to the extent the payment and/or
          performance of such arose or became due prior to the Guaranty
          Termination Date.

     3.   TENANT'S ACTS; NO EFFECT ON GUARANTOR'S OBLIGATIONS. Tenant may from
          time to time, solely in accordance with the terms and conditions of
          the Lease, (a) assign, sublet, transfer, encumber or otherwise dispose
          of all or any of Tenant's rights, claims or interests in, under and to
          the Lease, the Premises or this Guaranty, (b) modify or amend the
          Lease, in whole or part, and (c) modify or change the entity
          comprising Tenant and none of the foregoing acts shall release
          Guarantor or extinguish or exonerate or diminish in any way
          Guarantor's obligations hereunder. In addition, no

                                      -66-
<PAGE>
 
          termination of the Lease shall extinguish, release or in any way
          affect or diminish Guarantor's obligations hereunder.

     4.   LANDLORD'S DEFAULT. This Guaranty is a guaranty of payment and
          performance, and not of collection. Upon any breach or default by
          Landlord under the Lease, Guarantor shall be liable jointly and
          severally for Landlord's performance pursuant to this Guaranty,
          without notice to or demand upon either Landlord or any Guarantor.
          This Guaranty shall not be released, modified or affected by any
          failure or delay by Tenant to enforce any of its rights or remedies
          under this Guaranty, the Lease or at law or in equity.

     5.   GUARANTORS' WAIVERS. Guarantor hereby waives (a) presentment, demand
          for payment and protest of non-performance under the Lease, (b) notice
          of any kind including, without limitation, notice of acceptance of
          this Guaranty, protest, presentment, demand for payment, default,
          nonpayment, or the creation or incurring of new or additional
          obligations of Landlord to Tenant, (c) any right to require Tenant to
          enforce its rights or remedies against Landlord under the Lease, or
          otherwise, or against any other guarantor, (d) any right to require
          Tenant to proceed against any security held from Landlord or any other
          party, (e) any defense arising out of the absence, impairment or loss
          of any right of reimbursement or subrogation or other right or remedy
          of Guarantors against Tenant or any such security, whether resulting
          from an election by Tenant, or otherwise, (f) any defense based upon
          any legal disability of Landlord or any other guarantor of any
          Guaranteed Obligations, or any discharge or limitation of the
          liability of Landlord or any such other guarantor to Tenant, whether
          consensual or arising by operation of law, bankruptcy, insolvency or
          debtor-relief proceeding, (g) any defense based upon any invalidity or
          unenforceability of the Lease, (h) any defense based upon, or arising
          out of any defense which Landlord may have to the payment or
          performance of any Guaranteed Obligations; and (i) all rights of
          subrogation, indemnification, contribution and reimbursement and all
          rights to enforce any remedy that Landlord or Guarantor may have
          against Tenant or any other guarantor of any Guaranteed Obligations.
          Without limiting the foregoing, the Guarantor hereby waives any and
          all rights and defenses available to the Guarantor by reason of
          California Civil Code Sections 2787 through 2855, inclusive, 2899 and
          3433, and any successor statutes. Any partial payment by Landlord or
          other circumstance which operates to toll any statute of limitations
          as to Landlord shall operate to toll the statute of limitations as to
          Guarantor.

     6.   SEPARATE AND DISTINCT OBLIGATIONS. Guarantor acknowledges and agrees
          that Guarantor's obligations to Tenant under this Guaranty are
          separate and distinct from Landlord's obligations to Tenant under the
          Lease. Tenant may enforce this Guaranty without first (a) making any
          effort at collection or enforcement of any Guaranteed Obligations from
          or against Landlord or any other party that may be liable therefor,
          (b) exercising or asserting any other right or remedy which may be
          available in connection with the Guaranteed Obligations or resorting
          to or exhausting any other

                                      -67-
<PAGE>
 
          security, guaranty or collateral held with respect to the Guaranteed
          Obligations, or (c) asserting or filing any claim against the assets
          of Landlord, Guarantor, any partner of Guarantor, or any of them or
          any other guarantor or any other party whatsoever. The occurrence of
          any of the following events shall not have any effect whatsoever on
          Guarantor's obligations to Tenant hereunder, each of which obligations
          shall continue in full force or effect as though such event had not
          occurred: (a) with reference to Landlord, the commencement or
          continuance of a voluntary or involuntary case under the federal
          bankruptcy laws, as now constituted or hereafter amended or replaced,
          or any other applicable federal or state bankruptcy, insolvency or
          other similar law (collectively, the "Bankruptcy Laws"), (b) the
          consent by Landlord to the appointment of or taking possession by a
          receiver, liquidator, assignee, trustee, custodian, sequestrator or
          similar official for any substantial part of its property, (c) any
          assignment by Landlord for the benefit of creditors, (d) the failure
          of Landlord generally to pay its debts as such debts become due, (e)
          the taking of corporate action by Landlord in the furtherance of any
          of the foregoing; or (f) the entry of a decree or order for relief by
          a court having jurisdiction in respect of Landlord in any involuntary
          case under the Bankruptcy Laws, or appointing a receiver, liquidator,
          assignee, custodian, trustee, sequestrator (or similar official) of
          Landlord or for any substantial part of its property, or ordering the
          winding-up or liquidation of any of its affairs and the continuance of
          any such decree or order unstayed and in effect for a period of sixty
          (60) consecutive days. The liability of Guarantor under this Guaranty
          is not and shall not be affected or impaired by any payment made to
          Tenant under or related to the Lease for which Tenant is required to
          reimburse Landlord in settlement of any dispute, controversy or
          litigation in any bankruptcy, reorganization, arrangement, moratorium
          or other federal or state debtor relief proceeding or pursuant to any
          court order in any bankruptcy. If, during any such proceeding, the
          Lease is assumed by Landlord or any trustee, or thereafter assigned by
          Landlord or any trustee to a third party, this Guaranty shall remain
          in full force and effect with respect to the full performance of
          Landlord, any such trustee or any such third party's obligations under
          the Lease.
 
     7.   SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of
          any person or persons, entity or entities who now or hereafter may be
          entitled to the benefits or obligated to perform the duties of Tenant
          under the Lease and shall be binding upon the heirs, legal
          representatives, successors and, subject to this Section 7, the
          assigns of Guarantor. Notwithstanding anything to the contrary in this
          Guaranty, Guarantor may not assign this Guaranty or its obligations
          under this Guaranty, without first obtaining the prior written consent
          of Tenant, which consent may be withheld in Tenant's sole discretion.

     8.   TERMINATION OF GUARANTY. This Guaranty shall terminate on the Guaranty
          Termination Date.

                                      -68-
<PAGE>
 
     9.   GUARANTOR'S DUTY. Guarantor assumes the full responsibility to remain
          informed of the financial condition of Landlord and of all other
          circumstances bearing upon the risk of Landlord's non-performance
          under the Lease and agrees that Tenant shall have no duty whatsoever
          to advise Guarantor of information known to it regarding such
          condition or any such circumstance.

     10.  TENANT'S RELIANCE. Tenant shall not be required to inquire into the
          powers of Landlord or the officers, employees, partners or agents
          acting or purporting to act on its behalf.

     11.  INCORPORATION OF LEASE PROVISIONS. Guarantor hereby represents and
          warrants to Tenant that Guarantor has received a copy of the Lease,
          has read or had the opportunity to read the Lease, and understands the
          terms of the Lease. The provisions in the Lease, if any, relating to
          the execution of additional documents, legal proceedings by Tenant
          against Landlord, severability of the provisions of the Lease,
          interpretation of the Lease, notices, waivers, the applicable laws
          which govern the interpretation of the Lease and the authority of
          Landlord to execute the Lease are incorporated herein in their
          entirety by this reference and made a part hereof. Any reference in
          those provisions to "Landlord" shall mean each Guarantor and any
          reference in those provisions to the "Lease" shall mean this Guaranty,
          except that (a) any notice which any Guarantor desires or is required
          to provide to Tenant shall be effective only if signed by Guarantor
          and (b) any notice which Tenant desires or is required to provide to
          any Guarantor shall be sent to such Guarantor at such Guarantor's
          address indicated below, or if no address is indicated below, at the
          address for notices to be sent to Landlord under the Lease.

     12.  GOVERNING LAW. This Guaranty shall be governed and construed in
          accordance with the laws of the State of California.

     13.  MISCELLANEOUS PROVISIONS.

             13.1.1  Guarantor represents and warrants that, to Guarantor's best
                     knowledge, Landlord is under no disability in connection
                     with the execution and delivery of the Lease and that there
                     are no defenses to Landlord's full payment and performance
                     of all of its obligations under the Lease. Within twenty
                     (20) days following demand by Tenant, Guarantor shall
                     deliver to Tenant and to any interested party reasonably
                     designated by Tenant an estoppel certificate, executed and
                     acknowledged by Guarantor, to the effect that this Guaranty
                     is in full force and effect and has not been amended or
                     terminated (or, if amended or terminated, specifying the
                     date and terms thereof). Guarantor shall also certify such
                     other matters relating to the Guaranteed Obligations or
                     this Guaranty as may be reasonably requested from time to
                     time by Tenant.

                                      -69-
<PAGE>

             13.1.2  This Guaranty shall not be subject to any condition
                     precedent to the effectiveness hereof. Upon execution and
                     delivery of this Guaranty by Guarantor, this Guaranty shall
                     be in full force and effect. This Guaranty may not be
                     amended, modified, waived, discharged or terminated orally
                     or by course of conduct, but only by an instrument in
                     writing duly executed by both Tenant and Guarantor. No
                     waiver by Tenant of any default of Landlord or Guarantor or
                     any other event shall be effective unless in writing, nor
                     shall it operate as a waiver of any other default or of the
                     same default on a future occasion.

             13.1.3  All representations, warranties, covenants and obligations
                     of Guarantor hereunder constitute the joint and several
                     representations, warranties, covenants and obligations of
                     all persons and entities executing this Guaranty. All
                     rights and remedies of Tenant under this Guaranty and the
                     Lease are cumulative and not restrictive of any other
                     rights or remedies available at Law or in equity. This
                     Guaranty may be executed in counterparts, each of which
                     shall be deemed to be an original, but all of which taken
                     together shall constitute one and the same Guaranty.

             13.1.4  In the event any action or claim is filed by either party
                     in connection with this Guaranty, the parties hereby agree
                     that said action or claim shall be filed in and subject to
                     the jurisdiction in which the Premises are located. If
                     litigation is commenced between the parties, the non-
                     prevailing party in that litigation shall indemnify the
                     prevailing party against all losses, costs, claims and
                     damages (including reasonable attorneys' fees and court
                     costs) incurred or paid by the prevailing party. Whenever
                     possible, each provision of this Guaranty shall be
                     interpreted in such manner as to be effective and valid
                     under applicable law, but if any provision of this Guaranty
                     shall be prohibited by or invalid under such law, such
                     provision shall be ineffective to the extent of such
                     prohibition or invalidity, without invalidating the
                     remainder of such provision or the remaining provisions of
                     this Guaranty. All terms which are not defined in this
                     Guaranty, but which are defined in the Lease and used in
                     this Guaranty, shall have the meanings ascribed to them by
                     the Lease.





                     SIGNATURE PAGE FOLLOWS

                                      -70-

<PAGE>
 
                                SIGNATURE PAGE


          GUARANTOR:


          CARL D. PANATTONI


          By:  /s/ Carl D. Panattoni  1/6/98
               ----------------------------------------
          Carl D. Panattoni        Date


          RODNEY B. JOHNSON


          By:  /s/ Rodney B. Johnson  1/6/98
               ----------------------------------------
          Rodney B. Johnson        Date


          BENJAMIN S. CATLIN


          By:  /s/ Benjamin S. Catlin  1/6/98
               ----------------------------------------
          Benjamin S. Catlin        Date


          ADDRESS FOR NOTICE TO GUARANTOR:

          Panattoni Development Company
          9806 Old Winery Place, Suite 1
          Sacramento, California 95827

                                      -71-
<PAGE>
 
                          SPOUSAL CONSENT TO GUARANTY


          The undersigned is the spouse of Carl D. Panattoni, a Guarantor
          under the foregoing Guaranty (as the same may hereafter be amended,
          the "Guaranty") dated January 8, 1998, by Carl D. Panattoni, Rodney
          B. Johnson, and Benjamin S. Catlin collectively, as Guarantor, in
          favor of Objective Systems Integrators, Inc. The undersigned, by
          executing this Spousal Consent, hereby agrees that she consents to
          the terms and conditions of the Guaranty and that her entire
          interest in the marital community shall be bound by and liable under
          the terms of the Guaranty; provided, however, that neither the
          undersigned's separate property during marriage to the Guarantor nor
          any property previously part of the marital community which is
          awarded to the undersigned as part of a divorce settlement or final
          decree of divorce shall be bound by and subject to the Guaranty.

          Executed as of the 8th day of January, 1998.


          By: /s/ Mary Jane Panattoni
              -------------------------------------------------
               Mary Jane Panattoni, Spouse of Carl D. Panattoni

                                      -72-
<PAGE>
 
                          SPOUSAL CONSENT TO GUARANTY


          The undersigned is the spouse of Rodney B. Johnson, a Guarantor under
          the foregoing Guaranty (as the same may hereafter be amended, the
          "Guaranty") dated January 8, 1998, by Carl D. Panattoni, Rodney B.
          Johnson, and Benjamin S. Catlin collectively, as Guarantor, in favor
          of Objective Systems Integrators, Inc. The undersigned, by executing
          this Spousal Consent, hereby agrees that she consents to the terms and
          conditions of the Guaranty and that her entire interest in the marital
          community shall be bound by and liable under the terms of the
          Guaranty; provided, however, that neither the undersigned's separate
          property during marriage to the Guarantor nor any property previously
          part of the marital community which is awarded to the undersigned as
          part of a divorce settlement or final decree of divorce shall be bound
          by and subject to the Guaranty.

          Executed as of the 8th day of January, 1998.


          By: /s/ Sandra Lee Johnson
              ------------------------------------------------
               Sandra Lee Johnson, Spouse of Rodney B. Johnson

                                      -73-
<PAGE>
 
                          SPOUSAL CONSENT TO GUARANTY


          The undersigned is the spouse of Benjamin S. Catlin, a Guarantor under
          the foregoing Guaranty (as the same may hereafter be amended, the
          "Guaranty") dated January 8, 1998, by Carl D. Panattoni, Rodney B.
          Johnson, and Benjamin S. Catlin collectively, as Guarantor, in favor
          of Objective Systems Integrators, Inc. The undersigned, by executing
          this Spousal Consent, hereby agrees that she consents to the terms and
          conditions of the Guaranty and that her entire interest in the marital
          community shall be bound by and liable under the terms of the
          Guaranty; provided, however, that neither the undersigned's separate
          property during marriage to the Guarantor nor any property previously
          part of the marital community which is awarded to the undersigned as
          part of a divorce settlement or final decree of divorce shall be bound
          by and subject to the Guaranty.

          Executed as of the 8th day of January, 1998.


          By: /s/ Gail E. Catlin
             ---------------------------------------------   
              Gail E. Catlin, Spouse of Benjamin S. Catlin

                                      -74-
<PAGE>
                      FIRST AMENDMENT TO LEASE (PHASE I)

    THIS FIRST AMENDMENT TO LEASE (PHASE I) ("Amendment") is executed as of
March 30, 1998 by and between REDSKY ENTERPRISES, INC., a California
corporation, as Landlord ("Landlord"), and OBJECTIVE SYSTEMS INTEGRATORS, INC.,
a Delaware corporation, as Tenant ("Tenant"), as an amendment to that certain
Lease (Phase I) (the "Lease") dated as of January 13, 1998 (the "Lease") between
Landlord and Tenant pertaining to that certain real property containing
approximately 3.23 acres of land and the Improvements (as defined in the Lease)
to be constructed thereon, commonly referred to as 110 Woodmere Road, located in
the City of Folsom, State of California (the "Premises").

    1.  SECTION 1.7: DEFINITION OF PREMISES: Section 1.7 of the Lease is hereby
        -----------------------------------
amended by adding the following after the phrase "(the "Land")," in the second 
line thereof: "commonly referred to as 110 Woodmere Road, located in the City of
Folsom, State of California".

    2.  SECTION 1.11: DEFINITION OF THE TERM "LEASE": Section 1.11 of the Lease 
        -------------------------------------------
is hereby amended by replacing the word "and" in the third line thereof with a 
comma (",") and adding the phrase "Exhibit 'G' (Purchase Agreement)" after the 
                                   ----------
phrase "Exhibit 'F' (Guaranty)".
        ----------

    3.  EXHIBIT "A": LEGAL DESCRIPTION OF THE PREMISES: The legal description of
        ----------------------------------------------
the Premises set forth on Exhibit "A" to the Lease shall be replaced with the
                          ----------
legal description attached to this Amendment as Exhibit "A".
                                                ----------

    4.  SECTION 15.16: ENTIRE AGREEMENT:  Section 15.16 of the Lease is hereby 
        -------------------------------
amended by deleting the phrase "The Lease constitutes" in the first line thereof
and replacing it with the following: "The Lease and that certain Remedy 
Agreement between Landlord and Tenant dated as of March 1998 constitute".
    
    5.  ARTICLE 18: CONDITIONS TO LEASE:  Article 18 of the Lease is hereby 
        ------------------------------- 
amended by deleting the phrase "and the effectiveness of," in the first line 
thereof.  Additionally, the date "February 1, 1998" in Section 18.2 of the Lease
is hereby deleted and replaced with "April 1, 1998".

    6.  ARTICLE 19: LANDLORD'S OBLIGATION TO SELL THE PREMISES TO TENANT: 
        ----------------------------------------------------------------
Article 19 of the Lease is hereby amended by adding the following after the 
phrase "the land from Tenant" in the fifth (5th) line thereof:", in the same 
condition, and subject only to those defects, liens and encumbrances of title 
existing prior to the date Landlord acquires title to the Premises from Tenant 
(whereby Landlord shall be required to remove any and all defects, lines and/or 
encumbrances arising on or after the date Landlord's acquires title to the 
Premises and any defect, liens and/or encumbrances arising from any act or 
omission of Landlord or Landlord's agents, employees or contractors, including, 
without limitation, any deed of trust or other security instrument recorded 
against the Premises, but excluding any encumbrances which were required by any 
public entity or agency having jurisdiction over the Premises or its use, or any
encumbrances (other than any deed of
   
 
<PAGE>
trust or other security instrument) affecting the Premises for which Landlord 
has received Tenant's prior written consent".

    7.  EXHIBIT "G": PURCHASE AGREEMENT: A copy of the Purchase Agreement
        -------------------------------
required to be attached as Exhibit "G" to the Lease is attached to this
                           ----------
Agreement as Exhibit "G".
             -----------

    8.  NO OTHER MODIFICATION. Except as expressly provided above, the Lease 
        ---------------------
continues in full force and effect, without modification.

    
     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment with 
the intent to be legally bound thereby, to be effective as of the Effective Date
of the Lease.



AS LANDLORD:                              AS TENANT:


REDSKY ENTERPRISES, INC.,                 OBJECTIVE SYSTEMS INTEGRATORS,
a California corporation                  INC., a Delaware corporation

                                                                      
By:  /s/ Linda M. Stanley                 By:  /s/ P N Cardman
   ------------------------                  ------------------------ 
                                                                      
Title:  President                         Title: V.P. General Counsel
      ---------------------                     --------------------- 
                                                                      
Date:  March 30, 1998                     Date:  March 26, 1998       
      ----------------------                    ---------------------- 






<PAGE>
                                 EXHIBIT "A"
                                 ----------

                            NEW LEGAL DESCRIPTION



                  LEGAL DESCRIPTION FOR A PORTION OF LOT 3.
                  "LAKE FOREST INDUSTRIAL PARK (142B.M.12)"
               CITY OF FOLSOM, COUNTY OF SACREMENTO, CALIFORNIA


All that portion of Lot 3 as said Lot is shown on the certain Plat of "LAKE

FOREST INDUSTRIAL PARK" filed in the office of the Recorder, County of

Sacremento, State of California in Book 142 of Maps, Map No. 12 more

particularly described as follows:

Beginning at the southeast corner of said Lot, thence from said Point of 
beginning along the southeasterly and southwesterly lines of said Lot the 
following five courses: 1) South 54 degrees 36'19" West 147.13 feet; 2)along
the arc of a curve to the left having a radius of 520.00 feet said Arc being
subtended by a chord bearing South 49 degrees 57'49" West 84.15 feet to a point
of reverse curvature; 3) along the arc of a curve to the right having a radius
of 25.00 feet, said Arc being subtended by a chord bearing South 87 degrees
25'37" West 33.52 feet; 4) North 50 degrees 28'08" West 7.78 feet; and 5) along
the arc of a curve to the left having a radius of 430.00 feet, said Arc being
subtended by a chord bearing North 65 degrees 45'50" West 226.86 feet; thence
North 08 degrees 16'30" East 46.50 feet; thence North 35 degrees 23'41" West
124.66 feet; thence North 42 degrees 56'46" East 155.52 feet; thence North 75
degrees 35'28" East 323.57 feet to a point on the easterly line of said Lot;
thence along said Easterly line South 14 degrees 24'32" East 308.94 feet to the
point of beginning.