Document:

<PAGE>

                                                                   EXHIBIT 10.07

                              ASSIGNMENT OF LEASE

Recitals

Section 1.  Assignment

Section 2.  Assumption of Lease Obligations

Section 3.  Effect of Landlord's Consent

Section 4.  Assignor's Covenants

Section 5.  Successors and Assigns

Section 6.  Governing Law

Exhibit A.  Lease

Exhibit B.  Legal description

                           _________________________

     This Assignment of Lease ("Assignment") is made as of June 23, 1998 between
                                ----------
JTS CORPORATION, a Delaware corporation ("Assignor"), and OPTICAL NETWORKS,
                                          --------
INC., a California corporation ("Assignee").
                                 --------

                                    Recitals
                                    --------

     A.  The Cilker Revocable Trust of October 9, 1990 ("Landlord"), as
                                                         --------
Landlord, and Assignor, as Tenant, executed a lease dated June 15, 1995
("Lease"), a copy of which is attached hereto as Exhibit A and incorporated
  -----
herein by reference, pursuant to which Landlord leased to Tenant and Tenant
leased from Landlord certain properties identified in Paragraph 2 of the Lease
and other Lease provisions cross-referenced in such Paragraph 2 for a term of
five (5) years commencing on August 18, 1995 and ending on August 17, 2000
subject to earlier termination as provided in the Lease.

     B.  Assignor desires to assign to Assignee the portion of the "Premises"
(as such term is defined in the Lease) which is identified on Exhibit B which is
attached hereto and incorporated herein by reference ("Assigned Portion of the
                                                       -----------------------
Premises"), and Assignee desires to accept the assignment of the Assigned
--------
Portion of the Premises from Assignor and assume all obligations under the
Lease.

     Therefore, for good and valuable consideration, the receipt and adequacy of
which are acknowledged, Assignor and Assignee agree as follows:

<PAGE>

                            Section 1. Assignment.

     Except for the obligations to pay the amortized amount of the Additional
Tenant Improvement Allowance as set forth in Paragraph 6A of Exhibit C the
Master Lease, Assignor assigns and transfers to Assignee all of Assignor's
right, title, and interest in the Assigned Portion of the Premises and Assignee
accepts from Assignor all of Assignor's right, title, and interest in the
Assigned Portion of the Lease, subject to the terms and conditions set forth in
this Assignment.

                           Section 2. Consideration.

     Assignee shall pay Landlord the Base Rent sum of $1.70 psf/month NNN for 25
months as Consideration for this Assignment.  The amortization of the Additional
Tenant Improvement Allowance will be paid by Assignor under the Master Lease for
the Assigned and Retained Portion of the Premises.  The Consideration shall be
paid by Assignee to Landlord in equal monthly installments beginning July 18,
1998.  Notwithstanding the foregoing, Assignee shall receive a credit to
reimburse Assignee for the sum of the following:  (a) the real estate commission
in connection with the assignment, (b) the cost of alterations to be paid for by
Assignee to create the separation of the Assigned Portion of the Premises from
the Retained Premises, and (c) Assignee's attorneys fees in connection with the
assignment transaction (collective, the "Credit").  This Credit shall be applied
                                         ------
by Assignee to the initial installments of the Consideration, not to exceed
Eighty Four cents ($0.84) per square foot per month until Assignee is reimbursed
for the total amount of the Credit.  Each month as Landlord receives payment of
the Consideration from Assignee, Landlord agrees to pay to Assignor a portion of
said Consideration ("Profit Portion") which is calculated as 50% of the
                     --------------
Consideration after reducing said consideration by the sum of the following
amounts:  (a) the Credit, (b) the Base Rent for the Assigned Portion of the
Premises.

                  Section 3. Assumption of Lease Obligations.

     Assignee assumes and agrees to perform and fulfill all the terms,
covenants, conditions, and obligations required to be performed and fulfilled by
Assignor as Tenant under the Lease with respect to the Assigned Portion of the
Premises, including the making of all payments due to or payable on behalf of
Tenant with respect to the Assigned Portion of the Premises as they become due
and payable.

                   Section 4. Effect of Landlord's Consent.

     Landlord's consent to this Assignment shall not release or discharge
Assignor from performance of any of its obligations under the Lease, or release,
discharge or alter the primary liability of Assignor under the Lease to pay rent
and all other sums due from Assignor under the Lease.

                                       2
<PAGE>

                       Section 5. Assignor's Covenants.

     (a) Assignor covenants that the copy of the Lease attached as Exhibit A is
a true and accurate copy of the Lease as currently in effect and that there
exists no other agreement affecting Assignor's tenancy under the Lease.

     (b) Assignor covenants that the Lease is in full effect and no defaults
exist under the Lease, nor any acts or events which, with the passage of time or
the giving of notice or both, could become defaults.

                      Section 6.  Successors and Assigns.

     This Assignment shall be binding and inure to the benefit of the parties to
it, their heirs, executors, administrators, successors in interest, and assigns.

                           Section 7.  Miscellaneous.

     In the event Assignee wishes to extend the Lease and is willing to assume
responsibility for the 100% of the Assigned and Retained Portion of the
Premises, Assignor assigns and transfers to Assignees all of Assignor's right,
title, and interest in the Option to Renew referenced in Paragraph 40 of the
Master Lease.  In the event that Assignee subleases any portion of the Premises
to Assignor during the Option term, Assignee agrees to pay 100% of any such
profit derived by Assignee to Landlord from such sublet to Assignor, after
deducting reasonable costs such as the cost of alterations, legal fees, and
brokerage commissions.

     In the event any of the parking spaces are taken due to condemnation,
Assignee and Assignor agrees to reallocate the total number of remaining spaces
such that Assignee still has the right to use 3.6 spaces per 1000 square feet of
the assigned portion of the Premises.

                           Section 8.  Governing Law.

     This Assignment shall be governed by and construed in accordance with
California law.

     The parties have executed this Agreement as of the date first above
written.

ASSIGNOR:
--------

JTS CORPORATION
a Delaware corporation

By: /s/
   -------------------------

Its: President
    ------------------------

                                       3
<PAGE>

By: /s/
   -------------------------

Its: Chairman
    ------------------------

ASSIGNEE:
--------

OPTICAL NETWORKS, INC.
a California corporation

By: /s/ Hugh C. Martin
   -------------------------

Its: President
    ------------------------

By: /s/ Terrence J. Schmid
   -------------------------

Its:    CFO
    ------------------------

                              Consent of Landlord

     The undersigned, as Landlord under the Lease, consents to this Assignment
of the Assigned Portion of the Premises to Assignee, provided, however, that
notwithstanding this Assignment and the undersigned's consent to this
Assignment, Assignor shall remain primarily obligated as Tenant under the Lease
for the performance of all obligations under the Lease that are to be performed
by Tenant including the payment of rent and all other sums due from Tenant under
the Lease.

                                    CILKER REVOCABLE TRUST OF OCTOBER 9, 1990

                                    By: /s/ Leila A. Cilker
                                       ----------------------------------

                                    By: /s/ William H. Cilker
                                       ----------------------------------

                                    By: _________________________________

                                    By: _________________________________

                                       4
<PAGE>

                                   EXHIBIT A

                                     LEASE
                                     -----

                  (SINGLE-TENANT SINGLE BUILDING MODIFIED NET)

                                 by and between

                   CILKER REVOCABLE TRUST OF OCTOBER 9, 1990
                   -----------------------------------------

                                  ("Landlord")

                                      and

                                JT STORAGE, INC.
                                ----------------

                                   ("Tenant")

                    For the 52,000 Square Foot Premises at
                  166 Baypointe Parkway, San Jose, CA  95134
                  ------------------------------------------

                                       5

<PAGE>

                                 LEASE SUMMARY
                                 -------------

Lease Date:                               June 15, 1994
                                          ------------------------------

Landlord:                                 Cilker Revocable Trust
                                          ------------------------------
                                          of October 9, 1990
                                          ------------------------------

Address of Landlord:                      1631 Willow Street, Suite 225
                                          ------------------------------
                                          San Jose, CA 95125
                                          ------------------------------

Tenant:                                   JT Storage, Inc.
                                          ------------------------------

Address of Tenant:                        1289 Anvilwood
                                          ------------------------------
                                          Sunnyvale, CA 94086
                                          ------------------------------

Contact:                                  Burton R. Feldstein
                                          ------------------------------

Telephone:                                (408) 747-1315
                                          ------------------------------

Building Address:                         166 Baypointe Parkway
                                          ------------------------------
                                          San Jose, CA 95134
                                          ------------------------------

Premises Square Footage:                  52,000
                                          ------------------------------

Building Square Footage:                  52,000
                                          ------------------------------

Anticipated Commencement Date:            July 1, 1995
                                          ------------------------------

Term:                                     Five (5) Years
                                          ------------------------------

Base Monthly Rent:                        $40,820.00/month
                                          ------------------------------

Security Deposit:                         $46,020.00
                                          ------------------------------

Tenant's Percentage:                      100%
                                          ------------------------------

<PAGE>

                                     LEASE
                                     -----

                 (SINGLE TENANT SINGLE BUILDING MODIFIED NET)

                               Table of Contents
                               -----------------

PARAGRAPH                                                   PAGE
---------                                                   ----
     1     Parties                                            1
     2     Premises                                           1
     3     Definitions                                        1
     4     Lease Term                                         3
     5     Rent                                               3
     6     Late Payment Charges                               4
     7     Security Deposit                                   4
     8     Holding Over                                       5
     9     Tenant Improvements                                5
     10    Condition of Premises                              5
     11    Use of the Premises                                6
     12    Quiet Enjoyment                                    8
     13    Alterations                                        8
     14    Surrender of the Premises                          9
     15    Real Property Taxes                                9
     16    Utilities and Services                            10
     17    Repair and Maintenance                            11
     18    Liens                                             13
     19    Landlord's Right to Enter the Premises            13
     20    Signs                                             14
     21    Insurance                                         14
     22    Waiver of Subrogation                             16
     23    Damage or Destruction                             16
     24    Condemnation                                      18
     25    Assignment and Subletting                         19
     26    Default                                           20

                                       i

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     27    Subordination                                     22
     28    Notices                                           23
     29    Attorneys' Fees                                   23
     30    Estoppel Certificates                             23
     31    Transfer of the Premises by Landlord              24
     32    Landlord's Right to Perform Tenant's Covenants    24
     33    Tenant's Remedy                                   24
     34    Mortgagee Protection                              24
     35    Brokers                                           25
     36    Acceptance                                        25
     37    Modifications for Lender                          25
     38    Parking                                           25
     39    General                                           25
     40    Option to Renew                                   26
     41    Approvals                                         27
     42    Reasonable Expenditures                           28

                                      ii

<PAGE>

                               TABLE OF EXHIBITS
                               -----------------

          EXHIBIT A                       The Premises
          ---------

          EXHIBIT B                       The Property
          ---------

          EXHIBIT C                       Work Letter Agreement
          ---------

          EXHIBIT D                       Commencement Date Memorandum
          ---------

          EXHIBIT E                       CC&R'S
          ---------

                                      iii

<PAGE>

                                     LEASE
                                     -----

             (SINGLE TENANT BUILDING ON SINGLE-BUILDING PROPERTY)

     1.   Parties.
          -------

          THIS LEASE (the "Lease"), dated June 15, 1995, is entered into by and
between The Cilker Revocable Trust of October 9, 1990 ("Landlord"), whose
        ---------------------------------------------
address is 1631 Willow Street, Suite 225, San Jose, California 95125 and JT
                                                                         --
Storage, Inc., a Delaware corporation ("Tenant"), whose address is 1289
-------------------------------------
Anvilwood, Sunnyvale, California 94086.

     2.   Premises.  Landlord hereby leases to Tenant and Tenant hereby leases
          --------
from Landlord those certain premises consisting of approximately fifty two
                                                                  ---------
thousand (52,000) square feet, as shown in EXHIBIT "A" (the "Premises") in that
--------
certain building commonly known as 166 Baypointe Parkway (the "Building"), as
                                   ---------------------
further defined in Paragraph 3.B., in the City of San Jose, County of Santa
                                                  --------            -----
Clara (the "County"), California located on that certain real property
-----
consisting of approximately three and 4/100ths (3.04) acres as more particularly
                            -------------------------
described in EXHIBIT "B", (the "Property") together with a right to the Outside
             -----------
Area as defined in Paragraph 3.E.

     3.   Definitions:  The following terms shall have the following meanings in
          -----------
this Lease:

          A.  Alterations.  Any alterations, additions or improvements made in,
              -----------
on or about the Building or the Premises after the Commencement Date, including,
but not limited to, lighting, heating, ventilating, air conditioning,
electrical, partitioning, drapery and carpentry installations.

          B.  Building.  That certain building on the Property consisting of
              --------
approximately fifty two thousand (52, 000) square feet.
              ------------------  -------

          C.  CC&R's.  Those certain covenants, conditions and restrictions
              ------
recorded at Page 94 Book 1771 on August 2, 1984 of the official Records of Santa
Clara County, State of California, as attached hereto as EXHIBIT "E".
                                                         -----------

          D.  Commencement Date.  The Commencement Date of this Lease shall be
              -----------------
the first day of the Term determined in accordance with Paragraph 4.A.

          E.  Outside Area.  All areas and facilities within the Property and
              ------------
outside the Premises, including, without limitation, the roof, parking areas,
sidewalks, landscaped areas, service areas, trash disposal facilities, and
similar areas and facilities.

          F.  HVAC.  Heating, ventilating and air conditioning.
              ----

          G.  Interest Rate.  Ten percent (10%) per annum, however, in no event
              -------------
to exceed the maximum rate of interest permitted by law.

          H.  Landlord's Agents.  Landlord's authorized agents, partners,
              -----------------
subsidiaries, directors, officers, contractors and employees.

                                       1

<PAGE>

          I.  Base Monthly Rent.  The rent payable pursuant to Paragraph 5.A.,
              -----------------
as adjusted from time to time pursuant to the terms of this Lease.

          J.  Real Property Taxes.  Any form of association fee, assessment,
              -------------------
license, fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or
tax (other than net income, estate, succession, inheritance, transfer or
franchise taxes), imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government or any improvement
or other district or division thereof, whether such tax is: (i) determined by
the area of the Property or any part thereof or the rent and other sums payable
hereunder by Tenant or by other tenants, including, but not limited to, any
gross income or excise tax levied by any of the foregoing authorities with
respect to receipt of such rent or other sums due under this Lease; (ii) upon
any legal or equitable interest of Landlord in the Property or the Premises or
any part thereof; (iii) upon this transaction or any document to which Tenant is
a party creating or transferring any interest in the Property; (iv) levied or
assessed in lieu of, in substitution for, or in addition to, existing or
additional taxes against the Property whether or not now customary or within the
contemplation of the parties; or (v) surcharged against the parking area.  As of
the date hereof, the parties acknowledge that an association fee is levied
against the Premises.

          K.  Rent.  Monthly Rent plus the Additional Rent defined in Paragraph
              ----
5.B.

          L.  Security Deposit.  That amount paid by Tenant pursuant to
              ----------------
Paragraph 7.

          M.  Sublet.  Any transfer, sublet, assignment, license or concession
              ------
agreement, change of ownership, mortgage, or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or a portion of the Premises.

          N.  Subrent.  Any consideration of any kind received, or to be
              -------
received, by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to, bonus
money and payments (in excess of book value) for Tenant's assets including its
trade fixtures, equipment and other personal property, goodwill, general
intangibles, and any capital stock or other equity ownership of Tenant.

          O.  Subtenant.  The person or entity with whom a Sublet agreement is
              ---------
proposed to be or is made.

          P.  Tenant Improvements and Work Letter Agreement.  Those certain
              ---------------------------------------------
improvements to the Premises to be constructed by Landlord as outlined in the
Work Letter Agreement, pursuant to EXHIBITS "C" and "C-1".

          Q.  Tenant Improvements Allowance.  The cost allowance provided by
              -----------------------------
Landlord for the construction of the Tenant Improvements as further described in
EXHIBIT "C".

          R.  Tenant's Percentage.  The percentage of the area of the Premises
              -------------------
to the total area of the Building. Tenant's Percentage is agreed to be one
                                                                       ---
hundred percent (100%) for the purpose of this Lease.
-------          ---

          S.  Tenant's Personal Property.  Tenant's trade fixtures, furniture,
              --------------------------
telephone and computer equipment and cabling equipment and other personal
property in the Premises.

          T.  Term.  The term of this Lease set forth in Paragraph 4.A., as it
              ----
may be extended hereunder pursuant to any options to extend granted herein.

                                       2
<PAGE>

     4.   Lease Term.
          ----------

          A.  Term.  The Term of this Lease shall be a period of five (5) years,
              ----                                               --------
beginning on the Commencement Date of July 1, 1995 (subject to Paragraph 5.A of
                                      ------------
the Work Letter Agreement), and terminating on June 30, 2000, unless sooner
                                               -------------
terminated, subject to any extensions granted hereunder. Tenant agrees that if
Landlord, for any reason whatsoever, is unable to deliver possession of the
Premises on the anticipated Commencement Date, Landlord shall not be liable to
Tenant for any loss or damage therefrom, nor shall this Lease be void or
voidable. In such event, the Commencement Date, termination date and all other
dates of this Lease shall be extended to conform to the date of Landlord's
tender of possession of the Premises to Tenant, in the condition required by
Paragraph 5.A of the Work Letter Agreement, and Tenant shall not be obligated to
pay Monthly Rent or other sums due Landlord hereunder until possession of the
Premises is tendered to Tenant as provided therein. If the Commencement Date is
delayed beyond the anticipated Commencement Date for any reason other than a
delay by Tenant, Landlord shall use all reasonable efforts to accommodate
occupancy in that portion of the second floor of the Premises which is ready for
occupancy which occupancy shall be on all terms and conditions set forth herein,
except for the payment of Monthly Rent and Additional Rent.

          B.  Early Entry.  Tenant will be permitted access to the Premises
              -----------
prior to the Commencement Date for the purpose of fixturing or any other purpose
permitted by Landlord. Such early entry shall be at Tenant's sole risk and
subject to all the terms and provisions hereof, except for the payment of
Monthly Rent and Additional Rent. Landlord shall have the right to impose such
reasonable additional conditions on Tenant's early entry as Landlord shall deem
appropriate, and shall further have the right to require that Tenant execute an
early entry agreement containing such conditions prior to Tenant's early entry.

          C.  Termination.  Either party, at its option, may terminate this
              -----------
Lease by giving written notice of its election to terminate to the other party
if the Commencement Date has not occurred on or before September 1, 1995,
                                                       -----------------
through no fault of the terminating party and provided that the party seeking to
terminate this Lease has used its best efforts to perform the obligations of
such party which are required to be performed in advance of the Commencement
Date.

     5.   Rent.
          ----

          A.  Base Monthly Rent. Tenant shall pay to Landlord, in lawful money
              -----------------
of the United States, for each calendar month of the Term, commencing on the day
fifteen (15) days after the Commencement Date (the "Rent Start Date"), Base
Monthly Rent in the amount set forth below, in advance, on the first day of each
calendar month, without abatement, deduction, claim, offset, prior notice or
demand. Additionally, Tenant shall pay, as and with the Base Monthly Rent, the
estimated monthly Additional Rent as set forth in Paragraph 5.B herein, as
adjusted from time to time hereunder. Tenant shall deposit with Landlord upon
mutual execution of this Lease the sum of Forty Thousand Eight Hundred Twenty
                                          -----------------------------------
and no/100ths Dollars ($40,820.00) to be applied to the Base Monthly Rent for
---------------------
the first month for which it is due. Tenant shall pay the Base Monthly Rent on
the amount and for the months set forth below, and otherwise as provided in this
Paragraph 5.A:

          Base Monthly Rent  Months 01 - 24    $40,820.00
                             Months 25 - 48    $43,420.00
                             Months 49 - 60    $46,020.00

          B.  Additional Rent.  All monies required to be paid by Tenant under
              ---------------
this Lease, including, without limitation, Real Property Taxes pursuant to
Paragraph 15., Outside Area Expenses

                                       3
<PAGE>

pursuant to Paragraph 17., insurance premiums pursuant to Paragraph 21., and any
association fee shall be deemed Additional Rent.

          C.  Prorations.  If the Commencement Date is not the first (1st) day
              ----------
of a month, or if the termination date of this Lease is not the last day of a
month, a prorated installment of Monthly Rent based on a thirty (30) day month
shall be paid for the fractional month during which the Lease commences or
terminates.

     6.   Late Payment Charges.
          --------------------

          Tenant acknowledges that late payment by Tenant to Landlord of Rent
and other charges provided for under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult or impracticable to fix.  Therefore, if any installment of
Rent or any other charge due from Tenant is not received by Landlord within five
(5) days after such amount shall be due and after Landlord has made a reasonable
effort to contact Tenant regarding such late payment, Tenant shall pay to
Landlord an additional sum equal to five percent (5%) of the amount overdue as a
late charge for every month or portion thereof that the Rent or other charges
remain unpaid.  The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of the late
payment by Tenant.

Initials:
--------

_________________________________         ____________________________________
Landlord                                  Tenant

     7.   Security Deposit.
          ----------------

          Tenant shall deposit with Landlord upon execution the sum of Forty Six
                                                                       ---------
Thousand Twenty and no/100/th/ Dollars ($46,020.00) as the Security Deposit for
------------------------------           ---------
the full and faithful performance of every provision of this Lease to be
performed by Tenant.  If Tenant commits an event of default as defined in
Paragraph 26 hereof, with respect to any provision of this Lease, and after the
period to cure the default has elapsed, Landlord may apply all or any part of
the Security Deposit for the payment of any rent or other sum in default, the
repair of such damage to the Premises or the payment of any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default or
to compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default to the full extent permitted by law. If any portion
of the Security Deposit is so applied, Tenant shall, within ten (10) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, however,
Tenant shall be entitled to interest on the Security Deposit. If Tenant is not
otherwise in default pursuant to Paragraph 14 herein, so much of the Security
Deposit as has not been properly applied hereunder, including interest, shall be
returned to Tenant within thirty (30) days of termination of the Lease.

     8.   Holding Over.
          ------------

          If Tenant remains in possession of all or any part of the Premises
after the expiration of the Term, with the express or implied consent of
Landlord, such tenancy shall be month-to-month only and shall not constitute a
renewal or extension for any further term.  If Tenant remains in possession
either with or without Landlord's consent, Base Monthly Rent shall be increased
to an amount equal to one hundred twenty-five percent (125%) of

                                       4
<PAGE>

the Base Monthly Rent payable during the last month of the Term, and any other
sums due under this Lease shall be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy shall be subject to every
other term, condition, and covenant contained herein. If Tenant fails to
surrender the Premises upon the expiration of the Term despite demand to do so
by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or
liability, including without limitation any claim made by a succeeding tenant,
resulting from Tenant's failure to surrender.

     9.   Tenant Improvements.
          -------------------

          Landlord agrees to construct such Tenant Improvements pursuant to the
terms of Exhibits "C" and "C-1" herein.

     10.  Condition of Premises.
          ---------------------

          Landlord represents and warrants that, as of the Commencement Date,
the Premises and all elements of the Premises, including the sidewalks,
driveways, parking lot, mechanical, electrical, plumbing, truck doors, roof and
roofing system (including roof membrane) will be in good operating condition and
repair. Any damage to the Premises caused by Tenant's move-in shall be repaired
or corrected by Tenant, at its expense. Tenant acknowledges that neither
Landlord nor its Agents have made any representations or warranties as to the
suitability or fitness of the Premises for the conduct of Tenant's business or
for any other purpose, nor has Landlord or its Agents agreed to undertake any
Alterations or construct any Tenant Improvements to the Premises except as
expressly provided in this Lease. If Tenant fails to submit a punchlist to
Landlord within forty-five (45) days of occupancy or lease commencement,
whichever is sooner, then it shall be deemed that there are no Tenant
Improvement items needing additional work or repair, other than as may be
required because of latent defects or conditions which were not reasonably
discoverable by Tenant. Landlord's contractor shall complete all reasonable
punchlist items within forty-five (45) days after the walk-through inspection or
as soon as practicable thereafter. Upon completion of such punchlist items,
Tenant shall approve such completed items in writing to Landlord. If Tenant
fails to approve such items within fourteen (14) days of written notice of
completion, such items shall be deemed approved by Tenant.

     11.  Use of the Premises.
          -------------------

          A.  Tenant's Use.  Tenant shall use the Premises solely for
              ------------
office/R&D, light manufacturing, test & assembly, engineering, distribution &
storage and shall not use the Premises for any other purpose without obtaining
the prior written consent of Landlord.  Tenant shall have the exclusive use of
all Outside Areas on the Property, subject only to the reasonable requirements
of Landlord to perform Landlord's obligations, or exercise the rights reserved
to Landlord, hereunder.

          B.  Compliance.
              ----------

              (i) The parties acknowledge that the Premises consist, in part, of
the existing Building which may not comply with legal and other requirements
which would be applicable to buildings newly-constructed as of the date of this
Lease. Subject to that limitation, Landlord represents and warrants that to the
best of his knowledge, as of the Commencement Date, no condition on, in or about
the Premises or the Property, or any improvements thereon, shall violate any
requirements of covenants, conditions, restrictions and encumbrances ("CC&R's"),
insurance underwriter's requirements, or any rules, regulations, statutes,
ordinances, laws or building codes, (collectively, "Laws") applicable thereto,
including current building code requirements for seismic and structural
strength, the Americans with Disabilities Act of 1990, as amended, or Title 24.

                                       5
<PAGE>

              Tenant shall not use the Premises or suffer or permit anything to
be done by any agent, employee, contractor or invitee of Tenant, in or about the
Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental law, rule, regulation or requirement of
public authorities now in force or which may hereafter be in force, or relating
to or affecting the condition, use or occupancy of the Premises. Tenant shall
not commit any public or private nuisance or any other act or thing which might
or would disturb the quiet enjoyment of any occupant of nearby property. Tenant
shall place no loads upon the floors, walls or ceilings in excess of the maximum
designed load determined by Landlord or which endanger the structure; nor place
any harmful liquids in the drainage systems; nor dump or store waste materials
or refuse or allow such to remain outside the Building proper, except in the
enclosed trash areas provided. Tenant shall not store or permit to be stored or
otherwise placed any other material of any nature whatsoever outside the
Building. If applicable Laws, CC&R's or insurance underwriter's requirements
require the construction of any improvement on, in or about the Premises which
would properly be capitalized under generally acceptable accounting principles
(a "Capital Improvement"), except as provided below, Landlord shall construct
the Capital Improvement and, provided that the cost of such Capital Improvement
is properly reimbursable by Tenant hereunder, Tenant shall pay to Landlord, with
each monthly installment of Base Rent coming due after completion of the Capital
Improvement in question and receipt of Landlord's statement of the cost
therefor, an amount equal to the cost of such Capital Improvement amortized over
its useful life (as reasonably determined by the manufacturer or supplier of the
item in question, where applicable in equal monthly installments, until the
earlier of the expiration of the term of this Lease or the end of the useful
life of the Capital Improvement. If applicable Laws, CC&R's or insurance
underwriter's requirements require the construction of any Capital Improvement
as the result of a particular or unique use of the Premises made by Tenant,
Tenant shall construct such Capital Improvement at its sole cost. Tenant shall
not be required to construct or pay the cost of complying with any CC&R's,
insurance underwriter's requirements or Laws regarding the presence of hazardous
or toxic materials, unless the hazardous or toxic materials in question were
stored, used or disposed of by Tenant, its agents, employees or contractors on
or about the Premises.

          (ii) In particular, Tenant, at its sole cost, shall comply with all
laws relating to the storage, use and disposal of hazardous, toxic or
radioactive matter by Tenant, its agents, employees or contractors, including
those materials identified in Sections 66680 through 66685 of Title 22 of the
California Code of Regulations, Division 4, Chapter 30 as they may be amended
from time to time (collectively "Toxic Materials"). If Tenant does store, use or
dispose of any Toxic Materials, Tenant shall notify Landlord in writing at least
ten (10) days prior to their first appearance on the Premises. Tenant shall be
solely responsible for and shall defend, indemnify and hold Landlord and its
Agents harmless from and against all claims, costs and liabilities, including
attorneys' fees and costs, arising out of or in connection with its storage, use
and disposal of Toxic Materials by Tenant, its agents, employees or contractors.
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 attorneys' fees and costs, arising out of or in
connection with the removal, clean-up and restoration work and materials
necessary to comply with the requirements of the governmental agency having
jurisdiction over the removal or remediation of the materials involved, and
return the Premises and any other property of whatever nature to their condition
existing prior to the appearance of the Toxic Materials on the Premises. If any
governmental agency or the beneficiary of any deed of trust covering the
Property requires any testing of the Premises or the

                                       6
<PAGE>

Property, including the soil or groundwater of the Property, to ascertain
whether there has been any release of Toxic Materials in, on or about the
Premises or the Property, Landlord shall have the right to install monitoring
wells on or about the Outside Area and to perform such other tests and
investigations of the Premises and the Property for such purpose. Tenant shall
reimburse Landlord as Additional Rent for the reasonable cost of such tests and
investigations and of the installation, maintenance, repair and replacement of
such monitoring wells or other measuring devices if the results of such tests
and investigations disclose the existence of facts which give rise to the
liability of Tenant pursuant to the indemnity provisions of this Paragraph
11.B(ii). Tenant's obligations hereunder shall survive the termination of this
Lease. Landlord represents and warrants that to the best of his knowledge it has
provided true, accurate and complete copies of all reports, studies, assessments
and other materials or correspondence provided to Landlord or prepared by any
third party in connection with the investigation of the Property for the
presence of Toxic Materials.

          Landlord shall hold Tenant harmless from and against all claims,
costs, and liabilities, including attorneys' fees and costs, arising out of or
in connection with the presence of any Toxic Materials on or about the Property,
from any source other than those Toxic Materials for which Tenant or Tenant's
agents are responsible hereunder.

     12.  Quiet Enjoyment.
          ---------------

          Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under Landlord.

     13.  Alterations.
          -----------

          After the Commencement Date, Tenant shall not make or permit any
Alterations in, on or about the Premises, except for non structural Alterations
not exceeding Twenty-Five Thousand Dollars ($25,000.00) in cost, without the
prior written consent of Landlord, and according to plans and specifications
approved in writing by Landlord, which consent shall not be unreasonably
withheld.  Notwithstanding the foregoing Tenant shall not, without the prior
written consent of Landlord, make any:

          (i)     Alterations to the exterior of the Building;

          (ii)    Alterations to and penetrations of the roof of the Building
(provided that Tenant shall be entitled to install such satellite dishes or
antennae the placement of which on the roof is reasonably necessary in the
conduct of Tenant's business in the Premises, subject to the reasonable
requirements of Landlord; and

          (iii)   Alterations visible from outside the Premises, including
Common Area, to which Landlord may withhold Landlord's consent on wholly
aesthetic grounds. All Alterations shall be installed at Tenant's sole expense,
in compliance with all applicable laws and the CC&R's, by a licensed contractor,
shall be done in a good and workmanlike manner conforming in quality and design
with the Premises existing as of the Commencement Date. All Alterations, trade
fixtures and Tenant's Personal Property installed in the Premises at Tenant's
expense ("Tenant's Property") shall at all times remain Tenant's Property and
Tenant shall be entitled to all depreciation, amortization and other tax
benefits with respect thereto. Except for Alterations which cannot be removed
without injury to the Premises, at any time Tenant may remove Tenant's Property
from the Premises, provided Tenant repairs all damage caused by such removal. At
the time that Landlord consents to any proposed

                                       7
<PAGE>

Alteration, and otherwise, within fifteen (15) days of written request, Landlord
shall advise Tenant in writing whether it will require Tenant to remove any
Alterations from the Premises upon termination of the Lease. If Landlord fails
to so advise Tenant at the time that Landlord consents to any proposed
Alteration, or in response to a written request, Landlord shall be deemed to
have consented to the Alterations in question remaining in the Premises upon
termination of the Lease. Tenant shall not be liable for removal of any approved
alterations which enhance the structural integrity and future use of the
building. Notwithstanding any other provision of this Lease, Tenant shall be
solely responsible for the maintenance and repair of any and all Alterations
made by Tenant to the Premises. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result in any
claim of lien at least twenty (20) days prior to the commencement of such work
to enable Landlord to post and record a Notice of Nonresponsibility or other
notice deemed proper before the commencement of any such work.

     14.  Surrender of the Premises.
          -------------------------

          Upon the expiration or earlier termination of the Term, Tenant shall
surrender the Premises to Landlord in its condition existing as of the
Commencement Date, normal wear and tear and fire or other casualty, or other
condition which is not the obligation of Tenant to correct, excepted, with all
interior walls repaired and repainted if marked or damaged, all carpets
shampooed and cleaned, the HVAC equipment serviced and repaired by a reputable
and licensed service firm, all floors cleaned and waxed, all broken, marred or
nonconforming acoustical ceiling tiles replaced, all windows washed, the
plumbing and electrical systems and lighting in good order and repair, including
replacement of any burned out or broken light bulbs or ballasts, the lawn and
shrubs in good condition including the replacement of any dead or damaged
plantings, and the sidewalk, driveways and parking areas in good order,
condition and repair, all to the reasonable satisfaction of Landlord. Tenant
shall remove from the Premises all of Tenant's Alterations required to be
removed pursuant to Paragraph 13., and all Tenant's Personal Property and repair
any damage and perform any restoration work caused by such removal. Subject to
the provisions of Paragraph 13 above, Landlord shall notify Tenant of the items
to be removed and/or restored within one hundred (100) days prior to the
expiration of the lease term. If Tenant fails to remove such Alterations and
Tenant's Personal Property, and such failure continues after the termination of
this Lease, Landlord may retain such property and all rights of Tenant with
respect to it shall cease, or Landlord may place all or any portion of such
property in public storage for Tenant's account. Tenant shall be liable to
Landlord for costs of removal of any such Alterations and Tenant's Personal
Property and storage and transportation costs of same, and the cost of repairing
and restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Landlord. If the Premises are not so surrendered at the
termination of this Lease, Tenant shall indemnify Landlord and its Agents
against all loss or liability, including attorneys' fees and costs resulting
from delay by Tenant in so surrendering the Premises.

          Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of reasonable standards for
maintenance, repair and janitorial practices. It is not intended, nor shall it
be construed, to include items of neglected or deferred maintenance which would
have or should have been attended to during the Term of the Lease if reasonable
standards had been applied to properly maintain and keep the Premises at all
times in good condition and repair.

                                       8
<PAGE>

     15.  Real Property Taxes.
          -------------------

          A.  Payment by Tenant.  On or before April 1 and December 1 of each
              -----------------
calendar year during the Term, Tenant shall pay to Landlord, as Additional Rent,
all Real Property Taxes and Assessment District taxes as set forth on the County
assessor's tax statement for the Premises. Landlord shall give Tenant at least
fifteen (15) days' prior written notice of the amount so due, including a copy
of the tax statement. Upon Landlord's receipt of the Real Property Tax payment
from Tenant, Landlord shall pay the taxes to the County. If Tenant fails to pay
Tenant's Percentage of the Real Property Taxes on or before April 1 and December
1, respectively, Tenant shall pay to Landlord any penalty incurred by such late
payment. Tenant shall pay Tenant's Percentage of any Real Property Tax not
included within the County tax assessor's tax statement within ten (10) days
after being billed for same by Landlord. The foregoing dates for payment are
based on the dates currently established by the County as the dates on which
Real Property Takes become delinquent if not paid. If such delinquency dates
change, the dates on which Tenant must pay such taxes shall be at least ten (10)
days prior to the delinquency dates. Notwithstanding the foregoing, at any time,
upon prior written notice to Tenant, Landlord shall have the right to require
that Tenant pay one-twelfth (1/12th) of the Real Property Taxes payments to
Landlord directly, on the first (1st) day of each calendar month. Assessments,
taxes, fees, levies and charges may be imposed by governmental agencies for such
purposes as fire protection, street, sidewalk, road, utility construction and
maintenance, refuse removal and for other governmental services which may
formerly have been provided without charge to property owners or occupants. It
is the intention of the parties that all new and increased assessments, taxes,
fees, levies and charges are to be included within the definition of Real
Property Taxes for purposes of this Lease.

          B.  Taxes on Tenant Improvements and Personal Property.  Tenant shall
              --------------------------------------------------
pay any increase in Real Property Taxes resulting from any and all Alterations
and Tenant Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant.  Tenant shall pay
prior to delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises or elsewhere.  When possible, Tenant shall
cause its Personal Property to be assessed and billed separately from the real
or personal property of Landlord.

          C.  Proration.  Tenant's liability to pay Real Property Taxes shall be
              ---------
prorated on the basis of a 365-day year to account for any fractional portion of
a fiscal tax year included at the commencement or expiration of the Term.  With
respect to any assessments which may be levied against or upon the Premises, or
which under the laws then in force may be evidenced by improvements or other
bonds or may be paid in annual installments, only the amount of such annual
installment (with appropriate proration for any partial year) and interest due
thereon shall be included within the computation of the annual Real Property
Taxes levied against the Premises.

     16.  Utilities and Services.
          ----------------------

          Tenant shall be responsible for and shall pay promptly all charges for
water, gas, electricity, computer and telephone cabling and equipment, refuse
pickup, janitorial service and all other utilities, materials and services
furnished directly to or used by Tenant in, on or about the Premises during the
Term, together with any taxes thereon. Tenant shall be responsible for all costs
related to excessive intentional or unintentional use of water as determined by
Landlord. Landlord shall not be liable in damages or otherwise for any failure
or interruption of any utility service or other service furnished to the
Premises, except

                                       9
<PAGE>

that resulting from the negligence or willful misconduct of Landlord, or
Landlord's Agents. In addition, Tenant shall not be entitled to any abatement or
reduction of Rent by reason of such failure or interruption, no eviction of
Tenant shall result from such failure or interruption and Tenant shall not be
relieved from the performance of any covenant or agreement in this Lease because
of such failure or interruption except to the extent attributable to the
negligence or willful misconduct of Landlord, or Landlord's Agents.

     17.  Repair and Maintenance.
          ----------------------

          A.   Building.
               --------

               (i)     Landlord's Obligations. Landlord shall keep in good
                       ----------------------
order, condition and repair the structural parts of the Building, which
structural parts include only the roof, the roof surface membrane (to be
reimbursed by Tenant, except as otherwise provided herein), exterior walls,
foundation and subflooring of the Building, except for any damage thereto caused
by the negligence or willful acts or omissions of Tenant or of Tenant's agents,
employees or invitees, or by reason of the failure of Tenant to perform or
comply with any terms in this Lease, or caused by Alterations made by Tenant or
by Tenant's agents, employees or contractors. Except as otherwise reasonably
apparent to Landlord, or part of the regularly scheduled repair or maintenance
of the Property, it is an express condition precedent to all obligations of
Landlord to repair and maintain that Tenant shall have notified Landlord of the
need for such repairs or maintenance.

               (ii)    Tenant's Obligations. Tenant shall at all times and at
                       --------------------
its own expense clean, keep and maintain in good order, condition and repair
every part of the Premises which is not within Landlord's obligation pursuant to
Paragraph 17.A.(i), except for any damage thereto caused by the negligence or
willful acts or omissions of Landlord or Landlord's Agents. Tenant's repair and
maintenance obligations shall include, all plumbing and sewage facilities within
the Premises, fixtures, interior walls and ceiling, floors, windows, doors,
entrances, plateglass, showcases, skylights, all electrical facilities and
equipment, including lighting fixtures, lamps, fans and any exhaust equipment
and systems, any automatic fire extinguisher equipment within the Premises,
electrical motors and all other appliances and equipment of every kind and
nature located in, upon or about the Premises. Landlord will obtain HVAC systems
preventive maintenance contracts with quarterly service in accordance with
manufacturer recommendations, which shall be subject to the reasonable approval
of Landlord and paid for by Tenant, and which shall provide for and include
replacement of filters, oiling and lubricating of machinery, parts replacement,
adjustment of drive belts, oil changes and other preventive maintenance
including annual maintenance of duct work, interior unit drains and caulking at
sheet metal and recaulking of jacks and vents. Tenant shall have the benefit of
all warranties available to Landlord regarding the equipment in such HVAC
systems. The cost of any repair or replacement of Capital Equipment in or on the
Premises, including but not limited to the roof and HVAC equipment, shall be
amortized over the useful life of the Equipment, as established by the
manufacturer or supplier of such an item, but in no event to exceed fifteen (15)
years. Such amortization shall be based on the Tenant paying for a pro rata
share of such cost by taking the remaining Lease Term and dividing it by the
useful life, but in no case shall this ratio exceed 100%. If Tenant extends this
Lease, it will reimburse Landlord for any unamortized portion of this cost
during that extension, and any other portions of the Premises to be maintained
by Tenant.

               Notwithstanding the foregoing, Tenant shall have no obligation to
perform any item of repair or maintenance, or to pay

                                      10
<PAGE>

any cost as part of Outside Area Expenses, as defined below, or otherwise, which
is: (i) necessitated by the acts or omissions of Landlord or Landlord's Agents;
(ii) occasioned by fire, acts of God or other casualty; (iii) required as a
consequence of any construction defect in the Premises; (iv) reimbursable by
third parties; or (v) properly treated as a Capital Improvement (except as
provided below).

          B.   Outside Area.
               ------------

               (i)     Landlord's Obligations. Landlord shall maintain the
                       ----------------------
Outside Area including those portions of the Building within the Outside Area,
including the roof (subject to Tenant's obligation to pay for annual roof
inspection and repair as set forth in Paragraph 17.B.(ii), and exterior walls
(excluding the doors, ceiling and plateglass). Provided Landlord maintains the
Property in a condition comparable to similarly situated buildings in the
vicinity of the Premises, the manner in which the Outside Area shall be
maintained and the expenditures therefor shall be at the sole discretion of
Landlord. As required to perform the obligations of Landlord hereunder, or in
the exercise of the rights reserved to Landlord, Landlord shall at all times
have exclusive control of the Outside Area and may at any time temporarily close
any part thereof, exclude and restrain anyone from any part thereof, except the
bona fide customers, employees and invitees of Tenant who use the Outside Area
in accordance with the rules and regulations as Landlord may from time to time
promulgate, and may change the configuration or location of the Outside Area. In
exercising any such rights, Landlord shall make a reasonable effort to minimize
any disruption of Tenant's business.

               (ii)    Tenant to Pay Outside Area Expenses. Tenant shall pay, as
                       -----------------------------------
Additional Rent, Tenant's Percentage of all reasonable costs and expenses paid
or incurred by Landlord during the Term in maintaining, repairing and replacing
the Outside Area, including annual roof inspections and preventive maintenance
work on the roof, and a reasonable management fee for Landlord's property
manager which management fee shall be $0.02/square foot/month subject to annual
CPI adjustments during the term of the Lease (the "Outside Area Expenses").
Landlord shall provide Tenant a reasonably detailed Budget summary of the costs
which constitute Outside Area Expenses on an annual basis, together with copies
of invoices for the costs incurred. If any Outside Area Expense would properly
be considered a Capital Improvement, Landlord shall construct the item in
question, and, provided that the cost of such Capital Improvement is properly
reimbursable by Tenant hereunder, Tenant shall pay to Landlord, with each
monthly installment of Base Rent coming due after completion of the Capital
Improvement in question and receipt of Landlord's statement of the cost
therefor, an amount equal to the cost of such Capital Improvement amortized over
its useful life (as reasonably determined by the manufacturer or supplier of the
item in question, where applicable) in equal monthly installments, until the
earlier of the expiration of the term of this Lease or the end of the useful
life of the Capital Improvement.

               (iii)   Monthly Payments. From and after the Rent Start Date,
                       ----------------
Tenant shall pay to Landlord on the first day of each calendar month of the Term
a monthly amount based upon the Budget estimated by Landlord for the Outside
Area Expenses. The foregoing estimated monthly charge may be adjusted by
Landlord at the end of any calendar quarter on the basis of Landlord's
experience and reasonably anticipated costs. Any such adjustment shall be
effective as of the calendar month next succeeding receipt by Tenant of written
notice of such adjustment provided Tenant has received at least thirty (30)
days' notice of the adjustment before it is due. Within one hundred twenty (120)
days following the end of each calendar year Landlord shall furnish Tenant a
statement of the actual Outside Area Expenses

                                      11
<PAGE>

("Actual Expenses") for the calendar year and the payments made by Tenant with
respect to such period. If Tenant's payments for the Outside Area Expenses do
not equal the amount of the Actual Expenses, Tenant shall pay Landlord the
deficiency within thirty (30) days after receipt of such statement. If Tenant's
payments exceed the Actual Expenses, Landlord shall either offset the excess
against the Outside Area Expenses next thereafter to become due to Landlord, or
shall refund the amount of the overpayments to Tenant, in cash, as Landlord
shall elect. There shall be appropriate adjustments of the Outside Area Expenses
as of the Commencement Date and expiration of the Term. Landlord shall make the
books and records concerning the calculation of Outside Area Expenses available
to Tenant for inspection during normal business hours at a location reasonably
convenient to the Premises. If Tenant's review of those books and records
indicates that the charge for Outside Area Expenses requested by Landlord
exceeds the actual amount due, Landlord shall promptly reimburse to Tenant any
overcharge.

          C.   Compliance with Governmental Regulations.  Subject to Paragraph
               ----------------------------------------
11.B above, Tenant shall comply with, including the making by Tenant of any
Alteration to the Premises, all present and future regulations, rules, laws,
ordinances, and requirements of all governmental authorities (including, without
limitation, state, municipal, county and federal governments and their
departments, bureaus, boards and officials) arising from the use or occupancy
of, or applicable to, the Premises or privileges appurtenant to or in connection
with the enjoyment of the Premises. Any such capital expenditures shall be
amortized over its useful life, and Tenant shall pay in monthly installments
during each year of the lease term that portion of such amortized expenditure
that is allocable to such year.

     18.  Liens.
          -----

          Tenant shall keep the Building and the Property free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant and hereby indemnifies and holds Landlord and its
Agents harmless from all liability and cost, including attorneys' fees and
costs, in connection with or arising out of any such lien or claim of lien.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of a proper bond acceptable to Landlord within ten (10) days after
written request by Landlord. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result in any
claim of lien at least ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility. If Tenant
fails to so remove any such lien within the prescribed ten (10) day period, then
Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord as
Additional Rent for such amounts upon demand. Such reimbursement shall include
all costs incurred by Landlord including Landlord's reasonable attorneys' fees
with interest thereon at the Interest Rate.

     19.  Landlord's Right to Enter the Premises.
          --------------------------------------

          Tenant shall permit Landlord and its Agents to enter the Premises at
all reasonable times with reasonable notice, except for emergencies in which
case no notice shall be required, to inspect the same, to post Notices of
Nonresponsibility and similar notices and "For Sale" signs, to show the Premises
to interested parties such as prospective lenders and purchasers, to make
necessary repairs, to discharge Tenant's obligations hereunder when Tenant has
failed to do so within a reasonable time after written notice from Landlord, and
at any reasonable time within one hundred eighty (180) days prior to the
expiration of the Term, to place upon the Premises ordinary "For Lease" signs
and to show the Premises to prospective tenants. The above rights are subject

                                      12
<PAGE>

to reasonable security regulations of Tenant and to the requirement that
Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's business.

     20.  Signs.
          -----

          Tenant shall have the right to erect and maintain a Tenant
identification sign in, on or about the Building, Outside Area or the Premises
or other advertising material that is visible from the exterior of the Building
with Landlord's consent, which shall not be unreasonably withheld. The size,
design, color and other physical aspects of the Tenant identification sign shall
be subject to the Landlord's written approval prior to installation, which shall
not be unreasonably withheld, and any appropriate municipal or other
governmental approvals. The cost of the sign, its installation, maintenance and
removal expense shall be at Tenant's sole expense. If Tenant fails to maintain
its sign, or, if Tenant fails to remove its sign upon termination of this Lease,
Landlord may do so at Tenant's expense and Tenant's reimbursement to Landlord
for such amounts shall be deemed Additional Rent.

     21.  Insurance.
          ---------

          A.   Indemnification.  Tenant hereby agrees to defend, indemnify and
               ---------------
hold harmless Landlord and its Agents from and against any and all damage, loss,
liability or expense including attorneys' fees and legal costs suffered
directly, or by reason of any claim, suit or judgment brought by or in favor of
any person or persons for damage, loss or expense due to, but not limited to,
bodily injury and property damage sustained by such person or persons which
arises out of, is occasioned by or in any way attributable to the use or
occupancy of the Premises or any part thereof by Tenant, the acts or omissions
of the Tenant, its agents, employees or any contractors or invitees brought onto
the Premises by the Tenant, except to the extent caused by the negligence or
willful misconduct of Landlord or its Agents. Tenant agrees that the obligations
assumed herein shall survive this Lease.

          Landlord shall indemnify and hold harmless Tenant from all damages,
liabilities, claims, judgments, actions, attorneys' fees, consultants' fees,
cost and expenses arising from the negligence or willful misconduct of Landlord
or its employees, agents, contractors or invitees, or the breach of Landlord's
obligations or representations under this Lease.

          B.   Tenant's Insurance.  Tenant agrees to maintain in full force and
               ------------------
effect at all times during the Term, at its own expense, for the protection of
Tenant and Landlord, as their interests may appear, policies of insurance issued
by a responsible carrier or carriers acceptable to Landlord which afford the
following coverages:

               (i)     Commercial general liability insurance in an amount not
less than Three Million and no/100ths Dollars ($3,000,000.00) combined single
limit for both bodily injury and property damage which includes blanket
contractual liability broad form property damage, personal injury, completed
operations, products liability, and fire damage legal (in an amount not less
than Fifty Thousand and no/100ths Dollars ($50,000.00), naming Landlord and its
Agents as additional Insureds.

               (ii)    "Special Risk" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler
leakage endorsement) on Tenant's Personal Property located on or in the
Premises. Such insurance shall be in the full amount of the replacement cost, as
the same may from time to time increase as a result of inflation or otherwise,
and shall be in a form providing

                                      13
<PAGE>

coverage comparable to the coverage provided the standard ISO All-Risk form. As
long as this Lease is in effect, the proceeds of such policy shall be used for
the repair or replacement of such items so insured. Landlord shall have no
interest in the insurance upon Tenant's Personal Property.

               (iii)   Boiler and machinery insurance, including but not limited
to, steam pipes, pressure pipes, condensation return pipes and other pressure
vessels and HVAC equipment, including miscellaneous electrical apparatus, in an
amount satisfactory to Landlord.

          C.   Premises Insurance.  During the Term Landlord shall maintain
               ------------------
"Special Risk" property insurance (including inflation endorsement, sprinkler
leakage endorsement, earthquake and flood coverage) on the Premises, excluding
coverage of all Tenant's Personal Property on or in the Premises, but including
the Building and any Tenant Improvements. Such insurance shall also include
insurance against loss of rents on a "Special Risk" basis, including earthquake
and flood, in an amount equal to the Monthly Rent and Additional Rent, and any
other sums payable under the Lease, for a period of at least twelve (12) months
commencing on the date of loss. Such insurance shall name Landlord and its
Agents as named insureds and include a lender's loss payable endorsement in
favor of Landlord's lender (Form 438 BFU Endorsement). Subject to the remaining
provisions of this Lease, Tenant shall reimburse Landlord for the costs of such
policy, annually, or upon such other periodic basis as Landlord shall elect,
within fifteen (15) days of the date of receipt of a statement for the same, as
Additional Rent. If the insurance premiums are increased after the Commencement
Date, Tenant shall pay such increase within fifteen (15) days of notice of such
increase.

               Nothing herein will require Tenant to reimburse to Landlord that
portion of insurance premiums attributable to earthquake coverage which exceeds,
in any one year, a commercially reasonable amount. The parties agree, without
limitation, that, if insurance premiums attributable to earthquake coverage
exceed three (3) times the premiums payable for casualty insurance, such cost
will be deemed in excess of a commercially reasonable amount and providing the
lien holder has waived the requirement for such coverage.

          D.   Increased Coverage.  Upon demand, Tenant shall provide Landlord,
               ------------------
at Tenant's expense, with such increased amount of existing insurance, and such
other insurance as the holder of a first deed of trust on the Property may
reasonably require to afford Landlord and Landlord's lender adequate protection.

          E.   Co-Insurer.  If, on account of the failure of Tenant to comply
               ----------
with the foregoing provisions, Landlord is adjudged a co-insurer by its
insurance carrier, then, any loss or damage Landlord shall sustain by reason
thereof, including attorneys' fees and costs, shall be borne by Tenant and shall
be immediately paid by Tenant upon receipt of a bill therefor and evidence of
such loss.

          F.   Insurance Requirements.  All such insurance shall be in a form
               ----------------------
satisfactory to Landlord and shall be carried with companies that have a general
policy holder's rating of not less than "A" and a financial rating of not less
than Class "X" in the most current edition of Best's Insurance Reports; shall
                                              ------------------------
provide that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written notice to
Landlord; and shall be primary as to Landlord.  The policy or policies, or duly
executed certificates for them, together with satisfactory evidence of payment
of the premium thereon shall be deposited with Landlord

                                      14
<PAGE>

prior to the Commencement Date, and upon renewal of such policies, not less than
thirty (30) days prior to the expiration of the term of such coverage. If Tenant
fails to procure and maintain the insurance required hereunder, Landlord may,
but shall not be required to, order such insurance at Tenant's expense and
Tenant shall reimburse Landlord. Such reimbursement shall include all costs
incurred by Landlord including Landlord's reasonable attorneys' fees, with
interest thereon at the Interest Rate.

          G.   Landlord's Disclaimer.  Landlord and its Agents shall not be
               ---------------------
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Premises, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
whatsoever, unless caused by or due to the negligence or willful acts of
Landlord, or Landlord's Agents. Landlord and its Agents shall not be liable for
any latent defect in the Premises. Tenant shall give prompt written notice to
Landlord in case of a casualty, accident or repair needed in the Premises.

     22.  Waiver of Subrogation.
          ---------------------

          Landlord and Tenant each hereby waive all rights of recovery against
the other on account of loss and damage occasioned to such waiving party for its
property or the property of others under its control to the extent that such
loss or damage is insured against under any insurance policies which may be in
force at the time of such loss or damage. Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the insurance
carrier that the foregoing mutual waiver of subrogation is contained in this
Lease and Tenant and Landlord shall cause each insurance policy obtained by such
party to provide that the insurance company waives all right of recovery by way
of subrogation against either Landlord or Tenant in connection with any damage
covered by such policy.

     23.  Damage or Destruction.
          ---------------------

          A.   Landlord's Obligation to Rebuild.  If the Premises are damaged or
               --------------------------------
destroyed, Landlord shall promptly and diligently repair the Premises unless it
has the right to terminate this Lease as provided herein and it elects to so
terminate.

          B.   Right to Terminate.  Landlord shall have the right to terminate
               ------------------
this Lease in the event any of the following events occurs:

               (i)     Insurance proceeds are not available to pay one hundred
percent (100%) of the cost of such repair, excluding the deductible;

               (ii)    The Premises cannot, with reasonable diligence, be fully
repaired by Landlord within one hundred twenty (120) days after the date of the
damage or destruction; or

               (iii)   The Premises cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers.

               If Landlord elects to terminate this Lease, Landlord may give
Tenant written notice of its election to terminate within sixty (60) days after
such damage or destruction, and this Lease shall terminate thirty (30) days
after the date Tenant receives such notice. If Landlord elects not to terminate
the Lease, subject to Tenant's termination right set forth below,

                                      15
<PAGE>

Landlord shall promptly commence the process of obtaining necessary permits and
approvals and repair of the Premises as soon as practicable, and this Lease will
continue in full force and effect. All insurance proceeds from insurance under
Paragraph 21., excluding proceeds for Tenant's Personal Property, shall be
disbursed and paid to Landlord. Tenant shall not be obligated to pay any such
deductible if Landlord elects to terminate the lease due to casualty not caused
by Tenant, its subtenants or their respective agents, employees, contractors or
invitees. In no case shall the total deductible for casualty insurance or the
amount of deductible paid by Tenant for any casualty, except for earthquake,
exceed fifteen thousand dollars ($15,000). The total deductible amount for any
earthquake casualty shall not exceed ten percent (10%) of the then current
replacement cost of the improvements to be restored, and Tenant shall be
obligated to pay up to one-half (5%) of this amount.

               Tenant shall have the right to terminate this Lease, if the
Premises cannot, with reasonable diligence, be fully repaired within one hundred
ninety-five (195) days from the date of damage or destruction, or if the
estimate of the time required for such repair indicates that the repair will
require in excess of one hundred ninety-five (195) days from the date of the
damage or destruction. The determination of the estimated repair period shall be
made by Landlord in its good faith business judgment within thirty (30) days
after such damage or destruction. Landlord shall deliver written notice of the
repair period to Tenant after such determination has been made and Tenant shall
exercise its right to terminate this Lease, if at all, within ten (10) days of
receipt of such notice from Landlord.

          C.   Limited Obligation to Repair.  Landlord's obligation, should it
               ----------------------------
elect or be obligated to repair or rebuild, shall be limited to the basic
Premises, the Tenant Improvements or the basic Building as they exist as of the
Commencement Date, subject to any changes in applicable Laws, as the case may
be, and Tenant shall, at Tenant's expense, replace or fully repair all Tenant's
Personal Property and any Alterations Installed by Tenant and existing at the
time of such damage or destruction, as necessary for the conduct of Tenant's
business.

          D.   Abatement of Rent.  Rent shall be temporarily abated
               -----------------
proportionately, but only to the extent of any proceeds received by Landlord
from rental abatement insurance described in Paragraph 21.C., during any period
when, by reason of such damage or destruction, Landlord and Tenant reasonably
determine that there is substantial interference with Tenant's use of the
Building, having regard to the extent to which Tenant may be required to
discontinue Tenant's use of the Building. Such abatement shall commence upon
such damage or destruction and end upon substantial completion by Landlord of
the repair or reconstruction which Landlord is obligated or undertakes to do.
Tenant shall not be entitled to any compensation or damages from Landlord for
loss of the use of the Premises, damage to Tenant's Personal Property or any
inconvenience occasioned by such damage, repair or restoration.

          E.   Damage Near End of Term.  Anything herein to the contrary
               -----------------------
notwithstanding, if the Premises are destroyed or damaged during the last twelve
(12) months of the Term, and the cost of repairing the damage or destruction
exceeds ten percent (10%) of the replacement cost of the entire Premises, then
Landlord and Tenant may elect to cancel and terminate this Lease as of the date
of the occurrence of such damage.  If Landlord and Tenant do not elect to so
terminate this Lease, the repair of such damage shall be governed by Paragraphs
23.A. and 23.B.

                                      16
<PAGE>

     24.  Condemnation.
          ------------

          If title to all of the Premises or so much thereof is taken for any
public or quasi-public use under any statute or by right of eminent domain so
that reconstruction of the Premises will not, in Landlord's and Tenant's mutual
opinion, result in the Premises being reasonably suitable for Tenant's continued
occupancy for the uses and purposes permitted by this Lease, this Lease shall
terminate as of the date that possession of the Premises or part thereof be
taken and rent shall be adjusted to the date of termination.  A sale by Landlord
to any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this paragraph.

          If any part of the Premises is taken and such partial taking renders
the Premises unsuitable for Tenant's business as reasonably determined by
Tenant, Tenant shall have the right to terminate this Lease, which termination
shall be effective on the date set forth in Tenant's termination notice and rent
shall be adjusted to the date of termination.

          If any part of the Premises is taken and the remaining part is
reasonably suitable for Tenant's continued occupancy for the purposes and uses
permitted by this Lease, this Lease shall, as to the part so taken, terminate as
of the date that possession of such part of the Premises is taken and the Rent
and other sums payable hereunder shall be reduced in the same proportion that
Tenant's use of Premises is reduced. If the parties disagree as to the amount of
Rent reduction, the matter shall be resolved by arbitration. Each party hereby
waives the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Building or Premises.

          No award for any partial or entire taking shall be apportioned. Tenant
assigns to Landlord its interest in any award which may be made in such taking
or condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, or its moving costs, or for the loss of its
goodwill.

     25.  Assignment and Subletting.
          -------------------------

          A.   Landlord's Consent.  Tenant shall not enter into a Sublet without
               ------------------
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Any attempted or purported Sublet without Landlord's prior written
consent shall be void and confer no rights upon any third person and, at
Landlord's election, shall terminate this Lease. Each Sublessee shall agree in
writing, for the benefit of Landlord, to assume, to be bound by, and to perform
the terms, conditions and covenants of this Lease to be performed by Tenant.
Notwithstanding anything contained herein, Tenant shall not be released from
personal liability for the performance of each term, condition and covenant of
this Lease by reason of Landlord's consent to a Sublet unless Landlord
specifically grants such release in writing. Consent by Landlord to any Sublet
shall not be deemed a consent to any subsequent Sublet.

          B.   Information to be Furnished.  If Tenant desires at any time to
               ---------------------------
Sublet the Premises or any portion thereof, it shall first notify Landlord of
its desire to do so and shall submit in writing to Landlord: (i) the name of the
proposed Subtenant; (ii) the nature of the proposed Subtenant's business to be
carried on

                                      17
<PAGE>

in the Premises; (iii) the terms and provisions of the proposed Sublet and a
copy of the proposed Sublet form containing a description of the subject
premises; and (iv) such financial information, including financial statements,
as Landlord may reasonably request concerning the proposed Subtenant.

          C.   Landlord's Alternatives.  At any time within ten (10) days after
               -----------------------
Landlord's receipt of the information specified in Paragraph 25.B., Landlord
may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant;
or (ii) to refuse its consent to the Sublet.

               If Landlord consents to the Sublet, Tenant may thereafter enter
into a valid Sublet or portion thereof, upon the terms and conditions and with
the proposed Subtenant set forth in the information furnished by Tenant to
Landlord pursuant to Paragraph 25.B. Landlord and Tenant shall split any profit
50/50 derived from any Sublet after deduction for reasonable costs of such
Sublet including brokerage commissions, legal fees, and the costs of any
Alteration(s) made by Tenant to the portion of the Premises which is Sublet
pursuant to Paragraph 13 herein.

          D.   Proration.  If a portion of the Premises is Sublet, the pro rata
               ---------
share of the Rent attributable to such partial area of the Premises shall be
determined by Landlord by dividing the Rent payable by Tenant hereunder by the
total leasable square footage of the Premises and multiplying the resulting
quotient (the per square foot rent) by the number of square feet of the Premises
which are Sublet appropriately adjusted, as necessary, for sublet areas which
are warehouse spaces as opposed to those that are office spaces.

          E.   Assignment and Exempt Sublets.  Notwithstanding the above,
               -----------------------------
Landlord's consent shall not be required for an Assignment or a Sublet of this
Lease, to an exempt subsidiary, affiliate or parent corporation of Tenant, or a
corporation into which Tenant merges or consolidates, if Tenant gives Landlord
prior written notice of the name of any such Sublessee or Assignee, and if the
Sublessee or Assignee assumes, in writing, all of Tenant's obligations under the
Lease. An assignment or other transfer of this Lease to a purchaser of all or
substantially all of the assets of Tenant shall be deemed a Sublet requiring
Landlord's prior written consent.

     26.  Default.
          -------

          A.   Tenant's Default.  An Event of Default under this Lease by Tenant
               ----------------
shall exist if any of the following occurs:

               (i)     If Tenant fails to pay Rent or any other sum required to
be paid hereunder within fourteen (14) days after receipt of written notice;
provided, however, that Tenant may cure such default at any time prior to a
termination of this Lease by Landlord by paying all Rent and other expenses or
charges then due together with interest at the Interest Rate from the due date
through the date of payment; or

               (ii)    If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
fails to cure such breach within twenty (20) days after written notice from
Landlord where such breach could reasonably be cured within such twenty (20) day
period; provided, however, that where such failure could not reasonably be cured
within the twenty (20) day period, that Tenant shall not be in default if it
commences such performance within the twenty (20) day period and diligently
thereafter prosecutes the same to completion; or

               (iii)   If Tenant assigns its assets for the benefit of its
creditors; or

                                      18
<PAGE>

               (iv)    If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of Tenant's
business occurs, and Tenant fails to obtain a return or release of such Personal
Property within thirty (30) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or

               (v)     If a court makes or enters any decree or order other than
under the bankruptcy laws of the United States adjudging Tenant to be insolvent;
or approving as properly filed a petition seeking reorganization of Tenant; or
directing the winding up or liquidation of Tenant and such decree or order shall
have continued for a period of thirty (30) days.

          B.   Remedies.  Upon an Event of Default, Landlord shall have the
               --------
following remedies, in addition to all other rights and remedies provided by law
or otherwise provided in this Lease, to which Landlord may resort cumulatively
or in the alternative:

               (i)     Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, arid Landlord shall have the right to
collect Rent when due.

               (ii)    Landlord may terminate Tenant's right to possession of
the Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. Reletting
may be for a period shorter or longer than the remaining term of this Lease. No
act by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. On
termination, Landlord has the right to remove all Tenant's Personal Property and
store same at Tenant's cost and to recover from Tenant as damages:

                        (a)  The worth at the time of award of unpaid Rent and
other sums due and payable which had been earned at the time of termination;
plus

                        (b)  The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount of such
Rent loss that Tenant proves could have been reasonably avoided; plus

                        (c)  The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable for the balance or the Term
after the time of award exceeds the amount of such Rent loss that Tenant proves
could be reasonably avoided; plus

                        (d)  Any other amount which is necessary to compensate
Landlord for all the 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, including, without limitation, any
costs or expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises; plus

                                      19
<PAGE>

                       (e)  At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State of California.

                       The "worth at the time of award" of the amounts referred
to in Paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest
at the Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 26.B.(ii)(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises be reason of any default of Tenant
hereunder.

               (iii)   Landlord may, with or without terminating this Lease, re-
enter the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. No re-entry or taking possession of the
Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.

          C.   Landlord's Default. Except as reasonably apparent to Landlord, or
               ------------------
part of the regularly scheduled repair or maintenance of the Property, Landlord
shall not be deemed to be in default in the performance of any obligation
required to be performed by it hereunder unless and until it has failed to
perform such obligation within thirty (30) days after receipt of written notice
by Tenant to Landlord specifying the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecute the same
to completion.

     27.  Subordination.
          -------------

          This Lease is subject and subordinate to all ground and underlying
leases and any first mortgages and first deeds of trust (collectively
"Encumbrances") which now affect the Building or the Property, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, however, if the holder or holders of any such Encumbrance ("Holder")
shall require that this Lease be prior and superior thereto, within seven (7)
days of written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver any and all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, so long as Tenant is not in default, Holder agrees to recognize
Tenant's rights under this Lease so long as Tenant shall pay the Rent and
observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,

                                      20
<PAGE>

Tenant shall execute any and all documents required by Landlord or the Holder
required to effectuate such subordination to make this Lease subordinate to any
lien of the Encumbrance. If Tenant fails to do so, it shall be deemed that this
Lease is subordinated.

          Notwithstanding anything to the contrary set forth in this paragraph,
Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise
acquiring the Premises at any sale or other proceeding or pursuant to the
exercise of any other rights, powers or remedies under such Encumbrance.

          Promptly following the date of this Lease, Landlord shall deliver to
Tenant a recognition agreement in form reasonably acceptable to Tenant, whereby
the holder of any deed of trust or other similar security instrument affecting
the Property, shall agree to recognize the tenancy of Tenant on all the terms
and conditions set forth herein, so long as there shall be no Event of Default
by Tenant hereunder.

     28.  Notices.
          -------

          Any notice or demand required or desired to be given under this Lease
shall be in writing and shall be personally served or in lieu of personal
service may be given by mail.  If given by mail, such notice shall be deemed to
have been given when seventy-two (72) hours have elapsed from the time when such
notice was deposited in the United States mail, registered or certified, and
postage prepaid, addressed to the party to be served.  At the date of execution
of this Lease, the addresses of Landlord and Tenant are as set forth in
Paragraph 1.  After the Commencement Date, the address of Tenant shall be the
address of the Premises.  Either party may change its address by giving notice
of same in accordance with this paragraph.

     29.  Attorneys' Fees.
          ---------------

          If either party brings any action or legal proceeding for damages for
an alleged breach of any provision of this Lease, to recover rent, or other sums
due, to terminate the tenancy of the Premises or to enforce, protect or
establish any term, condition or covenant of this Lease or right of either
party, the prevailing party shall be entitled to recover as a part of such
action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.

     30.  Estoppel Certificates.
          ---------------------

          Tenant shall within seven (7) days following written request by
Landlord,

          (i) Execute and deliver to Landlord any documents, including estoppel
certificates, in the form prepared by Landlord (a) certifying that this Lease is
unmodified and in full force and effect or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect and the date to which the Rent and other charges are paid in
advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord, or, if there are
uncured defaults on the part of Landlord, stating the nature of such uncured
defaults, and (c) evidencing the status of the Lease as may be required either
by a lender making a loan to Landlord to be secured by deed of trust or mortgage
covering the Premises or a purchaser of the Premises from Landlord.  Tenant's
failure to deliver an estoppel certificate within seven (7) days after delivery
of Landlord's written request therefor shall be conclusive upon Tenant (a) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) that there are now no uncured defaults in
Landlord's performance and (c) that no Rent has been paid in advance.

                                      21
<PAGE>

          If Tenant fails to so deliver a requested estoppel certificate within
the prescribed time, it shall be deemed that the Lease is unmodified and in full
force and effect except as represented by Landlord.

          (ii) Deliver to Landlord the current financial statements of Tenant,
and financial statements of the two (2) years prior to the current financial
statements year, with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied.

     31.  Transfer of the Premises by Landlord.
          ------------------------------------

          In the event of any conveyance of the Premises and assignment by
Landlord of this Lease, Landlord shall be and is hereby entirely released from
all liability under any and all of its covenants and obligations contained in or
derived from this Lease occurring after the date of such conveyance and
assignment, and Tenant agrees to attorn to such transferee provided such
transferee assumes Landlord's obligations under this Lease.

     32.  Landlord's Right to Perform Tenant's Covenants.
          ----------------------------------------------

          If Tenant shall commit an Event of Default, Landlord may, but shall
not be obligated to and without waiving or releasing Tenant from any obligation
of Tenant under this Lease, make such payment or perform such other act to the
extent Landlord may deem desirable, and in connection therewith, pay expenses
and employ counsel. All sums so paid by Landlord and all penalties, interest and
costs in connection therewith shall be due and payable by Tenant on the next day
after any such payment by Landlord, together with interest thereon at the
Interest Rate from such date to the date of payment by, Tenant to Landlord, plus
collection costs and attorneys' fees. Landlord shall have the same rights and
remedies for the nonpayment thereof as in the case of default in the payment of
Rent.

          If Landlord fails to perform any obligation of Landlord hereunder with
respect to the repair or maintenance of the Premises, the Outside Area or any
other portion of the Property within thirty (30) days of written notice from
Tenant, or such shorter time as may be required in an emergency, whether or not
written notice shall be provided, Tenant shall be entitled to perform such
obligation and Landlord shall reimburse to Tenant the reasonable cost of such
performance promptly following receipt of written notice from Tenant describing
the work performed and the cost incurred.

     33.  Tenant's Remedy.
          ---------------

          If, as a consequence of a default by Landlord under this Lease, Tenant
recovers a money judgment against Landlord, such judgment shall be satisfied
from insurance and/or out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of
Landlord in the Premises and out of Rent or other income from such property
receivable by Landlord or out of consideration received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title or
interest in the Premises, and neither Landlord nor its Agents shall be liable
for any deficiency.

     34.  Mortgagee Protection.
          --------------------

          If Landlord defaults under this Lease, Tenant will notify any
beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises
whose address has been furnished to Tenant in writing, and offer such
beneficiary or mortgagee a

                                      22
<PAGE>

reasonable opportunity to cure the default, including time to obtain possession
of the Premises by power of sale or a judicial foreclosure, if such should prove
necessary to effect a cure, and provided that such attempt to cure by any such
beneficiary or mortgagee shall not limit the remedies otherwise available to
Tenant as a result of the default of Landlord.

     35.  Brokers.
          -------

          Landlord and Tenant each warrant and represent that they have had no
dealings with any real estate broker or agent in connection with the negotiation
of this Lease except for CPS Realty Group (representing Landlord exclusively)
and Cooper/Brady (representing Tenant exclusively).

     36.  Acceptance.
          ----------

          This Lease shall only become effective and binding upon full execution
hereof by Landlord and delivery of a signed copy to Tenant. Neither party shall
record this Lease nor a short form memorandum thereof.

     37.  Modifications for Lender.
          ------------------------

          If, in connection with obtaining financing for the Premises or any
portion thereof, Landlord's lender shall request reasonable modification to this
Lease as a condition to such financing, Tenant shall not unreasonably withhold,
delay or defer its consent thereto, provided such modifications do not
materially adversely affect Tenant's rights hereunder.

     38.  Parking.
          -------

          Tenant shall have the right to park in 100% of the Property's parking
facilities, which provides parking spaces at a rate of 4 parking spaces per
1,000 usable square feet in the Property, and which will be provided without
charge.

     39.  General.
          -------

          A.  Captions. The captions and headings used in this Lease are for the
              --------
purpose of convenience only and shall not be construed to limit or extend the
meaning of any part of this Lease.

          B.  Executed Copy. Any fully executed copy of this Lease shall be
              -------------
deemed an original for all purposes.

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

          D.  Separability.  If one or more of the provisions contained herein,
              ------------
except for the payment of Rent, is for any reason held invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein.

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

          F.   Gender; Singular, Plural. When the context of this Lease
               ------------------------
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.

                                      23
<PAGE>

          G.   Binding Effect. The covenants and agreement contained in this
               --------------
Lease shall be binding on the parties hereto and on their respective successors
and assigns to the extent this Lease is assignable.

          H.   Waiver. The waiver by Landlord of any breach of any term,
               ------
condition or covenant, of this Lease shall not be deemed to be a waiver of such
provision or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach at the time of
acceptance of such payment. No covenant, term or condition of this Lease shall
be deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord.

          I.   Entire Agreement. This Lease is the entire agreement between the
               ----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.

          J.   Authority. If Tenant is a corporation or a partnership, each
               ---------
individual executing this Lease on behalf of said corporation or partnership, as
the case may be, represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms. Landlord, at its option, may require a copy of such written
authorization to enter into this Lease.

          K.   Exhibits. All exhibits, amendments, riders and addendum attached
               --------
hereto are hereby incorporated herein and made a part hereof.

          L.   Lease Summary. The Lease Summary attached to this Lease is
               -------------
intended to provide general information only. In the event of any inconsistency
between the Lease Summary and the specific provisions of this Lease, the
specific provisions of this Lease shall prevail.

          M.   Joint and Several Liability. The obligations of the parties
               ---------------------------
hereunder, and each individual entity, partnership, corporation or person
constituting a party, shall be joint and several.

     40.  Option to Renew.
          ---------------

          A.   Grant of Option. Landlord hereby grants to Tenant two (2)
               ---------------
option(s) (the "Option(s)") to extend the term of this Lease, each for an
additional term of two (2) years, commencing when the then-existing term
expires, upon the terms and conditions set forth in this Paragraph.

          B.   Exercise of Option. Tenant may exercise such option by giving
               ------------------
Landlord written notice (the "Exercise Notice") of its intention not less than
six (6) month prior to the expiration of the then-existing term of this Lease.

          C.   Extended Term Rent. If this Option is exercised, the Base Monthly
               ------------------
Rent for the Premises shall be adjusted to an amount not less than the rent
payable for the month immediately preceding the commencement dates of the term
of the Option(s) or equal to ninety-seven and one-half percent (97-1/2%) of the
then current fair market monthly rent ("Fair Market Rent"), whichever is
greater, for the Premises as of the commencement date of the applicable extended
term as determined by the agreement of the

                                      24
<PAGE>

parties. The Fair Market Rent for the Premises shall not include the value, if
any, attributable to Alterations to the Premises made at the cost of Tenant. If
the parties are unable to agree on the Fair Market Rent for the Premises within
sixty (60) days after the Exercise Notice, Tenant shall be entitled to require
the Fair Market Rent to be determined by arbitration, as set forth below. All
other terms and conditions contained in the Lease shall remain in full force and
effect and shall apply during the Option term.

          D.   Arbitration.
               -----------

               (i)    Promptly following notice to Landlord from Tenant, each
party shall appoint a qualified, licensed real estate appraiser experienced in
appraising office space in San Jose, California to act as an arbitrator. The two
(2) appraisers so appointed shall determine the Fair Market Rent pursuant to the
terms and conditions of this Lease within sixty (60) days of Tenant's initial
notice, and they shall notify the parties of that determination in writing.

               (ii)   If the two (2) appraisers do not agree on the Fair Market
Rent, they shall appoint a third, similarly qualified appraiser. Within thirty
(30) days of his appointment, the third appraiser shall select, from the
proposals submitted by the first two appraisers, the proposal that most closely
approximates the third appraiser's determination of Fair Market Rent, and that
figure shall be deemed the Fair Market Rent for purposes of this Lease. The
third appraiser shall have no right to compromise or modify either of the
proposals submitted by the first two appraisers.

               (iii)  Each party shall pay all charges and expenses of the
appraiser appointed by that party, and one-half of any charges and expenses
incurred by the third appraiser.

               (iv)   If either party fails to select an appraiser as provided
herein, or if either of the appraisers fails to present a determination within
the required time period, the determination presented by the appraiser appointed
by the other party shall be considered final and binding upon both parties.

     41.  Approvals.
          ---------

          Whenever the Lease requires an approval, consent, designation,
determination or judgment by either Landlord or Tenant, such approval, consent,
designation, determination or judgment shall not be unreasonably withheld or
delayed.

     42.  Reasonable Expenditures.
          -----------------------

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

                                      25
<PAGE>

     THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.

TENANT:

JT Storage, Inc., a Delaware corporation

By: /s/ David B. Pearl
   -------------------

Its: President
    ------------------

LANDLORD:

The Cilker Revocable Trust of
October 9, 1990

By: /s/ William H. Cilker
   ----------------------
     William H. Cilker

By: /s/ Leila A. Cilker
   ----------------------
     Leila A. Cilker

By: /s/ Marian C.Armstrong
   -----------------------
     Marian C.Armstrong

By: /s/ Tom Claiborne Polk
   -----------------------
     Tom Claiborne Polk, an unmarried man

The undersigned spouse of Marian C. Armstrong consents to the terms of the
preceding Lease agreement:

/s/ James D. Armstrong, Sr.
---------------------------

<PAGE>

                                   EXHIBIT B

                                  THE PROPERTY
                                  ------------

LEGAL DESCRIPTION:  APN 097-07-045

All that certain real property situate in the City of San Jose, County of Santa
Clara, State of California, described as follows:

PARCEL ONE:
----------

All of Lot 5, as shown upon that certain Map entitled, "TRACT NO. 75441",
recorded March 7, 1984 in Book 525 of Maps at Pages 45 and 46, and the
Certificate of Correction, recorded August 8, 1985 in Book J 422, Page 1784,
Official Records, Santa Clara County.

RESERVING THEREFROM as appurtenant to Lot 6, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:

Being a strip of land 13 feet in width, the easterly and southerly line of which
is described as follows:

Beginning at the southeasterly corner of Lot 5 as said lot is shown on Tract
7544 recorded in Book 525 of Maps, Pages 45 and 46, Santa Clara County Records,
said point being on the northerly Right of Way line of Tasman Drive, as shown on
said Tract Map:

Thence northwesterly along the easterly lot line of Lot 5, as said lot is shown
on aforesaid Tract Map, North 30(degrees) 31' West, 194.18 feet:

Thence northeasterly North 36(degrees) 23' 34" East, 33.70 feet to the terminus
of said strip of land, said terminus being or the northerly lot line of Lot 8,
as said lot is shown on aforesaid Tract Map.

PARCEL TWO:
----------

TOGETHER WITH and as appurtenant to Lot 5, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:

Being a strip of land 13 feet in width, the Northwesterly and Westerly line of
which is described as follows:

Beginning at the most northerly corner of Lot 8 as said Lot is shown on Tract
7544 recorded in Book 525 of Maps at Pages 45 and 46, Santa Clara County
recorded said point being on the Westerly right of way line of Zanker Road as
shown on said Tract Map.

Thence Southwesterly along the Northwesterly lot line of Lot 8 as shown on
aforesaid Tract Map South 36(degrees) 23' 34" West, 1220.80 feet to the most
Westerly corner of Lot 8:

                                       3
<PAGE>

Thence Southeasterly along the Southwesterly lot line of aforesaid Lot 8, South
30 (degrees) 31' 20" East, 194.18 feet to the terminus of said strip of land,
said terminus being on the Northerly right of way line of Tasman Drive as shown
on aforesaid Tract Map.

                                       4
<PAGE>

PARCEL THREE:
------------

TOGETHER WITH and as appurtenant to Lot 5, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:

Being a strip of land 13 feet in width, the Southeasterly line of which is
described as follows:

Beginning on the Southeasterly corner of Lot 7 as said lot is shown on Tract
7544 recorded in Book 525 of Maps Pages 45 and 46 Santa Clara County Records,
said point being on the Westerly right of way line of Zanker Road as shown on
said Tract Map;

Thence Southwesterly along the Southeasterly lot line of Lot 7 as said lot is
shown on aforesaid Tract Map South 36(degrees) 23' 39" West, 466.10 feet to the
terminus of said strip of land, said terminus being the most Southwesterly
corner of Lot 7.

PARCEL FOUR:
-----------

TOGETHER WITH and as appurtenant to Lot 5, an easement for the purpose of
vehicular and pedestrian ingress and egress over the following described parcel:

Being a strip of land 13 feet in width, the Southeasterly line of which is
described as follows:

Beginning at the most easterly corner of Lot 6 as said lot is shown on Tract
7544 recorded in Book 525 of Maps pages 45 and 46 Santa Clara County Records,
said point being on the northerly lot line of Lot 8 as said lot is shown on said
Tract Map;

Thence southwesterly along the southeasterly lot line of Lot 6 as said lot is
shown on aforesaid Tract Map South 36(degrees) 23' 34" West, 721.00 feet to the
terminus of said strip of land, said terminus being the most southerly corner of
said Lot 6.

<PAGE>

                                   EXHIBIT C
                                   ---------

                             WORK LETTER AGREEMENT
                             ---------------------

     This Work Letter Agreement ("Work Letter") is entered into as of June __,
1995 by and between THE CILKER REVOCABLE TRUST OF OCTOBER 9, 1990 ("Landlord"),
and JT STORAGE, INC., a Delaware corporation ("Tenant"), in connection with that
certain Commercial Lease (the "Lease") of even date herewith.

     In consideration of the mutual covenants contained herein, Landlord and
Tenant hereby agree as follows:

1.   ARCHITECT.
     ---------

     A.  The parties hereby approve the retention by Landlord of HPC
Architecture (the "Architect") in connection with the design and construction of
the Tenant Improvements, as defined below.

2.   PREPARATION OF SPACE PLANS, CONSTRUCTION DRAWINGS.
     -------------------------------------------------

     A.  Approval of Space Plans.  Landlord and Tenant hereby approve the space
         -----------------------
plan prepared by the Architect as of June 7, 1995 and attached hereto as Exhibit
C-1 (the "Space Plan").

     B.  Preparation of Construction Drawings.  Based on the approved Space
         -------------------------------------
Plan, the Architect shall prepare and submit to Landlord and Tenant complete
architectural plans, drawings and specifications for the Tenant Improvements
(collectively, the "Construction Drawings").  Both Landlord and Tenant agree
that the mechanical, electrical, and plumbing improvements will be excluded from
the Architect's Construction Drawings and will be constructed on a design build
basis.  Within three (3) days of receipt of the Construction Drawings:  (i)
Landlord and Tenant shall notify the Architect in writing of their approval of
the Construction Drawings, or, (ii) if Landlord or Tenant disapproves of any
portion of the Construction Drawings, Landlord and/or Tenant shall notify the
Architect in writing of such disapproval and the specific reasons therefor.  The
Architect shall make any changes requested by Landlord and Tenant which are
necessary in order to make the Final Plans and Specifications consistent with
the approved Preliminary Plans and Specifications.  Upon approval by both
parties, the Construction Drawings may be attached as Exhibit C-2.

3.   SELECTION OF GENERAL CONTRACTOR.
     -------------------------------

     A.  Bids and Selection of General Contractor and Subcontractors.  The
         -----------------------------------------------------------
parties hereby approve the retention of San Jose Construction Company, Inc.  as
the general contractor (the "General Contractor") for the construction of the
Tenant Improvements, on terms and conditions to be approved by both parties,
which terms shall include a maximum payment for overhead and profit to the
General Contractor of two and one-half percent (2-1/2%) of the Approved Tenant
Improvement Cost, as defined below. General Contractor, shall solicit bids from
at least three (3) qualified, licensed subcontractors for certain Major
Subcontracts, as defined below, in each case approved by Landlord and Tenant.
For purposes of the preceding sentence, Major Subcontracts shall mean the
following: drywall, paint and carpet. Each final bid from the prospective
subcontractors shall include a guaranteed maximum contract price (including
materials and labor supplied in connection with the Tenant Improvements). All
bids

                                       1

<PAGE>

shall be subject to the prior review and written approval of Tenant and
Landlord, such approval or disapproval to be provided by Tenant to Landlord
within three (3) business days after receipt of preliminary and final bids by
Tenant. Landlord and Tenant shall attempt to revise the prospective bids so that
a mutually acceptable bid has been received within no more than five (5)
business days after the initial notice of disapproval from Tenant. The sum of
(i) the approved bids, (ii) the design-build costs, incurred for mechanical,
electrical and plumbing improvements, (iii) the compensation payable to the
General Contractor pursuant to this Paragraph 3.A, and (iv) the additional costs
of constructing the Tenant Improvements as reviewed and approved by Landlord and
Tenant shall be referred to herein as the Approved Tenant Improvement Cost.

     B  Form of Construction Contract.  The proposed form of construction
        -----------------------------
contract between Landlord and the General Contractor shall provide, among other
things, that Tenant is the third-party beneficiary thereof, that all change
orders are to be signed by Tenant, that all payments to contractor(s) shall be
subject to a standard retention of ten percent (10%) (and the subcontracts shall
so be provided) and that the General Contractor and all subcontractors shall
carry insurance pursuant to the requirements set forth below.  Within five (5)
days after execution, Landlord shall deliver to Tenant a copy of the
construction contract between Landlord and the General Contractor.

     C.  Insurance.  Landlord shall require all contractors to obtain and
         ---------
maintain the following insurance policies during the construction of the Tenant
Improvements, as applicable:  (i) Comprehensive general liability (including
products/completed operations), with limits of not less than $500,000/$500,000
bodily injury and $500,000 property damage or $500,000 combined single limit,
with JT Storage, Inc. and Landlord named as an additional insured; (ii) Umbrella
liability (including products/completed operations), with limits of not less,
than $1,000,000, with JT Storage, Inc. and Landlord named as additional insured;
(iii) Automobile liability, with limits of not less than $500,000/$500,000
bodily injury and $250,000 property damage; and (iv) Worker's compensation
(including employer's liability) insurance in compliance with law.

All such policies (except worker's compensation) shall provide that twenty (20)
days' prior notice of cancellation or reduction in coverage or limits shall be
delivered to Tenant.  A certificate evidencing such insurance shall be
delivered, prior to commencement of construction of the Tenant Improvements, to
Tenant.  Landlord shall not permit the General Contractor or any subcontractor
to commence construction of any part of the Tenant Improvements until it has
provided Tenant with certificates of insurance evidencing such insurance
coverage.

     D.  Permits.  Landlord shall submit the Construction Drawings to all
         -------
governmental agencies and authorities whose review and/or approval thereof is
required and shall use its best efforts to procure all permits, consents and
approvals required tinder applicable laws, ordinances, codes, rules and
regulations ("Permits"). If Landlord is unable to procure the Permits within
sixty (60) days after the date of execution hereof, Landlord shall be entitled
to terminate the Lease within ten (10) days thereafter by written notice to
Tenant.

4.   CONSTRUCTION OF TENANT IMPROVEMENTS.
     -----------------------------------

     A.  Landlord shall cause the Tenant Improvements to be constructed in
accordance with the Construction Drawings and this Work Letter, in a first-class
manner, and under competent supervision.  All materials and equipment utilized
in the Tenant Improvements shall be new, first-class and of the type and quality
supervision.  All materials and equipment utilized in the Tenant Improvements
shall be new, first-class and of the type and quality

                                       2
<PAGE>

customary in first-class R&D/Light Manufacturing buildings in the vicinity of
the Premises. The Tenant Improvements, and the construction thereof, shall
comply with all applicable laws, codes, ordinances, rules and regulations.

5.   CONSTRUCTION SCHEDULE.
     ---------------------

     A.  Landlord shall use all reasonable efforts to substantially complete the
Tenant Improvements on or before July 1, 1995 (the "Anticipated Commencement
Date").  The Commencement Date shall occur on the date that Landlord has
"substantially completed" the Tenant Improvements, which shall be deemed to
occur when all the following have been completed: (i) the Architect has
certified to Tenant that the Tenant Improvements have been constructed in
accordance with the Construction Drawings; (ii) there remains no incomplete or
defective item of Tenant Improvements that would adversely affect Tenant's
intended use of the Premises; (iii) Landlord has delivered legal possession of
the Premises and the Tenant Improvements, in the condition required in the
Lease, to Tenant; and (iv) Landlord has obtained all approvals and permits from
the appropriate governmental authorities required for the legal occupancy of the
Premises and the Tenant Improvements for Tenant's intended use, including a
certificate of occupancy for the Shell Building and the Tenant Improvements.
Landlord shall provide written notice of the impending Commencement Date no
later than fifteen (15) days before the actual Commencement Date.

     B.  Any Tenant Improvement Costs related to demolition and Landlord's
construction management shall be borne by Landlord.

6.   COST OF TENANT IMPROVEMENTS.
     ---------------------------

     A.  Tenant Improvement Allowance.  Landlord shall contribute up to Three
         ----------------------------
Hundred Ninety Thousand Dollars ($390,000) (the "Tenant Improvement Allowance")
to the actual cost of constructing the Tenant Improvements (the "Tenant
Improvement Cost").  In addition, at the request of Tenant, Landlord shall
contribute an additional amount of up to One Hundred Forty Thousand Dollars
($140,000) (the "Additional Tenant Improvement Allowance") to the Tenant
Improvement Cost. Tenant shall pay the cost of constructing the Tenant
Improvements up to a maximum amount equal to the difference between the Approved
Tenant Improvement Cost and the sum of the Tenant Improvement Allowance, and so
much of the Additional Tenant Improvement Allowance as Tenant requests Landlord
to provide ("Tenant's Contribution") in accordance with the provisions of
Paragraph 9 hereof. Tenant shall reimburse to Landlord the entire Additional
Tenant Improvement Allowance either: (i) within thirty (30) days of substantial
completion of the Tenant Improvements and following receipt of a statement from
Landlord setting forth in reasonable detail the application of the Additional
Tenant Improvement Allowance, or, (ii) through an increase in Base Monthly Rent
equal to Twenty-One and 25/100 Dollars ($21.25) for each One Thousand Dollars
($1,000) of the Additional Tenant Improvement Allowance applied as set forth
herein.

     B.   Tenant Improvement Cost.  The Tenant Improvement Cost shall include,
          -----------------------
but not be limited to, the following:

          (1) all costs of preliminary and final architectural and engineering
plans and specifications for the Tenant Improvements, and engineering costs
associated with completion of the State of California energy utilization
calculations under Title 29 legislation;

                                       3
<PAGE>

          (2) all costs of interior design and finish schedule plans and
specifications including the General Contractor's as-built drawings;

          (3) all direct and indirect costs of procuring and installing Tenant
Improvements in the Premises, including the approved construction fee for
overhead and profit payable to the General Contractor, and the cost of general
conditions to be provided by the General Contractor; and

          (4) all fees payable to the Architect and Landlord's engineering firm,
if required by Landlord and Tenant to re-design any portion of the Tenant
Improvements following Tenant's and Landlord's approval of the Construction
Drawings.

          In no event will the Tenant Improvement Costs include, nor will the
Tenant Improvement Allowance or the Additional Tenant Improvement Allowance be
applied to the cost of procuring, constructing or installing in the Premises any
of Tenant's personal property, including voice and data equipment and cabling.

     C.   Exclusions from Tenant Improvements Cost.  Notwithstanding anything to
          ----------------------------------------
the contrary contained in the Lease or this Work Letter, the cost of
constructing the Tenant Improvements shall not include the following:

          (1) Costs attributable to (A) work to be performed at the cost of
Landlord or any other party, including the previous tenant, which work will
consist of demolition of certain existing interior improvements; (B)
improvements installed outside the demising walls of the Premises unless (1)
necessitated by Tenant Improvements made inside the demising walls of the
Premises; or (2) requested by Tenant or as shown in the Construction Drawings;
and (C) improvements installed "off-site" (such as streets, curbs, gutters,
traffic lights, lights for parking and street lighting);

          (2) Costs for improvements which are not shown on or described in the
Construction Drawings unless otherwise approved by Tenant;

          (3) Costs incurred to remove Hazardous Materials from the Property or
the surrounding area unless the presence of such materials was caused by Tenant
or its agents, contractors, employees or invitees in violation of Hazardous
Materials laws;

          (4)  Attorneys' fees incurred in connection with negotiation of
construction contracts, and attorneys' fees, experts' fees and other costs of
legal and arbitration proceedings to resolve construction disputes with third
parties;

          (5)  Loan fees, mortgage brokerage fees, interest and other costs of
financing construction costs;

          (6)  Costs incurred as a consequence of delay (unless the delay is
caused by Tenant) or construction defects;

          (7)  Costs recoverable by Landlord upon account of warranties and
insurance;

          (8)  Restoration costs as a consequence of casualties;

          (9)  Penalties and late charges attributable to the failure to pay
construction costs, except to the extent such penalties and late charges arise
due to delays caused by Tenant, its agents, contractors, employees or invitees;

          (10) Any construction management or supervision fee otherwise charged
by Landlord in connection with its construction of improvements to a particular
premises; and

          (11) Tenant's space planner.

                                       4
<PAGE>

7.   CHANGE ORDERS.
     -------------

     Tenant shall have the right to make reasonable changes in the Construction
Drawings, subject to the conditions set forth in this Paragraph 7.  Before
approval of any change in the Construction Drawings, Landlord shall advise
Tenant in writing of (i) the estimated cost of any such change; and (ii) the
additional time, if any, that such change would add to the time required for
substantial completion (as defined above) of the Tenant Improvements.  If Tenant
objects to such cost and/or delay, Tenant shall have the right to withdraw the
request for such change.  If Tenant approves such cost and delay, then Tenant
shall give its approval in writing; thereafter, Tenant's responsibility (if any)
for any such cost or delay shall be limited to the amount which it so approved.
Change orders shall not be subject to a Landlord mark-up fee unless they
necessitate cost for overtime.

8.   TENANT DELAY.
     ------------

     If any failure by Tenant to perform any obligations hereunder delays the
Commencement Date of the Lease beyond the date on which the Commencement Date
would have occurred but for such delay, including Tenant's request for items
which have been identified as long-lead time items to be included in the Tenant
Improvements (a "Tenant Delay"), the Commencement Date shall be deemed to occur
on the date on which it would have occurred but for such Tenant Delay.

9.   PAYMENT OF TENANT IMPROVEMENT COSTS.
     -----------------------------------

     Within thirty (30) days after substantial completion of the Tenant
Improvements, Landlord shall provide Tenant with a detailed statement of the
Tenant Improvement Cost, such statement to be accompanied by invoices and other
appropriate evidence of payment from Landlord or its General Contractor: (i) if
the Tenant Improvement Cost exceeds the Tenant Improvement Allowance, and so
much of the Additional. Tenant Improvement Allowance as has been drawn down at
the request of Tenant, Tenant shall either pay the difference to Landlord within
thirty (30) days after Tenant's receipt of the statement, or through an increase
in Base Monthly Rent equal to Twenty-One and 25/100 Dollars ($21.25) for each
One Thousand Dollars ($1,000) of the Additional Tenant Improvement Allowance
applied as set forth in Paragraph 6.A.

     No payment by Tenant pursuant to this Paragraph shall constitute a waiver
by Tenant of any right of Tenant to contest the amount of the Tenant Improvement
Cost.  Notwithstanding any provision in this Work Letter to the contrary, Tenant
shall have no obligation to pay any cost which is excluded from the definition
of Tenant Improvement cost by Paragraph 6.C., and shall have no obligation to
pay any portion of the Tenant Improvement Cost that exceeds the Approved Tenant
Improvement Cost unless Tenant has approved in writing such excess amount.

10.  PUNCHLIST AND CORRECTION OF DEFECTS.
     -----------------------------------

     Not later than five (5) days before the Anticipated Commencement Date,
Landlord and Tenant shall conduct a walk-through of the Premises and mutually
prepare a written punch1ist setting forth any defective item of construction.
Landlord shall cause all defects, errors or omissions listed in the punchlist to
be corrected within forty-five (45) days after receipt thereof; or as soon as
practicable thereafter.  Notwithstanding anything to the contrary contained in
the Lease, Tenant's acceptance of the Premises or submission of a punchlist
shall not be deemed a waiver of Tenant's right to have defects in the Tenant
Improvements or the Premises repaired at no cost to Tenant.  Landlord also
hereby assigns to Tenant all warranties related to the improvements with respect
to the Premises, including warranties which would reduce Tenant's maintenance
obligations under the Lease, and shall cooperate with Tenant to enforce all such
warranties.

                                       5
<PAGE>

11.  MISCELLANEOUS.
     -------------

     (A) Time is of the Essence.  Time is of the essence of each and every
         ----------------------
provision of this Work Letter.

     (B) Definitions.  All terms capitalized herein and not otherwise defined
         -----------
shall have the meanings set forth in the Lease.

     (C) Incorporation in the Lease.  The provisions of this Work Letter shall
         --------------------------
be incorporated into and constitute a part of the Lease.

     (D) Approvals.  Except as expressly provided otherwise, whenever the
         ---------
approval of a party is required hereunder, such approval shall not be
unreasonably withheld or delayed.

                                       6
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Work Letter as of
the date first above written.

TENANT:

JT Storage, Inc., a Delaware corporation

By: /s/ David B. Pearl
   ----------------------------

Its: President
    ---------------------------

LANDLORD:

The Cilker Revocable Trust
of October 9, 1990

By: /s/ William H. Cilker
   ----------------------------
        William H. Cilker

By: /s/ Leila A. Cilker
   ----------------------------
        Leila A. Cilker

By: /s/ Marian C. Armstrong
   ----------------------------
        Marian C. Armstrong

By: /s/ Tom Claiborne Polk
   ----------------------------
        Tom Claiborne Polk, an umarried man

                                       7

<PAGE>

                         EXHIBIT "C-1" TO BE INSERTED

                                  SPACE PLAN

                              Dated June 7, 1995

        This plan is to substantially conform to the Preliminary layout
                    dated June 7, 1995 by HPC Architecture.
                          ------------

                                  EXHIBIT C-1

<PAGE>

                         COMMENCEMENT DATE MEMORANDUM
                         ----------------------------

LANDLORD:  THE CILKER REVOCABLE TRUST OF OCTOBER 9, 1990
           ---------------------------------------------

TENANT:    JT STORAGE, INC.
           ---------------

LEASE DATE:_________________________

PREMISES:  166 BAYPOINTE PARKWAY
           ---------------------
           SAN JOSE, CALIFORNIA
           --------------------

           Pursuant to Paragraph 4.A. of the above referenced Lease, the
     Commencement Date is hereby established as ________________, 1995.

                              LANDLORD
                              --------

                              THE CILKER REVOCABLE TRUST OF OCTOBER 9, 1990
                              ---------------------------------------------

                              By: ____________________________________
                                         William H. Cilker

                              Its:____________________________________

                              TENANT
                              ------

                              JT STORAGE, INC.

                              By: ____________________________________

                              Its:____________________________________

                                   Exhibit D
<PAGE>

June 23, 1998

Cilker Revocable Trust of October 9, 1990
1631 Willow Street, Suite 225
San Jose, CA  95125

          Re:  Request for Consent to an Assignment of Lease Regarding
               166 Baypoint Parkway
               San Jose, CA  95132
               ----------------------------------------

Dear Sirs:

     This letter constitutes a request for your consent to an assignment of a
portion of the interest of JTS Corporation, a Delaware corporation ("JTS"),
                                                                     ---
under the lease, dated June 15, 1995 ("Lease"), between JT Storage and the
                                       -----
Cilker Revocable Trust of October 9, 1990 ("Cilker Trust") which Lease concerns
                                            ------------
property commonly known as 166 Baypoint Parkway, San Jose, California.  JTS
intends to assign a portion of its interest in the Lease to Optical Networks,
Inc., a California corporation ("ONI").
                                 ---

     Therefore, in accordance with the requirements of Paragraph 25.B of the
Lease, JTS is furnishing you with the following information:

          (i)       Name of proposed Assignee:  Optical Networks, Inc.

          (ii)      Nature of proposed Assignee's business to be carried on in
                    the Premises: office, engineering, research and development
                    and light manufacturing (primarily final assembly and
                    testing) all with respect to Assignee's design and building
                    of optical networking systems.

          (iii)     Copy of draft Assignment of Lease is included. Assignee
                    shall pay Landlord the Base Rent sum of $1.70 psf/month NNN
                    for 25 months as Consideration for this Assignment. The
                    amortization of the Additional Tenant Improvement Allowance
                    will be paid by Assignor under the Master Lease for the
                    Assigned and Retained Portion of the Premises. The
                    Consideration shall be paid by Assignee to Landlord in equal
                    monthly
<PAGE>

June 23, 1998
Page 2

                     installments beginning July 18, 1998. Notwithstanding the
                     foregoing, Assignee shall receive a credit to reimburse
                     Assignee for the sum of the following: (a) the real estate
                     commission in connection with the assignment, (b) the cost
                     of alterations to be paid for by Assignee to create the
                     separation of the Assigned Portion of the Premises from the
                     Premises, and (c) Assignee's attorneys fees in connection
                     with the assignment transaction (collective, the "Credit").
                                                                       ------
                     This Credit shall be applied by Assignee to the initial
                     installments of the Consideration, not to exceed Eighty
                     Four cents ($0.84) per square foot per month until Assignee
                     is reimbursed for the total amount of the Credit. Each
                     month as Landlord receives payment of the Consideration
                     from Assignee, Landlord agrees to pay to Assignor a portion
                     of said Consideration ("Profit Portion") which is
                                             --------------
                     calculated as 50% of the Consideration after reducing said
                     consideration by the sum of the following amounts: (a) the
                     Credit, (b) the Base Rent for the Assigned Portion of the
                     Premises.

We hope to consummate the assignment in a short period of time.  Accordingly,
your prompt consent would be appreciated.  Thank you in advance for your
assistance.

Sincerely,

JTS Corporation

By: /s/
   -------------------------------
Its:  President
     -----------------------------
By:  /s/
   -------------------------------
Its:  Chairman
    ------------------------------

cc:  Optical Networks, Inc.

                                       2<PAGE>

                                                                   EXHIBIT 10.08

                                   AGREEMENT

Recitals

Section 1.  Right of First Refusal

Section 2.  "Default" under the Lease

Section 3.  Cooperation

Section 4.  Successors and Assigns

Section 5.  Governing Law

                           _________________________

     This agreement ("Agreement") is made and entered into as of June 23, 1998
                      ---------
between JTS CORPORATION, a Delaware corporation ("Assignor"), and OPTICAL
                                                  --------
NETWORKS, INC., a California corporation ("Assignee").
                                           --------

                                    Recitals
                                    --------

     A.  The Cilker Revocable Trust of October 9, 1990 ("Landlord"), as
                                                         --------
Landlord, and Assignor, as Tenant, executed a lease dated June 15, 1995
("Lease"), pursuant to which Landlord leased to Tenant and Tenant leased from
  -----
Landlord certain properties identified in Paragraph 2 of the lease and other
Lease provisions cross-referenced in such Paragraph 2.  For a term of five (5)
years commencing on August 18, 1995 and ending on August 17, 2000 subject to
earlier termination as provided in the Lease.

     B.  Assignor and Assignee entered into an assignment of lease, dated as of
the same date as this Agreement ("Assignment of Lease"), whereby Assignor
                                  -------------------
assigned to Assignee that portion of the "Premises" (as such term is defined in
the Lease) which is identified on Exhibit B to the Assignment of Lease
("Assigned Portion of the Premises"), and whereby Assignee accepted the
  --------------------------------
assignment of the Assigned Portion of the Premises from Assignor and assumed
obligations under the Lease.

     C.  Assignor retained the balance of the Premises ("Retained Portion of the
                                                         -----------------------
Premises").
--------

     D.  By means of the Assignment of Lease, Assignor will assign to Assignee
the two (2) options to extend the term of the Lease, in accordance with
Paragraph 40 ("Option to Renew") of the Lease ("Retained Portion Extension
               ---------------                  --------------------------
Options"), providing Assignee assumes 100% assignment of the Premises.
-------

                                       1
<PAGE>

     E.  Assignor and Assignee desire to evidence in writing certain
understandings and agreements they have reached regarding the Assigned and the
Retained Portions of the Premises as well as the Extension Options.

     Therefore, for good and valuable consideration, the receipt and adequacy of
which are acknowledged, Assignor and Assignee agree as follows:

                      Section 1.  Right of First Refusal.

     If either party desire to "Sublet" (as such term is defined in Paragraph
3.M. of the Lease), part or all of the Assigned or Retained Portions of the
Premises, then the party desiring to Sublet ("Sublet Party") shall deliver a
written notice to the other party ("Non-Sublet Party") describing in reasonable
                                    ----------------
detail the terms and conditions of the proposed Sublet ("Proposed Terms").  The
                                                         --------------
Non-Sublet Party shall have fifteen (15) business days after receipt of the
written notice to deliver to the Sublet party a written response stating the
Non-Sublet Party's desire to accept the Sublet on the Proposed Terms.  If such
an affirmative writing is delivered within fifteen (15) business days, the
parties will cooperate fully to attempt to obtain the consent of "Landlord" (as
such term is defined in the Lease) to such Sublet to the Non-Sublet Party.  If
such consent is obtained, the parties shall take all reasonable and expeditious
action to enter an agreement covering such Sublet.  If an affirmative writing is
not delivered to the Sublet Party by the Non-Sublet Party within fifteen (15)
business days, then the Sublet Party shall be free, for a period of one hundred
twenty (120) days, to make such Sublet to a third party as long as such Sublet
is not on better terms with respect to such third party than would have been the
case with respect to the Non-Sublet Party if it had obtained the Sublet on the
Proposed Terms.

                    Section 2.  "Default" Under the Lease.

     Should either party to this Agreement become aware of any event, fact or
circumstance that would or does constitute an "Event of Default" under the Lease
(as such term is defined in Paragraph 26 of the Lease), then such party shall
immediately notify the other party in writing (providing all details of the
default that the first party possesses) with respect to such event, fact or
circumstance.  The party whose actions, omissions or circumstances have or will
give rise to such Event of Default ("Defaulting Party") shall promptly notify
                                     ----------------
the other party ("Non-Defaulting Party") in writing whether such Defaulting
                  --------------------
Party will take necessary steps to avoid or cure such Event of Default.  In the
event the Defaulting Party will not take such necessary steps, then the Non-
Defaulting Party shall have the option to take such necessary steps, if
possible.  If the Non-Defaulting Party delivers a writing to the Defaulting
Party stating the Non-Defaulting Party's desire to take such necessary steps,
then the Defaulting Party shall immediately take all commercially reasonable
steps to assign and transfer to the Non-Defaulting Party all rights in, under
and with respect to the Lease in exchange for no consideration other than the
Non-Defaulting Party's reasonable good faith efforts to attempt to avoid or cure
the Event of Default in question.  Furthermore, in this situation both parties
will make all commercially reasonable efforts to embody in a written agreement
their respective obligations on an expedited basis.

                                       2
<PAGE>

                           Section 3.  Cooperation.

     The parties hereto will cooperate fully with each other, make all
reasonable, good faith commercial efforts and take all reasonable actions to
achieve and bring about, on a prompt basis, the goals and objectives set forth
in this Agreement.

                      Section 4.  Successors and Assigns.

     This Agreement shall be binding and inure to the benefit of the parties to
it, their heirs, executors, administrators, successors in interest, and assigns.

                          Section 5.  Governing Law.

     This Agreement shall be governed by and construed in accordance with
California law.

     The parties have executed this Agreement as of the date first above
written.

ASSIGNOR:
--------

JTS CORPORATION
a Delaware corporation

By: /s/
   ---------------------------------
Its: President
    --------------------------------
By: /s/
   ---------------------------------
Its: Chairman
    --------------------------------

ASSIGNEE:
--------

OPTICAL NETWORKS, INC.
a California corporation

By: /s/ Hugh C. Martin
   ---------------------------------
Its: President
    --------------------------------
By: /s/ Terrence J. Schmid
   ---------------------------------
Its: CFO
    --------------------------------

                                       3

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