Document:

<PAGE>

                                                                    EXHIBIT 10.7

                                 OFFICE LEASE
                                 ------------

                            SIERRA POINT DEVELOPMENT
                            ------------------------

                             SIERRA POINT, L.L.C.,
                     a Delaware limited liability company,

                                  as Landlord,

                                      and

                               TURBOLINUX, INC.,

                            a Delaware corporation,

                                   as Tenant.

<PAGE>

                            SIERRA POINT DEVELOPMENT
                            ------------------------
                                     INDEX
                                     -----

<TABLE>
<CAPTION>

ARTICLE         SUBJECT MATTER                                                    PAGE
-------         --------------                                                    ----
<S>             <C>                                                               <C>
ARTICLE 1       PREMISES, BUILDING, PROJECT, AND COMMON AREAS..................    4
ARTICLE 2       LEASE TERM.....................................................    5
ARTICLE 3       BASE RENT......................................................    5
ARTICLE 4       ADDITIONAL RENT................................................    6
ARTICLE 5       USE OF PREMISES................................................   14
ARTICLE 6       SERVICES AND UTILITIES.........................................   15
ARTICLE 7       REPAIRS........................................................   17
ARTICLE 8       ADDITIONS AND ALTERATIONS......................................   17
ARTICLE 9       COVENANT AGAINST LIENS.........................................   19
ARTICLE 10      INSURANCE......................................................   20
ARTICLE 11      DAMAGE AND DESTRUCTION.........................................   22
ARTICLE 12      NONWAIVER......................................................   24
ARTICLE 13      CONDEMNATION...................................................   25
ARTICLE 14      ASSIGNMENT AND SUBLETTING......................................   25
ARTICLE 15      SURRENDER OF PREMISES; OWNERSHIP AND  REMOVAL OF TRADE FIXTURES   29
ARTICLE 16      HOLDING OVER...................................................   30
ARTICLE 17      ESTOPPEL CERTIFICATES..........................................   31
ARTICLE 18      SUBORDINATION..................................................   31
ARTICLE 19      DEFAULTS; REMEDIES.............................................   32
ARTICLE 20      COVENANT OF QUIET ENJOYMENT....................................   34
ARTICLE 21      LETTER OF CREDIT...............................................   34
ARTICLE 22      INTENTIONALLY DELETED..........................................   37
</TABLE>

                                      (i)
<PAGE>

<TABLE>
<CAPTION>

ARTICLE         SUBJECT MATTER                                                    PAGE
-------         --------------                                                    ----
<S>             <C>                                                               <C>

ARTICLE 23      SIGNS..........................................................   37
ARTICLE 24      COMPLIANCE WITH LAW............................................   37
ARTICLE 25      LATE CHARGES...................................................   38
ARTICLE 26      LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT...........   38
ARTICLE 27      ENTRY BY LANDLORD..............................................   39
ARTICLE 28      TENANT PARKING.................................................   39
ARTICLE 29      MISCELLANEOUS PROVISIONS.......................................   40
ARTICLE 30      EXISTING ENVIRONMENTAL CONDITION...............................   47
ARTICLE 31      OPTION TO EXTEND...............................................   47
EXHIBITS
</TABLE>

A         OUTLINE OF PREMISES

B         TENANT WORK LETTER

C         FORM OF NOTICE OF LEASE TERM DATES

D         RULES AND REGULATIONS

E         FORM OF TENANT'S ESTOPPEL CERTIFICATE

F         ENVIRONMENTAL SUMMARY

                                     (ii)
<PAGE>

                            SIERRA POINT DEVELOPMENT
                            ------------------------

                                  OFFICE LEASE
                                  ------------

     This Office Lease (the "Lease"), dated as of the date set forth in Section
1 of the Summary of Basic Lease Information (the "Summary"), below, is made by
and between Sierra Point, L.L.C. a Delaware limited liability company
("Landlord"), and TURBOLINUX, INC., a Delaware corporation ("Tenant").

                       SUMMARY OF BASIC LEASE INFORMATION
                       ----------------------------------
<TABLE>
<CAPTION>
                  TERMS OF LEASE                                         DESCRIPTION
                  --------------                                         -----------
<S>                                                    <C>
1.  Date:                                             February 3, 2000

2.  Premises
    (Article 1).

    2.1  Building:                                    8000 Marina Boulevard, Brisbane, California

    2.2  Premises:                                    Approximately 50,026 rentable square feet of
                                                      space located on the second (2nd) and third
                                                      (3rd) floors of the Building as further set
                                                      forth in Exhibit A to the Office Lease.
                                                               ---------
3.  Lease Term
    (Article 2).

    3.1  Length of Term:                              Eight (8) years.

    3.2  Lease Commencement Date:
                                                      The earlier to occur of (i) the date upon which
                                                      Tenant first commences to conduct business in
                                                      the Premises and (ii) the date upon which the
                                                      Premises are Ready for Occupancy, which is
                                                      anticipated to be May 1, 2000.

</TABLE>
<PAGE>

<TABLE>
<S>                                                   <C>
     3.3  Lease Expiration Date:                      If the Lease Commencement Date shall be the
                                                      first day of a calendar month, then the day
                                                      immediately preceding the eighth (8th)
                                                      anniversary of the Lease Commencement Date; or,
                                                      if the Lease Commencement Date shall be other
                                                      than the first day of a calendar month, then the
                                                      last day of the month in which the eighth (8th)
                                                      anniversary of the Lease Commencement Date
                                                      occurs.
4. Base Rent
   (Article 3):

                                                                                               Monthly
                                                                   Monthly                   Rental Rate
                                         Annual                  Installment                 per Rentable
                   Lease Year          Base Rent                 of Base Rent                 Square Foot
                   ----------          ---------                 ------------               --------------

                        1             $2,251,170.00               $187,597.50                     $3.75
                        2             $2,329,210.50               $194,100.88                     $3.88
                        3             $2,413,254.20               $201,104.52                     $4.02
                        4             $2,497,297.90               $208,108.16                     $4.16
                        5             $2,581,341.60               $215,111.80                     $4.30
                        6             $2,671,388.40               $222,615.70                     $4.45
                        7             $2,767,483.30               $230,619.86                     $4.61
                        8             $2,863,488.20               $238,624.02                     $4.77

5.  Base Year                                         Calendar year 2000.
    (Article 4):

6.  Tenant's Share                                    Approximately 25.97%.
    (Article 4):

7.  Permitted Use                                     General office, software development,
    (Article 5):                                      administration and marketing use consistent with
                                                      a first-class office building.

8.  Letter of Credit                                  $ 2,736,422.20.
    (Article 21):

9.  Parking Space Ratio                               Three point three (3.3) unreserved parking
    (Article 28):                                     spaces for every 1,000 rentable square feet of
                                                      the Premises (i.e. 165).
                                                                    ----
</TABLE>
                                      -2-
<PAGE>

<TABLE>

<S>                                                   <C>
10. Address of Tenant                                 TurboLinux, Inc.
    (Section 29.18):                                  2000 Sierra Point Parkway, Suite 702
                                                      ------------------------------------
                                                      Brisbane, CA 94005
                                                      ------------------------------------
                                                      Attention: Behdad Eghbali
                                                                --------------------------
                                                      (Prior to Lease Commencement Date)

                                                      And

                                                      TurboLinux, Inc.
                                                      8000 Marina Boulevard, 2nd Floor
                                                      -----------------------------------
                                                      Brisbane, CA 94005
                                                      -----------------------------------
                                                      Attention: Chief Financial Officer
                                                                -------------------------

                                                      (After Lease Commencement Date)
11.  Address of Landlord                              See Section 29.18 of the Lease.
     (Section 29.18):

12.  Broker(s)                                        CB Richard Ellis, Inc. for Landlord and
     (Section 29.24):                                 Cornish & Carey Commercial for Tenant

14.  Tenant Improvement Allowance                     $1,167,250.00
     (Exhibit B):
</TABLE>
                                      -3-
<PAGE>

                                   ARTICLE 1
                                   ---------

                 PREMISES, BUILDING, PROJECT, AND COMMON AREAS
                 ---------------------------------------------

1.1  Premises, Building, Project and Common Areas.
     --------------------------------------------

     1.1.1  The Premises.  Landlord hereby leases to Tenant and Tenant hereby
            ------------
leases from Landlord the premises set forth in Section 2.2 of the Summary (the
"Premises").  The outline of the Premises is set forth in Exhibit A attached
                                                          ---------
hereto and each floor or floors of the Premises has the number of rentable
square feet as set forth in Section 2.2 of the Summary.  The parties hereto
agree that the lease of the Premises is upon and subject to the terms, covenants
and conditions herein set forth, and Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of such terms,
covenants and conditions by it to be kept and performed and that this Lease is
made upon the condition of such performance.  The parties hereto hereby
acknowledge that the purpose of Exhibit A is to show the approximate location of
                                ---------
the Premises in the "Building," as that term is defined in Section 1.1.2, below,
only, and such Exhibit is not meant to constitute an agreement, representation
or warranty as to the construction of the Premises, the precise area thereof or
the specific location of the "Common Areas," as that term is defined in Section
1.1.3, below, or the elements thereof or of the accessways to the Premises or
the "Project," as that term is defined in Section 1.1.2, below.  Except as
specifically set forth in this Lease and in the Tenant Work Letter attached
hereto as Exhibit B (the "Tenant Work Letter"), Landlord shall not be obligated
          ---------
to provide or pay for any improvement work or services related to the
improvement of the Premises.  Tenant also acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty regarding the
condition of the Premises, the Building or the Project or with respect to the
suitability of any of the foregoing for the conduct of Tenant's business, except
as specifically set forth in this Lease and the Tenant Work Letter.  The taking
of possession of the Premises by Tenant shall conclusively establish that the
Premises and the Building were at such time in good and sanitary order,
condition and repair.

     1.1.2 The Building and The Project. The Premises are a part of the building
           ----------------------------
set forth in Section 2.1 of the Summary (the "Building"). The Building is part
of an office project known as "Sierra Point Development." The term "Project," as
used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the
land (which is improved with landscaping, parking facilities and other
improvements) upon which the Building and the Common Areas are located, and
(iii) at Landlord's discretion, any additional real property, areas, land,
buildings or other improvements added thereto outside of the Project.

     1.1.3 Common Areas. Tenant shall have the non-exclusive right to use in
           ------------
common with other tenants in the Project, and subject to the rules and
regulations referred to in Article 5 of this Lease, those portions of the
Project which are provided, from time to time, for use in common by Landlord,
Tenant and any other tenants of the Project (such areas, together with such
other portions of the Project designated by Landlord, in its discretion,
including certain areas designated for the exclusive use of certain tenants, or
to be shared by Landlord and certain tenants, are collectively referred to
herein as the "Common Areas"). The Common Areas shall consist of the "Project
Common Areas" and the "Building Common Areas." The term "Project

                                      -4-
<PAGE>

Common Areas," as used in this Lease, shall mean the portion of the Project
designated as such by Landlord. The term "Building Common Areas," as used in
this Lease, shall mean the portions of the Common Areas located within the
Building designated as such by Landlord. The manner in which the Common Areas
are maintained and operated shall be at the sole discretion of Landlord,
provided that Landlord shall maintain and operate the same in a manner
consistent with that of other first-class office buildings in the vicinity of
the Project, which buildings are comparable in size and quality of appearance,
services and amenities to the Building (the "Comparable Buildings"), and the use
thereof shall be subject to such rules, regulations and restrictions as Landlord
may make from time to time. Landlord reserves the right to close temporarily,
make alterations or additions to, or change the location of elements of the
Project and the Common Areas.

     1.2 Verification of Rentable Square Feet of Premises, Building, and
         ---------------------------------------------------------------
Project. For purposes of this Lease, "rentable square feet" shall be calculated
-------
pursuant to "BOMA," as that term is defined in Section 4.2.9 below, provided
that the rentable square footage of the Building and the Project shall include
all of (and the rentable square footage of the Premises therefore shall include
a portion of) the Building Common Areas. In the event that the rentable area of
the Premises, the Building and/or the Project shall hereafter change due to
subsequent alterations and/or other modifications to the Premises, the Building
and/or the Project, the rentable area of the Premises, the Building and/or the
Project, as the case may be, shall be appropriately adjusted as of the date of
such alteration and/or other modification, based upon the written verification
by Landlord's space planner of such revised rentable area. In the event of any
such adjustment to the rentable area of the Premises, the Building and/or the
Project, all amounts, percentages and figures appearing or referred to in this
Lease based upon such rentable area (including, without limitation, the amount
of the "Rent" and the "Letter of Credit," as those terms are defined in Article
4 and Article 21 of this Lease, respectively) shall be modified in accordance
with such determination.

                                   ARTICLE 2
                                   ---------

                                  LEASE TERM
                                  ----------

     The terms and provisions of this Lease shall be effective as of the date of
this Lease.  The term of this Lease (the "Lease Term") shall be as set forth in
Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2
of the Summary (the "Lease Commencement Date"), and shall terminate on the date
set forth in Section 3.3 of the Summary (the "Lease Expiration Date") unless
this Lease is sooner terminated as hereinafter provided.  For purposes of this
Lease, the term "Lease Year" shall mean each consecutive twelve (12) month
period during the Lease Term.  At any time during the Lease Term, Landlord may
deliver to Tenant a notice in the form as set forth in Exhibit C, attached
                                                       ---------
hereto, as a confirmation only of the information set forth therein, which
Tenant shall execute and return to Landlord within five (5) days of receipt
thereof.

                                   ARTICLE 3
                                   ---------

                                   BASE RENT
                                   ---------

                                      -5-
<PAGE>

     Tenant shall pay, without prior notice or demand, to Landlord or Landlord's
agent in c/o Opus West Management Corporation, 2020 Main Street, Suite 800,
Irvine, California, 94614, or, at Landlord's option, at such other place as
Landlord may from time to time designate in writing, by a check for currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America, base rent ("Base Rent") as set forth in Section 4
of the Summary, payable in equal monthly installments as set forth in Section 4
of the Summary  in advance on or before the first day of each and every calendar
month during the Lease Term, without any setoff or deduction whatsoever.  The
Base Rent for the first full month of the Lease Term which occurs after the
expiration of any free rent period shall be paid at the time of Tenant's
execution of this Lease.  If any Rent payment date (including the Lease
Commencement Date) falls on a day of the month other than the first day of such
month or if any payment of Rent is for a period which is shorter than one month,
the Rent for any fractional month shall accrue on a daily basis for the period
from the date such payment is due to the end of such calendar month or to the
end of the Lease Term at a rate per day which is equal to 1/365 of the
applicable annual Rent.  All other payments or adjustments required to be made
under the terms of this Lease that require proration on a time basis shall be
prorated on the same basis.

                                   ARTICLE 4
                                   ---------

                                ADDITIONAL RENT
                                ---------------

      4.1 General Terms. In addition to paying the Base Rent specified in
          -------------
Article 3 of this Lease, Tenant shall pay "Tenant's Share" of the annual
"Building Direct Expenses," as those terms are defined in Sections 4.2.9 and
4.2.2 of this Lease, respectively, which are in excess of the amount of Building
Direct Expenses applicable to the "Base Year," as that term is defined in
Section 4.2.1, below; provided, however, that in no event shall any decrease in
Building Direct Expenses for any "Expense Year," as that term is defined in
Section 4.2.6 below, below Building Direct Expenses for the Base Year entitle
Tenant to any decrease in Base Rent or any credit against sums due under this
Lease. Such payments by Tenant, together with any and all other amounts payable
by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter
collectively referred to as the "Additional Rent", and the Base Rent and the
Additional Rent are herein collectively referred to as "Rent." All amounts due
under this Article 4 as Additional Rent shall be payable for the same periods
and in the same manner as the Base Rent. Without limitation on other obligations
of Tenant which survive the expiration of the Lease Term, the obligations of
Tenant to pay the Additional Rent provided for in this Article 4 shall survive
the expiration of the Lease Term.

     4.2  Definitions of Key Terms Relating to Additional Rent.  As used in this
          ----------------------------------------------------
Article 4, the following terms shall have the meanings hereinafter set forth:

          4.2.1 "Base Year" shall mean the period set forth in Section 5 of the
Summary.

          4.2.2 "Building Direct Expenses" shall mean "Building Operating
Expenses" and "Building Tax Expenses", as those terms are defined in Sections
4.2.3 and 4.2.4, below, respectively.

                                      -6-
<PAGE>

          4.2.3 "Building Operating Expenses" shall mean the portion of
"Operating Expenses," as that term is defined in Section 4.2.7 below, allocated
to the tenants of the Building pursuant to the terms of Section 4.3.1 below.

          4.2.4 "Building Tax Expenses" shall mean that portion of "Tax
Expenses", as that term is defined in Section 4.2.8 below, allocated to the
tenants of the Building pursuant to the terms of Section 4.3.1 below.

          4.2.5 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."

          4.2.6 "Expense Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires, provided that Landlord, upon notice to Tenant, may
change the Expense Year from time to time to any other twelve (12) consecutive
month period, and, in the event of any such change, Tenant's Share of Building
Direct Expenses shall be equitably adjusted for any Expense Year involved in any
such change.

          4.2.7 "Operating Expenses" shall mean all expenses, costs and amounts
of every kind and nature which Landlord pays or accrues during any Expense Year
because of or in connection with the ownership, management, maintenance,
security, repair, replacement, restoration or operation of the Project, or any
portion thereof. Without limiting the generality of the foregoing, Operating
Expenses shall specifically include any and all of the following: (i) the cost
of supplying all utilities, the cost of operating, repairing, maintaining, and
renovating the utility, telephone, mechanical, sanitary, storm drainage, and
elevator systems, and the cost of maintenance and service contracts in
connection therewith; (ii) the cost of licenses, certificates, permits and
inspections and the cost of contesting any governmental enactments which may
affect Operating Expenses, and the costs incurred in connection with a
governmentally mandated transportation system management program or similar
program; (iii) the cost of all insurance carried by Landlord in connection with
the Project as reasonably determined by Landlord; (iv) the cost of landscaping,
relamping, and all supplies, tools, equipment and materials used in the
operation, repair and maintenance of the Project, or any portion thereof; (v)
the cost of parking area repair, restoration, and maintenance; (vi) fees and
other costs, including reasonable management fees, consulting fees, legal fees
and accounting fees, of all contractors and consultants in connection with the
management, operation, maintenance and repair of the Project; (vii) payments
under any equipment rental agreements and the fair rental value of any
management office space; (viii) subject to item (f), below, wages, salaries and
other compensation and benefits, including taxes levied thereon, of all persons
engaged in the operation, maintenance and security of the Project; (ix) costs
under any instrument pertaining to the sharing of costs by the Project; (x)
operation, repair, maintenance and replacement of all systems and equipment and
components thereof of the Project; (xi) the cost of janitorial, alarm, security
and other services, replacement of wall and floor coverings, ceiling tiles and
fixtures in common areas, maintenance and replacement of curbs and walkways,
repair to roofs and re-roofing; (xii) amortization (including interest on the
unamortized cost) over the useful life as Landlord shall reasonably determine,
of the cost of acquiring or the rental expense of personal property used in the
maintenance, operation and repair of the Project, or any portion thereof; (xiii)
the cost of capital improvements or other costs incurred in connection with the
Project (A) which are intended to effect economies in the operation or
maintenance of the Project, or any

                                      -7-
<PAGE>

portion thereof, (B) that are required to comply with present or anticipated
conservation programs, (C) which are replacements or modifications of
nonstructural items located in the Common Areas required to keep the Common
Areas in good order or condition, or (D) that are required under any
governmental law or regulation; provided, however, that any capital expenditure
shall be amortized (including interest on the amortized cost) over its useful
life as Landlord shall reasonably determine; and (xiv) costs, fees, charges or
assessments imposed by, or resulting from any mandate imposed on Landlord by,
any federal, state or local government for fire and police protection, trash
removal, community services, or other services which do not constitute "Tax
Expenses" as that term is defined in Section 4.2.8, below and (xv) payments
under any easement, license, operating agreement, declaration, restrictive
covenant, or instrument pertaining to the sharing of costs by the Building,
including any property owner and parking association fees and environmental
covenants, conditions and restrictions. Notwithstanding the foregoing, for
purposes of this Lease, Operating Expenses shall not, however, include:

            (a)  costs, including marketing costs, legal fees, space planners'
     fees, advertising and promotional expenses, and brokerage fees incurred in
     connection with the original construction or development, or original or
     future leasing of the Project, and costs, including permit, license and
     inspection costs, incurred with respect to the installation of tenant
     improvements made for new tenants initially occupying space in the Project
     after the Lease Commencement Date or incurred in renovating or otherwise
     improving, decorating, painting or redecorating vacant space for tenants or
     other occupants of the Project (excluding, however, such costs relating to
     any common areas of the Project or parking facilities);

            (b)  except as set forth in items (xii), (xiii), and (xiv) above,
     depreciation, interest and principal payments on mortgages and other debt
     costs, if any, penalties and interest, costs of capital repairs and
     alterations, and costs of capital improvements and equipment;

            (c)  costs for which the Landlord is reimbursed by any tenant or
     occupant of the Project or by insurance by its carrier or any tenant's
     carrier or by anyone else, and electric power costs for which any tenant
     directly contracts with the local public service company;

            (d)  any bad debt loss, rent loss, or reserves for bad debts or rent
     loss;

            (e)  costs associated with the operation of the business of the
     partnership or entity which constitutes the Landlord, as the same are
     distinguished from the costs of operation of the Project (which shall
     specifically include, but not be limited to, accounting costs associated
     with the operation of the Project). Costs associated with the operation of
     the business of the partnership or entity which constitutes the Landlord
     including costs of partnership accounting and legal matters, costs of
     defending any lawsuits with any mortgagee (except as the actions of the
     Tenant may be in issue), costs of selling, syndicating, financing,
     mortgaging or hypothecating any of the Landlord's interest in the Project,
     and costs incurred in connection with any disputes between Landlord and its
     employees, between Landlord and Project management, or between

                                      -8-
<PAGE>

     Landlord and other tenants or occupants, and Landlord's general corporate
     overhead and general and administrative expenses;

            (f)  the wages and benefits of any employee who does not devote
     substantially all of his or her employed time to the Project unless such
     wages and benefits are prorated to reflect time spent on operating and
     managing the Project vis-a-vis time spent on matters unrelated to operating
     and managing the Project; provided, that in no event shall Operating
     Expenses for purposes of this Lease include wages and/or benefits
     attributable to personnel above the level of Project manager;

            (g)  amount paid as ground rental for the Project by the Landlord;

            (h)  except for a Project management fee to the extent allowed
     pursuant to item (m), below, overhead and profit increment paid to the
     Landlord or to subsidiaries or affiliates of the Landlord for services in
     the Project to the extent the same exceeds the costs of such services
     rendered by qualified, first-class unaffiliated third parties on a
     competitive basis;

            (i)  any compensation paid to clerks, attendants or other persons in
     commercial concessions operated by the Landlord, provided that any
     compensation paid to any concierge at the Project shall be includable as an
     Operating Expense;

            (j)  rentals and other related expenses incurred in leasing air
     conditioning systems, elevators or other equipment which if purchased the
     cost of which would be excluded from Operating Expenses as a capital cost,
     except equipment not affixed to the Project which is used in providing
     janitorial or similar services and, further excepting from this exclusion
     such equipment rented or leased to remedy or ameliorate an emergency
     condition in the Project;

            (k)  all items and services for which Tenant or any other tenant in
     the Project reimburses Landlord or which Landlord provides selectively to
     one or more tenants (other than Tenant) without reimbursement;

            (l)  costs, other than those incurred in ordinary maintenance and
     repair, for sculpture, paintings, fountains or other objects of art;

            (m)  any costs expressly excluded from Operating Expenses elsewhere
     in this Lease;

            (n)  rent for any office space occupied by Project management
     personnel to the extent the size or rental rate of such office space
     exceeds the size or fair market rental value of office space occupied by
     management personnel of the Comparable Buildings in the vicinity of the
     Building, with adjustment where appropriate for the size of the applicable
     project;

            (o)  costs arising from the gross negligence or willful misconduct
     of Landlord or its agents, employees, vendors, contractors, or providers of
     materials or services;

                                      -9-
<PAGE>

            (p)  costs incurred to comply with laws relating to the removal of
     hazardous material (as defined under applicable law) which was in existence
     in the Building or on the Project prior to the Lease Commencement Date, and
     was of such a nature that a federal, State or municipal governmental
     authority, if it had then had knowledge of the presence of such hazardous
     material, in the state, and under the conditions that it then existed in
     the Building or on the Project, would have then required the removal of
     such hazardous material or other remedial or containment action with
     respect thereto; and costs incurred to remove, remedy, contain, or treat
     hazardous material, which hazardous material is brought into the Building
     or onto the Project after the date hereof by Landlord or any other tenant
     of the Project and is of such a nature, at that time, that a federal, State
     or municipal governmental authority, if it had then had knowledge of the
     presence of such hazardous material, in the state, and under the
     conditions, that it then exists in the Building or on the Project, would
     have then required the removal of such hazardous material or other remedial
     or containment action with respect thereto;

            (q)  costs arising from Landlord's charitable or political
     contributions;

            (r)  any gifts provided to any entity whatsoever, including, but not
     limited to, Tenant, other tenants, employees, vendors, contractors,
     prospective tenants and agents; and

            (s)  the cost of any magazine, newspaper, trade or other
     subscriptions.

     If Landlord is not furnishing any particular work or service (the cost of
which, if performed by Landlord, would be included in Operating Expenses) to a
tenant who has undertaken to perform such work or service in lieu of the
performance thereof by Landlord, Operating Expenses shall be deemed to be
increased by an amount equal to the additional Operating Expenses which would
reasonably have been incurred during such period by Landlord if it had at its
own expense furnished such work or service to such tenant.  If the Project is
not at least ninety-five percent (95%) occupied during all or a portion of the
Base Year or any Expense Year, Landlord shall make an appropriate adjustment to
the components of Operating Expenses for such year to determine the amount of
Operating Expenses that would have been incurred had the Project been ninety-
five percent (95%) occupied; and the amount so determined shall be deemed to
have been the amount of Operating Expenses for such year.  Operating Expenses
for the Base Year shall not include market-wide labor-rate increases due to
extraordinary circumstances, including, but not limited to, boycotts and
strikes, and utility rate increases due to extraordinary circumstances
including, but not limited to, conservation surcharges, boycotts, embargoes or
other shortages, or amortized costs relating to capital improvements.  In no
event shall the components of Direct Expenses for any Expense Year related to
electrical costs be less than the components of Direct Expenses related to
electrical costs in the Base Year.

      4.2.8   Taxes.
              -----

              4.2.8.1 "Tax Expenses" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the

                                     -10-
<PAGE>

receipt of rent, including gross receipts or sales taxes applicable to the
receipt of rent, unless required to be paid by Tenant, personal property taxes
imposed upon the fixtures, machinery, equipment, apparatus, systems and
equipment, appurtenances, furniture and other personal property used in
connection with the Project, or any portion thereof), which shall be paid or
accrued during any Expense Year (without regard to any different fiscal year
used by such governmental or municipal authority) because of or in connection
with the ownership, leasing and operation of the Project, or any portion
thereof.

            4.2.8.2 Tax Expenses shall include, without limitation: (i) Any tax
on the rent, right to rent or other income from the Project, or any portion
thereof, or as against the business of leasing the Project, or any portion
thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election ("Proposition 13")
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants, and, in further
recognition of the decrease in the level and quality of governmental services
and amenities as a result of Proposition 13, Tax Expenses shall also include any
governmental or private assessments or the Project's contribution towards a
governmental or private cost-sharing agreement for the purpose of augmenting or
improving the quality of services and amenities normally provided by
governmental agencies; (iii) Any assessment, tax, fee, levy, or charge allocable
to or measured by the area of the Premises or the Rent payable hereunder,
including, without limitation, any business or gross income tax or excise tax
with respect to the receipt of such rent, or upon or with respect to the
possession, leasing, operating, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises, or any portion thereof; (iv) Any
assessment, tax, fee, levy or charge, upon this transaction or any document to
which Tenant is a party, creating or transferring an interest or an estate in
the Premises; and (v) All of the real estate taxes and assessments imposed upon
or with respect to the Building and all of the real estate taxes and assessments
imposed on the land and improvements comprising the Project. Notwithstanding the
foregoing, the parties acknowledge that upon transfer of the Project to Sierra
Point One Trust, a Maryland real estate investment trust ("Sierra Point One
Trust"), Tax Expenses for the Base Year shall be adjusted to reflect the value
actually paid for the Project by Sierra Point One Trust.

            4.2.8.3  Any costs and expenses (including, without limitation,
reasonable attorneys' and consultants' fees) incurred in attempting to protest,
reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense
Year such expenses are incurred. If Tax Expenses for any period during the Lease
Term or any extension thereof are increased after payment thereof for any
reason, including, without limitation, error or reassessment by applicable
governmental or municipal authorities, Tenant shall pay Landlord upon demand
Tenant's Share of any such increased Tax Expenses included by Landlord as
Building Tax Expenses pursuant to the terms of this Lease. Notwithstanding
anything to the contrary contained in this Section 4.2.8 (except as set forth in
Section 4.2.8.1, above), there shall be excluded from Tax Expenses (i) all
excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal and state income taxes,
and other taxes to the extent applicable to Landlord's general or net income (as
opposed to rents, receipts or

                                     -11-
<PAGE>

income attributable to operations at the Project), (ii) any items included as
Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this
Lease.

            4.2.8.4 The amount of Tax Expenses for the Base Year attributable to
the valuation of the Project, inclusive of tenant improvements, shall be known
as the "Base Taxes". If in any comparison year subsequent to the Base Year, the
amount of Tax Expenses decreases below the amount of Base Taxes, then for
purposes of all subsequent comparison years, including the comparison year in
which such decrease in Tax Expenses occurred, the Base Taxes, and therefore the
Base Year, shall be decreased by an amount equal to the decrease in Tax
Expenses.

            4.2.9 "Tenant's Share" shall mean the percentage set forth in
Section 6 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises, as set forth in Section 2.2 of
the Summary, by 100, and dividing the product by the total rentable square feet
in the Building. The rentable square feet in the Premises and Building is
measured pursuant to the Standard Method for Measuring Floor Area in Office
Buildings, ANSI Z65.1 - 1996 ("BOMA"), provided that the rentable square footage
of the Building shall include all of, and the rentable square footage of the
Premises therefore shall include a portion of, the square footage of the ground
floor common areas located within the Building and the common area and occupied
space of the portion of the Building or Project, dedicated to the service of the
Building. In the event either the rentable square feet of the Premises and/or
the total rentable square feet of the Building is remeasured, Tenant's Share
shall be appropriately adjusted, and, as to the Expense Year in which such
change occurs, Tenant's Share for such Expense Year shall be determined on the
basis of the number of days during such Expense Year that each such Tenant's
Share was in effect. Landlord shall have the option to modify the method of
calculation of Tenant's Share to a calculation based on the usable square feet
of the Premises and Building, so long as the Tenant's Share hereunder is not
increased thereby.

4.3  Allocation of Direct Expenses.
     -----------------------------

     4.3.1  Method of Allocation.  Landlord and Tenant acknowledge that the
            --------------------
Building is a part of a multi-building project and that the costs and expenses
incurred in connection with the Project (i.e. the Direct Expenses) should be
                                         ---
shared between the tenants of the Building and the tenants of the other
buildings in the Project. Accordingly, as set forth in Section 4.2 above, Direct
Expenses (which consists of Operating Expenses and Tax Expenses) are determined
annually for the Project as a whole, and a portion of the Direct Expenses, which
portion shall be determined by Landlord on an equitable basis, shall be
allocated to the tenants of the Building (as opposed to the tenants of any other
buildings in the Project) and such portion shall be the Building Direct Expenses
for purposes of this Lease. Such portion of Direct Expenses allocated to the
tenants of the Building shall include all Direct Expenses attributable solely to
the Building and an equitable portion of the Direct Expenses attributable to the
Project as a whole.

     4.3.2  Cost Pools.  Landlord shall have the right, from time to time, to
            ----------
equitably allocate some or all of the Direct Expenses for the Project among
different portions or occupants of the Project (the "Cost Pools"), in Landlord's
reasonable discretion.  Such Cost Pools may include, but shall not be limited
to, the office space tenants of a building of the Project or of the

                                     -12-
<PAGE>

Project, and the retail space tenants of a building of the Project or of the
Project. The Direct Expenses within each such Cost Pool shall be allocated and
charged to the tenants within such Cost Pool in an equitable manner.

     4.4  Calculation and Payment of Additional Rent. If for any Expense Year
          ------------------------------------------
ending or commencing within the Lease Term, Tenant's Share of Building Direct
Expenses for such Expense Year exceeds Tenant's Share of Building Direct
Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the
manner set forth in Section 4.4.1, below, and as Additional Rent, an amount
equal to the excess (the "Excess").

            4.4.1  Statement of Actual Building Direct Expenses and Payment by
                   -----------------------------------------------------------
Tenant. Landlord shall endeavor to give to Tenant following the end of each
------
Expense Year, a statement (the "Statement") which shall state the Building
Direct Expenses incurred or accrued for such preceding Expense Year, and which
shall indicate the amount of the Excess. Upon receipt of the Statement for each
Expense Year commencing or ending during the Lease Term, if an Excess is
present, Tenant shall pay, with its next installment of Base Rent due, the full
amount of the Excess for such Expense Year, less the amounts, if any, paid
during such Expense Year as "Estimated Excess," as that term is defined in
Section 4.4.2, below, and if Tenant paid more as Estimated Excess than the
actual Excess, Tenant shall receive a credit in the amount of Tenant's
overpayment against Rent next due under this Lease. The failure of Landlord to
timely furnish the Statement for any Expense Year shall not prejudice Landlord
or Tenant from enforcing its rights under this Article 4. Even though the Lease
Term has expired and Tenant has vacated the Premises, when the final
determination is made of Tenant's Share of Building Direct Expenses for the
Expense Year in which this Lease terminates, if an Excess is present, Tenant
shall immediately pay to Landlord such amount, and if Tenant paid more as
Estimated Excess than the actual Excess, Landlord shall, within thirty (30)
days, deliver a check payable to Tenant in the amount of the overpayment. The
provisions of this Section 4.4.1 shall survive the expiration or earlier
termination of the Lease Term.

              4.4.2  Statement of Estimated Building Direct Expenses. In
                     -----------------------------------------------
addition, Landlord shall endeavor to give Tenant a yearly expense estimate
statement (the "Estimate Statement") which shall set forth Landlord's reasonable
estimate (the "Estimate") of what the total amount of Building Direct Expenses
for the then-current Expense Year shall be and the estimated excess (the
"Estimated Excess") as calculated by comparing the Building Direct Expenses for
such Expense Year, which shall be based upon the Estimate, to the amount of
Building Direct Expenses for the Base Year. The failure of Landlord to timely
furnish the Estimate Statement for any Expense Year shall not preclude Landlord
from enforcing its rights to collect any Estimated Excess under this Article 4,
nor shall Landlord be prohibited from revising any Estimate Statement or
Estimated Excess theretofore delivered to the extent necessary. Thereafter,
Tenant shall pay, with its next installment of Base Rent due, a fraction of the
Estimated Excess for the then-current Expense Year (reduced by any amounts paid
pursuant to the last sentence of this Section 4.4.2). Such fraction shall have
as its numerator the number of months which have elapsed in such current Expense
Year, including the month of such payment, and twelve (12) as its denominator.
Until a new Estimate Statement is furnished (which Landlord shall have the right
to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly
Base Rent installments, an amount equal to one-twelfth (1/12) of the total
Estimated Excess set forth in the previous Estimate Statement delivered by
Landlord to Tenant.

                                     -13-
<PAGE>

     4.5    Taxes and Other Charges for Which Tenant Is Directly Responsible.
            ----------------------------------------------------------------

            4.5.1  Tenant shall be liable for and shall pay ten (10) days before
delinquency, taxes levied against Tenant's equipment, furniture, fixtures and
any other personal property located in or about the Premises.  If any such taxes
on Tenant's equipment, furniture, fixtures and any other personal property are
levied against Landlord or Landlord's property or if the assessed value of
Landlord's property is increased by the inclusion therein of a value placed upon
such equipment, furniture, fixtures or any other personal property and if
Landlord pays the taxes based upon such increased assessment, which Landlord
shall have the right to do regardless of the validity thereof but only under
proper protest if requested by Tenant, Tenant shall upon demand repay to
Landlord the taxes so levied against Landlord or the proportion of such taxes
resulting from such increase in the assessment, as the case may be.

         4.5.2 If the tenant improvements in the Premises, whether installed
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which tenant improvements
conforming to Landlord's "building standard" in other space in the Building are
assessed, then the Tax Expenses levied against Landlord or the property by
reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
Section 4.5.1, above.

         4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay
prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or
value added tax, or any other applicable tax on the rent or services herein or
otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion of the Project, including
the Project parking facility; or (iii) taxes assessed upon this transaction or
any document to which Tenant is a party creating or transferring an interest or
an estate in the Premises.

                                   ARTICLE 5
                                   ---------

                                USE OF PREMISES
                                ---------------

     5.1  Permitted Use. Tenant shall use the Premises solely for the Permitted
          -------------
Use set forth in Section 7 of the Summary and Tenant shall not use or permit the
Premises or the Project to be used for any other purpose or purposes whatsoever
without the prior written consent of Landlord, which may be withheld in
Landlord's sole discretion.

     5.2  Prohibited Uses. Tenant further covenants and agrees that Tenant shall
          ---------------
not use, or suffer or permit any person or persons to use, the Premises or any
part thereof for any use or purpose contrary to the provisions of the Rules and
Regulations set forth in Exhibit D, attached hereto, or in violation of the laws
                         ---------
of the United States of America, the State of California, or the ordinances,
regulations or requirements of the local municipal or county governing body or
other lawful authorities having jurisdiction over the Project, including,
without limitation, any such laws, ordinances, regulations or requirements
relating to hazardous materials or substances, as those terms are defined by
applicable laws now or hereafter in effect.  Tenant shall not do or

                                     -14-
<PAGE>

permit anything to be done in or about the Premises which will in any way damage
the reputation of the Project or obstruct or interfere with the rights of other
tenants or occupants of the Building, or injure or annoy them or use or allow
the Premises to be used for any improper, unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall comply with, and Tenant's rights and obligations under
the Lease and Tenant's use of the Premises shall be subject and subordinate to,
all recorded easements, covenants, conditions, and restrictions now or hereafter
affecting the Project.

                                   ARTICLE 6
                                   ---------

                             SERVICES AND UTILITIES
                             ----------------------

     6.1    Standard Tenant Services. Landlord shall provide the following
            ------------------------
services on all days (unless otherwise stated below) during the Lease Term.

            6.1.1 Subject to limitations imposed by all governmental rules,
regulations and guidelines applicable thereto, Landlord shall provide heating
and air conditioning ("HVAC") when necessary for normal comfort for normal
office use in the Premises from 9:00 A.M. to 6:00 P.M. Monday through Friday,
and on Saturdays from 8:00 A.M. to 1:00 P.M. (collectively, the "Building
Hours"), except for the date of observation of New Year's Day, Independence Day,
Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord's
discretion, other locally or nationally recognized holidays which are observed
by other Comparable Buildings (collectively, the "Holidays").

            6.1.2 Landlord shall provide adequate electrical wiring and
facilities for connection to Tenant's lighting fixtures and incidental use
equipment, provided that (i) the connected electrical load of the incidental use
equipment does not exceed an average of three (3) watts per usable square foot
of the Premises, and the electricity so furnished for incidental use equipment
will be at a nominal one hundred twenty (120) volts and no electrical circuit
for the supply of such incidental use equipment will require a current capacity
exceeding twenty (20) amperes, and (ii) the connected electrical load of
Tenant's lighting fixtures does not exceed an average of one (1) watt per usable
square foot of the Premises, and the electricity so furnished for Tenant's
lighting will be at a nominal two hundred seventy-seven (277) volts, which
electrical usage shall be subject to applicable laws and regulations, including
Title 24. Tenant shall bear the cost of replacement of lamps, starters and
ballasts for non-Building standard lighting fixtures within the Premises.

            6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

            6.1.4 Landlord shall provide janitorial services to the Premises,
except the date of observation of the Holidays, in and about the Premises and
window washing services in a manner consistent with other comparable buildings
in the vicinity of the Building (provided that Landlord shall have no
responsibility for compliance with the "Floor Maintenance Covenant," as that
term is defined in Article 7 below, with respect to the Premises).

                                     -15-
<PAGE>

         6.1.5  Landlord shall provide nonexclusive, non-attended automatic
passenger elevator service during the Building Hours, shall have one elevator
available at all other times, including on the Holidays.

         6.1.6  Landlord shall provide nonexclusive freight elevator service
subject to scheduling by Landlord.

     Tenant shall cooperate fully with Landlord at all times and abide by all
regulations and requirements that Landlord may reasonably prescribe for the
proper functioning and protection of the HVAC, electrical, mechanical and
plumbing systems.

      6.2  Overstandard Tenant Use.  Tenant shall not, without Landlord's prior
           -----------------------
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
Building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of Section
6.1 of this Lease.  If Tenant uses water, electricity, heat or air conditioning
in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease,
Tenant shall pay to Landlord, upon billing, the actual cost of such excess
consumption, the cost of the installation, operation, and maintenance of
equipment which is installed in order to supply such excess consumption, and the
cost of the increased wear and tear on existing equipment caused by such excess
consumption; and Landlord may install devices to separately meter any increased
use and in such event Tenant shall pay the increased cost directly to Landlord,
on demand, at the rates charged by the public utility company furnishing the
same, including the cost of such additional metering devices.  Tenant's use of
electricity shall never exceed the capacity of the feeders to the Project or the
risers or wiring installation, and subject to the terms of Section 29.32, below,
Tenant shall not install or use or permit the installation or use of any
computer or electronic data processing equipment in the Premises, without the
prior written consent of Landlord.  If Tenant desires to use heat, ventilation
or air conditioning during hours other than those for which Landlord is
obligated to supply such utilities pursuant to the terms of Section 6.1 of this
Lease, Tenant shall give Landlord such prior notice, if any, as Landlord shall
from time to time establish as appropriate, of Tenant's desired use in order to
supply such utilities, and Landlord shall supply such utilities to Tenant at
such hourly cost to Tenant (which shall be treated as Additional Rent) as
Landlord shall from time to time establish.

      6.3  Interruption of Use. Tenant agrees that Landlord shall not be liable
           -------------------
for damages, by abatement of Rent or otherwise, for failure to furnish or delay
in furnishing any service (including telephone and telecommunication services),
or for any diminution in the quality or quantity thereof, when such failure or
delay or diminution is occasioned, in whole or in part, by breakage, repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building or
Project after reasonable effort to do so, by any riot or other dangerous
condition, emergency, accident or casualty whatsoever, by act or default of
Tenant or other parties, or by any other cause beyond Landlord's reasonable
control; and such failures or delays or diminution shall never be deemed to
constitute an eviction or disturbance of Tenant's use and possession of the
Premises or relieve Tenant from paying Rent or performing any of its obligations
under this Lease. Furthermore, Landlord shall not be liable under any
circumstances for a loss of, or injury to, property or for

<PAGE>

injury to, or interference with, Tenant's business, including, without
limitation, loss of profits, however occurring, through or in connection with or
incidental to a failure to furnish any of the services or utilities as set forth
in this Article 6.

                                   ARTICLE 7
                                   ---------

                                    REPAIRS
                                    -------

     Tenant shall, at Tenant's own expense, keep the Premises, including all
improvements, fixtures and furnishings therein, and the floor or floors of the
Building on which the Premises are located, in good order, repair and condition
at all times during the Lease Term.  In addition, Tenant shall, at Tenant's own
expense, but under the supervision and subject to the prior approval of
Landlord, and within any reasonable period of time specified by Landlord,
promptly and adequately repair all damage to the Premises and replace or repair
all damaged, broken, or worn fixtures and appurtenances, except for damage
caused by ordinary wear and tear or beyond the reasonable control of Tenant;
provided however, that, at Landlord's option, or if Tenant fails to make such
repairs, Landlord may, but need not, make such repairs and replacements, and
Tenant shall pay Landlord the cost thereof, including a percentage of the cost
thereof (to be uniformly established for the Building and/or the Project)
sufficient to reimburse Landlord for all overhead, general conditions, fees and
other costs or expenses arising from Landlord's involvement with such repairs
and replacements forthwith upon being billed for same.  Notwithstanding the
foregoing, Landlord shall be responsible for repairs to the exterior walls,
foundation and roof of the Building, the structural portions of the floors of
the Building, and the systems and equipment of the Building, except to the
extent that such repairs are required due to the negligence or willful
misconduct of Tenant; provided, however, that if such repairs are due to the
negligence or willful misconduct of Tenant, Landlord shall nevertheless make
such repairs at Tenant's expense.  Landlord may, but shall not be required to,
enter the Premises at all reasonable times to make such repairs, alterations,
improvements or additions to the Premises or to the Project or to any equipment
located in the Project as Landlord shall desire or deem necessary or as Landlord
may be required to do by governmental or quasi-governmental authority or court
order or decree.  Tenant hereby waives any and all rights under and benefits of
subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil
Code or under any similar law, statute, or ordinance now or hereafter in effect.

                                   ARTICLE 8
                                   ---------

                           ADDITIONS AND ALTERATIONS
                           -------------------------

8.1  Landlord's Consent to Alterations.  Tenant may not make any improvements,
     ---------------------------------
alterations, additions or changes to the Premises or any mechanical, plumbing or
HVAC facilities or systems pertaining to the Premises (collectively, the
"Alterations") without first procuring the prior written consent of Landlord to
such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord, provided it shall be deemed reasonable for
Landlord to withhold its consent to any Alteration which adversely affects the
structural

                                     -17-
<PAGE>

portions or the systems or equipment of the Building or is visible from the
exterior of the Building. The construction of the initial improvements to the
Premises shall be governed by the terms of the Tenant Work Letter and not the
terms of this Article 8.

     8.2  Manner of Construction. Landlord may impose, as a condition of its
          ----------------------
consent to any and all Alterations or repairs of the Premises or about the
Premises, such requirements as Landlord in its discretion may deem desirable,
including, but not limited to, the requirement that Tenant utilize for such
purposes only contractors, subcontractors, materials, mechanics and materialmen
selected by Tenant from a list provided and approved by Landlord, the
requirement that upon Landlord's request, Tenant shall, at Tenant's expense,
remove such Alterations upon the expiration or any early termination of the
Lease Term. Tenant shall construct such Alterations and perform such repairs in
a good and workmanlike manner, in conformance with any and all applicable
federal, state, county or municipal laws, rules and regulations and pursuant to
a valid building permit, issued by the city in which the Project is located, all
in conformance with Landlord's construction rules and regulations; provided,
however, that prior to commencing to construct any Alteration, Tenant shall meet
with Landlord to discuss Landlord's design parameters and code compliance
issues. In the event Tenant performs any Alterations in the Premises which
require or give rise to governmentally required changes to the "Base Building,"
as that term is defined below, then Landlord shall, at Tenant's expense, make
such changes to the Base Building. The "Base Building" shall include the
structural portions of the Building, and the public restrooms, elevators, exit
stairwells and the systems and equipment located in the internal core of the
Building on the floor or floors on which the Premises are located. In performing
the work of any such Alterations, Tenant shall have the work performed in such
manner so as not to obstruct access to the Project or any portion thereof, by
any other tenant of the Project, and so as not to obstruct the business of
Landlord or other tenants in the Project. Tenant shall not use (and upon notice
from Landlord shall cease using) contractors, services, workmen, labor,
materials or equipment that, in Landlord's reasonable judgment, would disturb
labor harmony with the workforce or trades engaged in performing other work,
labor or services in or about the Building or the Common Areas. In addition to
Tenant's obligations under Article 9 of this Lease, upon completion of any
Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the
office of the Recorder of the County in which the Project is located in
accordance with Section 3093 of the Civil Code of the State of California or any
successor statute, and Tenant shall deliver to the Project construction manager
a reproducible copy of the "as built" drawings of the Alterations as well as all
permits, approvals and other documents issued by any governmental agency in
connection with the Alterations.

     8.3  Payment for Improvements.  If payment is made directly to contractors,
          ------------------------
Tenant shall (i) comply with Landlord's requirements for final lien releases and
waivers in connection with Tenant's payment for work to contractors, and (ii)
sign Landlord's standard contractor's rules and regulations.  If Tenant orders
any work directly from Landlord, Tenant shall pay to Landlord an amount equal to
five percent of the cost of such work to compensate Landlord for all overhead,
general conditions, fees and other costs and expenses arising from Landlord's
involvement with such work.  If Tenant does not order any work directly from
Landlord, Tenant shall reimburse Landlord for Landlord's reasonable, actual,
out-of-pocket costs and expenses actually incurred in connection with Landlord's
review of such work.

                                     -18-
<PAGE>

     8.4  Construction Insurance. In addition to the requirements of Article 10
          ----------------------
of this Lease, in the event that Tenant makes any Alterations, prior to the
commencement of such Alterations, Tenant shall provide Landlord with evidence
that Tenant carries "Builder's All Risk" insurance in an amount approved by
Landlord covering the construction of such Alterations, and such other insurance
as Landlord may reasonably require, it being understood and agreed that all of
such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease
immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a co-
obligee.

     8.5  Landlord's Property. All Alterations, improvements, fixtures,
          -------------------
equipment and/or appurtenances which may be installed or placed in or about the
Premises, from time to time, shall be at the sole cost of Tenant and shall be
and become the property of Landlord, except that Tenant may remove any
Alterations, improvements, fixtures and/or equipment which Tenant can
substantiate to Landlord have not been paid for with any Tenant improvement
allowance funds provided to Tenant by Landlord, provided Tenant repairs any
damage to the Premises and Building caused by such removal and returns the
affected portion of the Premises to a building standard tenant improved
condition as determined by Landlord. Furthermore, Landlord may, by written
notice to Tenant prior to the end of the Lease Term, or given following any
earlier termination of this Lease, require Tenant, at Tenant's expense, to
remove any Alterations or improvements and to repair any damage to the Premises
and Building caused by such removal and return the affected portion of the
Premises to a building standard tenant improved condition as determined by
Landlord. If Tenant fails to complete such removal and/or to repair any damage
caused by the removal of any Alterations or improvements in the Premises and
return the affected portion of the Premises to a building standard tenant
improved condition as reasonably determined by Landlord, Landlord may do so and
may charge the cost thereof to Tenant. Tenant hereby protects, defends,
indemnifies and holds Landlord harmless from any liability, cost, obligation,
expense or claim of lien in any manner relating to the installation, placement,
removal or financing of any such Alterations, improvements, fixtures and/or
equipment in, on or about the Premises, which obligations of Tenant shall
survive the expiration or earlier termination of this Lease.

                                   ARTICLE 9
                                   ---------

                             COVENANT AGAINST LIENS
                             ----------------------

     Tenant shall keep the Project and Premises free from any liens or
encumbrances arising out of the work performed, materials furnished or
obligations incurred by or on behalf of Tenant, and shall protect, defend,
indemnify and hold Landlord harmless from and against any claims, liabilities,
judgments or costs (including, without limitation, reasonable attorneys' fees
and costs) arising out of same or in connection therewith.  Tenant shall give
Landlord notice at least twenty (20) days prior to the commencement of any such
work on the Premises (or such additional time as may be necessary under
applicable laws) to afford Landlord the opportunity of posting and recording
appropriate notices of non-responsibility.  Tenant shall remove any such lien or
encumbrance by bond or otherwise within ten (10) business days after notice by
Landlord, and if

                                     -19-
<PAGE>

Tenant shall fail to do so, Landlord may pay the amount necessary to remove such
lien or encumbrance, without being responsible for investigating the validity
thereof. The amount so paid shall be deemed Additional Rent under this Lease
payable upon demand, without limitation as to other remedies available to
Landlord under this Lease. Nothing contained in this Lease shall authorize
Tenant to do any act which shall subject Landlord's title to the Building or
Premises to any liens or encumbrances whether claimed by operation of law or
express or implied contract. Any claim to a lien or encumbrance upon the
Building or Premises arising in connection with any such work or respecting the
Premises not performed by or at the request of Landlord shall be null and void,
or at Landlord's option shall attach only against Tenant's interest in the
Premises and shall in all respects be subordinate to Landlord's title to the
Project, Building and Premises.

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

                                   INSURANCE
                                   ---------

     10.1  Indemnification and Waiver. Tenant hereby assumes all risk of damage
           --------------------------
to property or injury to persons in, upon or about the Premises from any cause
whatsoever (including, but not limited to, any personal injuries resulting from
a slip and fall in, upon or about the Premises) and agrees that Landlord, its
partners, subpartners and their respective officers, agents, servants,
employees, and independent contractors (collectively, "Landlord Parties") shall
not be liable for, and are hereby released from any responsibility for, any
damage either to person or property or resulting from the loss of use thereof,
which damage is sustained by Tenant or by other persons claiming through Tenant.
Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties
from any and all loss, cost, damage, expense and liability (including without
limitation court costs and reasonable attorneys' fees) incurred in connection
with or arising from any cause in, on or about the Premises (including, but not
limited to, a slip and fall), any acts, omissions or negligence of Tenant or of
any person claiming by, through or under Tenant, or of the contractors, agents,
servants, employees, invitees, guests or licensees of Tenant or any such person,
in, on or about the Project or any breach of the terms of this Lease, either
prior to, during, or after the expiration of the Lease Term, provided that the
terms of the foregoing indemnity shall not apply to the negligence or willful
misconduct of Landlord. Should Landlord be named as a defendant in any suit
brought against Tenant in connection with or arising out of Tenant's occupancy
of the Premises, Tenant shall pay to Landlord its costs and expenses incurred in
such suit, including without limitation, its actual professional fees such as
reasonable appraisers', accountants' and attorneys' fees. The provisions of this
Section 10.1 shall survive the expiration or sooner termination of this Lease
with respect to any claims or liability arising in connection with any event
occurring prior to such expiration or termination. Notwithstanding anything to
the contrary contained in this Lease, nothing in this Lease shall impose any
obligations on Tenant or Landlord to be responsible or liable for, and each
hereby releases the other from all liability for, consequential damages other
than those consequential damages incurred by Landlord in connection with a
holdover of the Premises by Tenant after the expiration or earlier termination
of this Lease or incurred by Landlord in connection with any repair, physical
construction or improvement work performed by or on behalf of Tenant in the
Project, but Tenant shall not be responsible for any direct or consequential
damages resulting

                                     -20-
<PAGE>

from Landlord's or contractor's acts in connection with the completion by
Landlord of the tenant improvements in the Premises pursuant to the Tenant Work
Letter.

    10.2 Tenant's Compliance With Landlord's Fire and Casualty Insurance. Tenant
         ---------------------------------------------------------------
shall, at Tenant's expense, comply with all insurance company requirements
pertaining to the use of the Premises. If Tenant's conduct or use of the
Premises causes any increase in the premium for such insurance policies then
Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.

   10.3 Tenant's Insurance. Tenant shall maintain the following coverages in the
        ------------------
following amounts.

        10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage (including
loss of use thereof) arising out of Tenant's operations, and contractual
liabilities (covering the performance by Tenant of its indemnity agreements)
including a Broad Form endorsement covering the insuring provisions of this
Lease and the performance by Tenant of the indemnity agreements set forth in
Section 10.1 of this Lease, for limits of liability not less than:

               Bodily Injury and
               Property Damage                   $3,000,000 each occurrence
               Liability                         $3,000,000 annual aggregate

               Personal Injury Liability         $3,000,000 each occurrence
                                                 $3,000,000 annual aggregate
                                                 0% Insured's participation

        10.3.2 Physical Damage Insurance covering (i) all office furniture,
business and trade fixtures, office equipment, free-standing cabinet work,
movable partitions, merchandise and all other items of Tenant's property on the
Premises installed by, for, or at the expense of Tenant, (ii) the "Tenant
Improvements," as that term is defined in the Tenant Work Letter, and any other
improvements which exist in the Premises as of the Lease Commencement Date
(excluding the Base Building) (the "Original Improvements"), and (iii) all other
improvements, alterations and additions to the Premises. Such insurance shall be
written on an "all risks" of physical loss or damage basis, for the full
replacement cost value (subject to reasonable deductible amounts) new without
deduction for depreciation of the covered items and in amounts that meet any co-
insurance clauses of the policies of insurance and shall include coverage for
damage or other loss caused by fire or other peril including, but not limited
to, vandalism and malicious mischief, theft, water damage of any type, including
sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing
business interruption coverage for a period of one year.

        10.3.3  Worker's Compensation and Employer's Liability or other similar
insurance pursuant to all applicable state and local statutes and regulations.

                                      -21-
<PAGE>

   10.4 Form of Policies. The minimum limits of policies of insurance required
        ----------------
of Tenant under this Lease shall in no event limit the Liability of Tenant under
this Lease. Such insurance shall (i) name Landlord, and any other party the
Landlord so specifies, as an additional insured, including Landlord's managing
agent, if any; (ii) specifically cover the liability assumed by Tenant under
this Lease, including, but not limited to, Tenant's obligations under Section
10.1 of this Lease; (iii) be issued by an insurance company having a rating of
not less than A-X in Best's Insurance Guide or which is otherwise acceptable to
Landlord and licensed to do business in the State of California; (iv) be primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is excess and is non-contributing with any insurance requirement of
Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi)
provide that said insurance shall not be canceled or coverage changed unless
thirty (30) days' prior written notice shall have been given to Landlord and any
mortgagee of Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date and at
least thirty (30) days before the expiration dates thereof. In the event Tenant
shall fail to procure such insurance, or to deliver such policies or
certificate, Landlord may, at its option, procure such policies for the account
of Tenant, and the cost thereof shall be paid to Landlord within five (5) days
after delivery to Tenant of bills therefor.

   10.5  Subrogation.  Landlord and Tenant intend that their respective property
         -----------
loss risks shall be borne by reasonable insurance carriers to the extent above
provided, and Landlord and Tenant hereby agree to look solely to, and seek
recovery only from, their respective insurance carriers in the event of a
property loss to the extent that such coverage is agreed to be provided
hereunder.  The parties each hereby waive all rights and claims against each
other for such losses, and waive all rights of subrogation of their respective
insurers, provided such waiver of subrogation shall not affect the right to the
insured to recover thereunder.  The parties agree that their respective
insurance policies are now, or shall be, endorsed such that the waiver of
subrogation shall not affect the right of the insured to recover thereunder, so
long as no material additional premium is charged therefor.

   10.6 Additional Insurance Obligations. Tenant shall carry and maintain during
        --------------------------------
the entire Lease Term, at Tenant's sole cost and expense, increased amounts of
the insurance required to be carried by Tenant pursuant to this Article 10 and
such other reasonable types of insurance coverage and in such reasonable amounts
covering the Premises and Tenant's operations therein, as may be reasonably
requested by Landlord.

                                  ARTICLE 11
                                  ----------

                            DAMAGE AND DESTRUCTION
                            ----------------------

    11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify
         ----------------------------------------
Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any Common Areas serving or providing access to the
Premises shall be damaged by fire or other casualty, Landlord shall promptly and
diligently, subject to reasonable delays for insurance adjustment or other
matters beyond Landlord's reasonable control, and subject to all other terms of
this Article 11, restore the Base Building and such Common Areas. Such
restoration shall be to substantially the same condition of the Base Building
and the Common

                                      -22-
<PAGE>

Areas prior to the casualty, except for modifications required by zoning and
building codes and other laws or by the holder of a mortgage on the Building or
Project or any other modifications to the Common Areas deemed desirable by
Landlord, which are consistent with the character of the Project, provided that
access to the Premises and any common restrooms serving the Premises shall not
be materially impaired. Upon the occurrence of any damage to the Premises, upon
notice (the "Landlord Repair Notice") to Tenant from Landlord, Tenant shall
assign to Landlord (or to any party designated by Landlord) all insurance
proceeds payable to Tenant under Tenant's insurance required under Section 10.3
of this Lease, and Landlord shall repair any injury or damage to the Tenant
Improvements and the Original Improvements installed in the Premises and shall
return such Tenant Improvements and Original Improvements to their original
condition; provided that if the cost of such repair by Landlord exceeds the
amount of insurance proceeds received by Landlord from Tenant's insurance
carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant
to Landlord prior to Landlord's commencement of repair of the damage. In the
event that Landlord does not deliver the Landlord Repair Notice within sixty
(60) days following the date the casualty becomes known to Landlord, Tenant
shall, at its sole cost and expense, repair any injury or damage to the Tenant
Improvements and the Original Improvements installed in the Premises and shall
return such Tenant Improvements and Original Improvements to their original
condition. Whether or not Landlord delivers a Landlord Repair Notice, prior to
the commencement of construction, Tenant shall submit to Landlord, for
Landlord's review and approval, all plans, specifications and working drawings
relating thereto, and Landlord shall select the contractors to perform such
improvement work. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting in
any way from such damage or the repair thereof; provided however, that if such
fire or other casualty shall have damaged the Premises or Common Areas necessary
to Tenant's occupancy, and the Premises are not occupied by Tenant as a result
thereof, then during the time and to the extent the Premises are unfit for
occupancy, the Rent shall be abated in proportion to the ratio that the amount
of rentable square feet of the Premises which is unfit for occupancy for the
purposes permitted under this Lease bears to the total rentable square feet of
the Premises. In the event that Landlord shall not deliver the Landlord Repair
Notice, Tenant's right to rent abatement pursuant to the preceding sentence
shall terminate as of the date which is reasonably determined by Landlord to be
the date Tenant should have completed repairs to the Premises assuming Tenant
used reasonable due diligence in connection therewith.

   11.2 Landlord's Option to Repair. Notwithstanding the terms of Section 11.1
        ---------------------------
of this Lease, Landlord may elect not to rebuild and/or restore the Premises,
Building and/or Project, and instead terminate this Lease, by notifying Tenant
in writing of such termination within sixty (60) days after the date of
discovery of the damage, such notice to include a termination date giving Tenant
sixty (60) days to vacate the Premises, but Landlord may so elect only if the
Building or Project shall be damaged by fire or other casualty or cause, whether
or not the Premises are affected, and one or more of the following conditions is
present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be
completed within one hundred eighty (180) days after the date of discovery of
the damage (when such repairs are made without the payment of overtime or other
premiums); (ii) the holder of any mortgage on the Building or Project or ground
lessor with respect to the Building or Project shall require that the insurance
proceeds or any portion thereof be used to retire the mortgage debt, or shall
terminate the ground lease, as the case may be; (iii) the damage is not fully
covered by Landlord's insurance policies; (iv) Landlord decides to rebuild the
Building or Common Areas so that they will be substantially different

                                      -23-
<PAGE>

structurally or architecturally; (v) the damage occurs during the last twelve
(12) months of the Lease Term; or (vi) any owner of any other portion of the
Project, other than Landlord, does not intend to repair the damage to such
portion of the Project  Notwithstanding the provisions of this Section 11.2,
Tenant shall have the right to terminate this Lease under this Section 11.2 only
if each of the following conditions is satisfied: (a) the damage to the Project
by fire or other casualty was not caused by the gross negligence or intentional
act of Tenant or its partners or subpartners and their respective officers,
agents, servants, employees, and independent contractors; (b) Tenant is not then
in default under this Lease; (c) as a result of the damage, Tenant cannot
reasonably conduct business from the Premises; and, (d) as a result of the
damage to the Project, Tenant does not occupy or use the Premises at all.

   11.3 Waiver of Statutory Provisions. The provisions of this Lease, including
        ------------------------------
this Article 11, constitute an express agreement between Landlord and Tenant
with respect to any and all damage to, or destruction of, all or any part of the
Premises, the Building or the Project, and any statute or regulation of the
State of California, including, without limitation, Sections 1932(2) and 1933(4)
of the California Civil Code, with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Building or the Project.

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

                                   NONWAIVER
                                   ---------

     No provision of this Lease shall be deemed waived by either party hereto
unless expressly waived in a writing signed thereby.  The waiver by either party
hereto of any breach of any term, covenant or condition herein contained shall
not be deemed to be a waiver of any subsequent breach of same or any other term,
covenant or condition herein contained.  The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular Rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
Rent.  No acceptance of a lesser amount than the Rent herein stipulated shall be
deemed a waiver of Landlord's right to receive the full amount due, nor shall
any endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the full amount due.  No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder, or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit, or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.

                                      -24-
<PAGE>

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

                                 CONDEMNATION
                                 ------------

     If the whole or any part of the Premises, Building or Project shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises, Building or Project, or if Landlord shall grant a deed or other
instrument in lieu of such taking by eminent domain or condemnation, Landlord
shall have the option to terminate this Lease effective as of the date
possession is required to be surrendered to the authority.  If more than twenty-
five percent (25%) of the rentable square feet of the Premises is taken, or if
access to the Premises is substantially impaired, in each case for a period in
excess of one hundred eighty (180) days, Tenant shall have the option to
terminate this Lease effective as of the date possession is required to be
surrendered to the authority.  Tenant shall not because of such taking assert
any claim against Landlord or the authority for any compensation because of such
taking and Landlord shall be entitled to the entire award or payment in
connection therewith, except that Tenant shall have the right to file any
separate claim available to Tenant for any taking of Tenant's personal property
and fixtures belonging to Tenant and removable by Tenant upon expiration of the
Lease Term pursuant to the terms of this Lease, and for moving expenses, so long
as such claims do not diminish the award available to Landlord, its ground
lessor with respect to the Building or Project or its mortgagee, and such claim
is payable separately to Tenant.  All Rent shall be apportioned as of the date
of such termination.  If any part of the Premises shall be taken, and this Lease
shall  not be so terminated, the Rent shall be proportionately abated.  Tenant
hereby waives any and all rights it might otherwise have pursuant to Section
1265.130 of The California Code of Civil Procedure.  Notwithstanding anything to
the contrary contained in this Article 13, in the event of a temporary taking of
all or any portion of the Premises for a period of one hundred and eighty (180)
days or less, then this Lease shall not terminate but the Base Rent and the
Additional Rent shall be abated for the period of such taking in proportion to
the ratio that the amount of rentable square feet of the Premises taken bears to
the total rentable square feet of the Premises.  Landlord shall be entitled to
receive the entire award made in connection with any such temporary taking.

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

                           ASSIGNMENT AND SUBLETTING
                           -------------------------

   14.1  Transfers.  Except as provided in Section 14.8 below, Tenant shall not,
         ---------
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, assign, mortgage, pledge, hypothecate, encumber, or
permit any lien to attach to, or otherwise transfer, this Lease or any interest
hereunder, permit any assignment, or other transfer of this Lease or any
interest hereunder by operation of law, sublet the Premises or any part thereof,
or enter into any license or concession agreements or otherwise permit the
occupancy or use of the Premises or any part thereof by any persons other than
Tenant and its employees and contractors (all of the foregoing are hereinafter
sometimes referred to collectively as "Transfers" and any person to

                                      -25-
<PAGE>

whom any Transfer is made or sought to be made is hereinafter sometimes referred
to as a "Transferee"). If Tenant desires Landlord's consent to any Transfer,
Tenant shall notify Landlord in writing, which notice (the "Transfer Notice")
shall include (i) the proposed effective date of the Transfer, which shall not
be less than thirty (30) days nor more than one hundred eighty (180) days after
the date of delivery of the Transfer Notice, (ii) a description of the portion
of the Premises to be transferred (the "Subject Space"), (iii) all of the terms
of the proposed Transfer and the consideration therefor, including calculation
of the "Transfer Premium", as that term is defined in Section 14.3 below, in
connection with such Transfer, the name and address of the proposed Transferee,
and a copy of all existing executed and/or proposed documentation pertaining to
the proposed Transfer, including all existing operative documents to be executed
to evidence such Transfer or the agreements incidental or related to such
Transfer, provided that Landlord shall have the right to require Tenant to
utilize Landlord's standard Transfer documents in connection with the
documentation of such Transfer, (iv) current financial statements of the
proposed Transferee certified by an officer, partner or owner thereof, business
credit and personal references and history of the proposed Transferee and any
other information reasonably required by Landlord which will enable Landlord to
determine the financial responsibility, character, and reputation of the
proposed Transferee, nature of such Transferee's business and proposed use of
the Subject Space, and (v) an executed estoppel certificate from Tenant in the
form attached hereto as Exhibit E. Any Transfer made without Landlord's prior
                        ---------
written consent shall, at Landlord's option, be null, void and of no effect, and
shall, at Landlord's option, constitute a default by Tenant under this Lease.
Whether or not Landlord consents to any proposed Transfer, Tenant shall pay
Landlord's reasonable review and processing fees, as well as any reasonable
professional fees (including, without limitation, attorneys', accountants',
architects', engineers' and consultants' fees) incurred by Landlord, within
thirty (30) days after written request by Landlord.

   14.2 Landlord's Consent. Landlord shall not unreasonably withhold or delay
        ------------------
its consent to any proposed Transfer of the Subject Space to the Transferee on
the terms specified in the Transfer Notice. Without limitation as to other
reasonable grounds for withholding consent, the parties hereby agree that it
shall be reasonable under this Lease and under any applicable law for Landlord
to withhold consent to any proposed Transfer where one or more of the following
apply:

        14.2.1 The Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Building or the
Project;

        14.2.2 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;

        14.2.3 The Transferee is either a governmental agency or instrumentality
thereof;

        14.2.4 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities to be undertaken in
connection with the Transfer on the date consent is requested;

        14.2.5 The proposed Transfer would cause a violation of another lease
for space in the Project, or would give an occupant of the Project a right to
cancel its lease; or

                                      -26-
<PAGE>

        14.2.6 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (i) occupies space in the Project at the time of
the request for consent, or (ii) is negotiating with Landlord or has negotiated
with Landlord during the six (6) month period immediately preceding the date
Landlord receives the Transfer Notice, to lease space in the Project.

     If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under Section
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the Transfer Notice
(i) such that Landlord would initially have been entitled to refuse its consent
to such Transfer under this Section 14.2, or (ii) which would cause the proposed
Transfer to be more favorable to the Transferee than the terms set forth in
Tenant's original Transfer Notice, Tenant shall again submit the Transfer to
Landlord for its approval and other action under this Article 14 (including
Landlord's right of recapture, if any, under Section 14.4 of this Lease).
Notwithstanding anything to the contrary in this Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent under Section 14.2 or otherwise has breached or acted unreasonably
under this Article 14, their sole remedies shall be a declaratory judgment and
an injunction for the relief sought, and Tenant hereby waives all other
remedies, including, without limitation, any right at law or equity to terminate
this Lease, on its own behalf and, to the extent permitted under all applicable
laws, on behalf of the proposed Transferee.

   14.3  Transfer Premium.  If Landlord consents to a Transfer, as a condition
         ----------------
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined
in this Section 14.3, received by Tenant from such Transferee.  "Transfer
Premium" shall mean all rent, additional rent or other consideration payable by
such Transferee in connection with the Transfer in excess of the Rent and
Additional Rent payable by Tenant under this Lease during the term of the
Transfer on a per rentable square foot basis if less than all of the Premises is
transferred, after deducting the reasonable expenses incurred by Tenant for (i)
any changes, alterations and improvements to the Premises in connection with the
Transfer, (ii) any free base rent reasonably provided to the Transferee in
connection with the Transfer, and (iii) any brokerage commissions in connection
with the Transfer (collectively, "Tenant's Subleasing Costs").  "Transfer
Premium" shall also include, but not be limited to, key money, bonus money or
other cash consideration paid by Transferee to Tenant in connection with such
Transfer, and any payment in excess of fair market value for services rendered
by Tenant to Transferee or for assets, fixtures, inventory, equipment, or
furniture transferred by Tenant to Transferee in connection with such Transfer.
The determination of the amount of Landlord's applicable share of the Transfer
Premium shall be made on a monthly basis as rent or other consideration is
received by Tenant under the Transfer.  For purposes of calculating the Transfer
Premium on a monthly basis, (i) Tenant's Subleasing Costs shall be deemed to be
expended by Tenant in equal monthly amounts over the entire term of the Transfer
and (ii) the Rent paid for the Subject Space by Tenant shall be computed after
adjusting such rent to the actual effective rent to be paid,  taking into
consideration any and all leasehold concessions granted in connection therewith,
including, but not limited to, any rent

                                      -27-
<PAGE>

credit and tenant improvement allowance. For purposes of calculating any such
effective rent all such concessions shall be amortized on a straight-line basis
over the relevant term.

   14.4  Landlord's Option as to Subject Space.  Notwithstanding anything to the
         -------------------------------------
contrary contained in this Article 14, after the first six (6) months of the
Lease Term, Landlord shall have the option, by giving written notice to Tenant
within thirty (30) days after receipt of any Transfer Notice, to recapture the
Space.  Such recapture shall cancel and terminate this Lease with respect to
until the last day of the term of the Transfer as set forth in the Transfer
Notice.  In the event of a recapture by Landlord, if this Lease shall be
canceled with respect to less than the entire Premises, the Rent reserved herein
shall be prorated on the basis of the number of rentable square feet retained by
Tenant in proportion to the number of rentable square feet contained in the
Premises, and this Lease as so amended shall continue thereafter in full force
and effect, and upon request of either party, the parties shall execute written
confirmation of the same.  If Landlord declines, or fails to elect in a timely
manner, to recapture Space under this Section 14.4.

   14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms
        ------------------
and conditions of this Lease shall in no way be deemed to have been waived or
modified, (ii) such consent shall not be deemed consent to any further Transfer
by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord,
promptly after execution, an original executed copy of all documentation
pertaining to the Transfer in form reasonably acceptable to Landlord, (iv)
Tenant shall furnish upon Landlord's request a complete statement, certified by
an independent certified public accountant, or Tenant's chief financial officer,
setting forth in detail the computation of any Transfer Premium Tenant has
derived and shall derive from such Transfer, and (v) no Transfer relating to
this Lease or agreement entered into with respect thereto, whether with or
without Landlord's consent, shall relieve Tenant or any guarantor of the Lease
from any liability under this Lease, including, without limitation, in
connection with the Subject Space. Landlord or its authorized representatives
shall have the right at all reasonable times to audit the books, records and
papers of Tenant relating to any Transfer, and shall have the right to make
copies thereof. If the Transfer Premium respecting any Transfer shall be found
understated, Tenant shall, within thirty (30) days after demand, pay the
deficiency, and if understated by more than two percent (2%), Tenant shall pay
Landlord's costs of such audit.

   14.6  Additional Transfers.  Except as provided in Section 14.8 below, for
         --------------------
purposes of this Lease, the term "Transfer" shall also include (i) if Tenant is
a partnership, the withdrawal or change, voluntary, involuntary or by operation
of law, of fifty percent (50%) or more of the partners, or transfer of fifty
percent (50%) or more of partnership interests, within a twelve (12)-month
period, or the dissolution of the partnership without immediate reconstitution
thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is
not publicly held and not traded through an exchange or over the counter), (A)
the dissolution, merger, consolidation or other reorganization of Tenant or (B)
the sale or other transfer of an aggregate of fifty percent (50%) or more of the
voting shares of Tenant (other than to immediate family members by reason of
gift or death), within a twelve (12)-month period, or (C) the sale, mortgage,
hypothecation or pledge of an aggregate of fifty percent (50%) or more of the
value of the unencumbered assets of Tenant within a twelve (12)-month period.

                                      -28-
<PAGE>

   14.7  Occurrence of Default.  Any Transfer hereunder shall be subordinate and
         ---------------------
subject to the provisions of this Lease, and if this Lease shall be terminated
during the term of any Transfer, Landlord shall have the right to:  (i) treat
such Transfer as cancelled and repossess the Subject Space by any lawful means,
or (ii) require that such Transferee attorn to and recognize Landlord as its
landlord under any such Transfer.  If Tenant shall be in default under this
Lease, Landlord is hereby irrevocably authorized, as Tenant's agent and
attorney-in-fact, to direct any Transferee to make all payments under or in
connection with the Transfer directly to Landlord (which Landlord shall apply
towards Tenant's obligations under this Lease) until such default is cured.
Such Transferee shall rely on any representation by Landlord that Tenant is in
default hereunder, without any need for confirmation thereof by Tenant.  Upon
any assignment, the assignee shall assume in writing all obligations and
covenants of Tenant thereafter to be performed or observed under this Lease.  No
collection or acceptance of rent by Landlord from any Transferee shall be deemed
a waiver of any provision of this Article 14 or the approval of any Transferee
or a release of Tenant from any obligation under this Lease, whether theretofore
or thereafter accruing.  In no event shall Landlord's enforcement of any
provision of this Lease against any Transferee be deemed a waiver of Landlord's
right to enforce any term of this Lease against Tenant or any other person.  If
Tenant's obligations hereunder have been guaranteed, Landlord's consent to any
Transfer shall not be effective unless the guarantor also consents to such
Transfer.

   14.8  Non-Transfers.  Notwithstanding anything to the contrary contained in
         -------------
Article 14 of this Lease, an assignment or subletting by Tenant of all or a
portion of the Premises or this Lease to (i) a parent or subsidiary of Tenant,
or (ii) any person or entity which controls, is controlled by or under common
control with Tenant, or (iii) any entity which purchases all or substantially
all of the stock or assets of Tenant, or (iv) any entity into which Tenant is
merged or consolidated (all such persons or entities described in (i), (ii),
(iii), and (iv) being sometimes hereinafter referred to as "Affiliates"), shall
not require Landlord's consent and shall not be deemed a Transfer under Article
14 of this Lease, provided that (a) any such Affiliate was not formed as a
subterfuge to avoid the obligations of Article 14 of this Lease; (b) Tenant
gives Landlord at least ten (10) days' prior notice of any such assignment or
sublease to an Affiliate; (c) such Affiliate shall have, as of the effective
date of any such assignment or sublease, a tangible net worth, computed in
accordance with generally accepted accounting principles, which is sufficient to
meet the obligations of Tenant under this Lease and is equal to or greater than
the net worth of Tenant as of the date of the Transfer; (d) any such assignment
or sublease shall be subject and subordinate to all of the terms and provisions
of this Lease, and such Affiliate shall assume, in a written document reasonably
satisfactory to Landlord and delivered to Landlord upon or prior to the
effective date of such assignment or sublease, all the obligations of Tenant
under this Lease with respect to the portion of the Premises which is the
subject of such assignment or sublease (other than the amount of Base Rent
payable by Tenant with respect to a sublease); and (e) Tenant and any guarantor
shall remain fully liable for all obligations to be performed by Tenant under
this Lease.

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

                     SURRENDER OF PREMISES; OWNERSHIP AND
                     ------------------------------------

                           REMOVAL OF TRADE FIXTURES
                           -------------------------

                                      -29-
<PAGE>

   15.1 Surrender of Premises. No act or thing done by Landlord or any agent or
        ---------------------
employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in writing by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or effect a termination of this Lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises or terminate any or all such sublessees or
subtenancies.

   15.2  Removal of Tenant Property by Tenant.  Upon the expiration of the Lease
         ------------------------------------
Term, or upon any earlier termination of this Lease, Tenant shall, subject to
the provisions of this Article 15, quit and surrender possession of the Premises
to Landlord in as good order and condition as when Tenant took possession and as
thereafter improved by Landlord and/or Tenant, reasonable wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted.  Upon such expiration or termination, Tenant shall, without expense to
Landlord, remove or cause to be removed from the Premises all debris and
rubbish, and such items of furniture, equipment, business and trade fixtures,
free-standing cabinet work, movable partitions and other articles of personal
property owned by Tenant or installed or placed by Tenant at its expense in the
Premises, and such similar articles of any other persons claiming under Tenant,
as Landlord may, in its sole discretion, require to be removed, and Tenant shall
repair at its own expense all damage to the Premises and Building resulting from
such removal.

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

                                 HOLDING OVER
                                 ------------

   If Tenant holds over after the expiration of the Lease Term or earlier
termination thereof, with or without the express or implied consent of Landlord,
such tenancy shall be from month-to-month only, and shall not constitute a
renewal hereof or an extension for any further term, and in such case Rent shall
be payable at a monthly rate equal to the product of (i) the Rent applicable
during the last rental period of the Lease Term under this Lease, and (ii) a
percentage equal to two hundred percent (200%).  Such month-to-month tenancy
shall be subject to every other applicable term, covenant and agreement
contained herein.  Nothing contained in this Article 16 shall be construed as
consent by Landlord to any holding over by Tenant, and Landlord expressly
reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this Lease upon the expiration or other termination of
this Lease.  The provisions of this Article 16 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law.  If Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any

                                      -30-
<PAGE>

succeeding tenant founded upon such failure to surrender and any lost profits to
Landlord resulting therefrom.

                                  ARTICLE 17
                                  ----------

                             ESTOPPEL CERTIFICATES
                             ---------------------

   Within ten (10) days following a request in writing by Landlord, Tenant shall
execute, acknowledge and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
                                                             ---------
hereto (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee or
prospective mortgagee. Any such certificate may be relied upon by any
prospective mortgagee or purchaser of all or any portion of the Project. Tenant
shall execute and deliver whatever other instruments may be reasonably required
for such purposes. At any time during the Lease Term, Landlord may require
Tenant to provide Landlord with a current financial statement and financial
statements of the two (2) years prior to the current financial statement year.
Such statements shall be prepared in accordance with generally accepted
accounting principles and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant. Failure of Tenant to
timely execute, acknowledge and deliver such estoppel certificate or other
instruments shall constitute an acceptance of the Premises and an acknowledgment
by Tenant that statements included in the estoppel certificate are true and
correct, without exception.

                                  ARTICLE 18
                                  ----------

                                 SUBORDINATION
                                 -------------

   This Lease shall be subject and subordinate to all present and future ground
or underlying leases of the Building or Project and to the lien of any mortgage,
trust deed or other encumbrances now or hereafter in force against the Building
or Project or any part thereof, if any, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all advances made
or hereafter to be made upon the security of such mortgages or trust deeds,
unless the holders of such mortgages, trust deeds or other encumbrances, or the
lessors under such ground lease or underlying leases, require in writing that
this Lease be superior thereto. Tenant covenants and agrees in the event any
proceedings are brought for the foreclosure of any such mortgage or deed in lieu
thereof (or if any ground lease is terminated), to attorn, without any
deductions or set-offs whatsoever, to the lienholder or purchaser or any
successors thereto upon any such foreclosure sale or deed in lieu thereof (or to
the ground lessor), if so requested to do so by such purchaser or lienholder or
ground lessor, and to recognize such purchaser or lienholder or ground lessor as
the lessor under this Lease, provided such lienholder or purchaser or ground
lessor shall agree to accept this Lease and not disturb Tenant's occupancy, so
long as Tenant timely pays the rent and observes and performs the terms,
covenants and conditions of this Lease to be observed and performed by Tenant.
Landlord's interest herein may be assigned as security at any time to any
lienholder. Tenant shall, within ten (10) days of request by

                                      -31-
<PAGE>

Landlord, execute such further instruments or assurances as Landlord may
reasonably deem necessary to evidence or confirm the subordination or
superiority of this Lease to any such mortgages, trust deeds, ground leases or
underlying leases. Tenant waives the provisions of any current or future
statute, rule or law which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.

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

                              DEFAULTS; REMEDIES
                              ------------------

   19.1  Events of Default.  The occurrence of any of the following shall
         -----------------
constitute a default of this Lease by Tenant:

         19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due unless such
failure is cured within three (3) days after notice; or

         19.1.2 Except where a specific time period is otherwise set forth for
Tenant's performance in this Lease, in which event the failure to perform by
Tenant within such time period shall be a default by Tenant under this Section
19.1.2, any failure by Tenant to observe or perform any other provision,
covenant or condition of this Lease to be observed or performed by Tenant where
such failure continues for thirty (30) days after written notice thereof from
Landlord to Tenant; provided that if the nature of such default is such that the
same cannot reasonably be cured within a thirty (30) day period, Tenant shall
not be deemed to be in default if it diligently commences such cure within such
period and thereafter diligently proceeds to rectify and cure such default; or

         19.1.3 Abandonment or vacation of all or a substantial portion of the
Premises by Tenant; or

         19.1.4 The failure by Tenant to observe or perform according to the
provisions of Articles 5, 14, 17 or 18 of this Lease where such failure
continues for more than two (2) business days after notice from Landlord;

         19.1.5 Tenant's failure to occupy the Premises within ten (10) business
days after the Lease Commencement Date; or

         19.1.6 Tenant shall fail to deliver or cause to be timely delivered to
Landlord the Letter of Credit in accordance with the provisions of Article 21
hereof, or Tenant's failure to timely deliver any certificates of renewal or
extension thereof in accordance with the provisions of Article 21 hereof at
least thirty (30) days prior to the expiration of the Letter of Credit which
failure shall not have been cured within fifteen (15) days thereafter.

     The notice periods provided herein are in lieu of, and not in addition to,
any notice periods provided by law.

                                      -32-
<PAGE>

   19.2  Remedies Upon Default.  Upon the occurrence of any event of default by
         ---------------------
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity (all of which remedies shall be distinct, separate
and cumulative), the option to pursue any one or more of the following remedies,
each and all of which shall be cumulative and nonexclusive, without any notice
or demand whatsoever.

         19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:

                   19.2.1.1.1 The worth at the time of any unpaid rent which has
been earned at the time of such termination; plus

                   19.2.1.1.2 The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus

                   19.2.1.1.3 The worth at the time of award of the amount by
which the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus

                   19.2.1.1.4 Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and

                   19.2.1.1.5 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
applicable law.

   The term "rent" as used in this Section 19.2 shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others.  As used in Sections
19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by
allowing interest at the rate set forth in Article 25 of this Lease, but in no
case greater than the maximum amount of such interest permitted by law.  As used
in Section 19.2.1(iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).

         19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on

                                      -33-
<PAGE>

account of any default by Tenant, Landlord may, from time to time, without
terminating this Lease, enforce all of its rights and remedies under this Lease,
including the right to recover all rent as it becomes due.

         19.2.3 Landlord shall at all times have the rights and remedies (which
shall be cumulative with each other and cumulative and in addition to those
rights and remedies available under Sections 19.2.1 and 19.2.2, above, or any
law or other provision of this Lease), without prior demand or notice except as
required by applicable law, to seek any declaratory, injunctive or other
equitable relief, and specifically enforce this Lease, or restrain or enjoin a
violation or breach of any provision hereof.

   19.3  Subleases of Tenant.  Whether or not Landlord elects to terminate this
         -------------------
Lease on account of any default by Tenant, as set forth in this Article 19,
                                                                ----------
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.

   19.4  Efforts to Relet.  No re-entry or repossession, repairs, maintenance,
         ----------------
changes, alterations and additions, reletting, appointment of a receiver to
protect Landlord's interests hereunder, or any other action or omission by
Landlord shall be construed as an election by Landlord to terminate this Lease
or Tenant's right to possession, or to accept a surrender of the Premises, nor
shall same operate to release Tenant in whole or in part from any of Tenant's
obligations hereunder, unless express written notice of such intention is sent
by Landlord to Tenant.  Tenant hereby irrevocably waives any right otherwise
available under any law to redeem or reinstate this Lease.

                                  ARTICLE 20
                                  ----------

                          COVENANT OF QUIET ENJOYMENT
                          ---------------------------

   Landlord covenants that Tenant, on paying the Rent, charges for services and
other payments herein reserved and on keeping, observing and performing all the
other terms, covenants, conditions, provisions and agreements herein contained
on the part of Tenant to be kept, observed and performed, shall, during the
Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to
the terms, covenants, conditions, provisions and agreements hereof without
interference by any persons lawfully claiming by or through Landlord. The
foregoing covenant is in lieu of any other covenant express or implied.

                                  ARTICLE 21
                                  ----------

                               LETTER OF CREDIT
                               ----------------

                                      -34-
<PAGE>

   Upon execution of this Lease by Tenant, Tenant shall deliver to Landlord a
Letter of Credit in the amount of Two Million Seven Hundred Thirty-Six Thousand
Four Hundred Twenty-Two Dollars ($2,736,422.20) as security for the faithful
performance by Tenant of its obligations under this Lease.  The Letter of Credit
shall be upon the terms and subject to the following provisions of this Article
21.

   21.1  Application of Letter of Credit.  If Tenant fails to pay rent or other
         -------------------------------
charges due hereunder, or otherwise defaults with respect to any provision of
this Lease, in addition to any other rights held by Landlord, Landlord may draw
upon and apply all or any part of the Letter of Credit to the payment of any
rent or other charge in default, or for the payment of any other sum to which
Landlord may become obligated by reason of Tenant's default, or to compensate
Landlord for any loss or damage which Landlord may suffer thereby.  If any
portion of the Letter of Credit is so applied, Tenant shall, within ten (10)
business days after written demand therefor, provide a replacement or
supplemental letter of credit to bring the face amount of the then available
letter of credit to its then required amount, and Tenant's failure to do so
shall be a default under this Lease.

   21.2 Terms of Letter of Credit. The Letter of Credit shall commence upon the
        -------------------------
date of execution of this Lease and Tenant shall renew the Letter of Credit from
time to time through the Lease Term, at least thirty (30) days prior to the
expiration thereof and deliver to Landlord a new Letter of Credit or an
endorsement to the Letter of Credit and any other evidence required by Landlord
that the Letter of Credit has been renewed. The Letter of Credit shall be (i)
issued by a bank reasonably approved by Landlord ("Bank") and "callable" by
Landlord through a branch office of the Bank located in San Mateo, California,
and (ii) in a form containing the required provisions set forth in Section
21.2.1 below and consistent with the provisions set forth in Sections 21.2.2
through 21.2.4 below. The premium or purchase price of, or any other Bank fees
associated with, such Letter of Credit shall be paid by Tenant. The following
provisions shall apply to the Letter of Credit:

        21.2.1 Such Letter of Credit shall be transferable, irrevocable and
unconditional, so that Landlord, or its successor(s) in interest, may at any
time "call" for any portion of the then uncalled upon amount thereof without
regard to and without the Bank inquiring as to the right or lack of right of the
holder of said letter of credit to effect such calls or the existence or lack of
existence of any defenses by Tenant with respect thereto;

        21.2.2 Landlord agrees not to draw upon the Letter of Credit unless
Landlord claims default by Tenant under the Lease after giving notice thereof to
Tenant in accordance with the terms of this Lease and the expiration of any
applicable cure period set forth in this Lease, but if Landlord does effect such
a "draw," such "draw" amount may, at Landlord's option, be in the full amount of
the Letter of Credit or a partial draw as necessary to compensate Landlord for
such default.

        21.2.3 Any failure or delay of Landlord to "draw" any portion of the
Letter of Credit shall not act as a waiver of Landlord's right to do so at any
time thereafter or constitute a waiver of any default with respect to the Lease.

                                      -35-
<PAGE>

        21.2.4 Tenant agrees not to interfere in any way with payment to
Landlord of the proceeds of the Letter of Credit, either prior to or following a
"draw" by Landlord of any portion of the Letter of Credit, regardless of whether
any dispute exists between Tenant and Landlord as to Landlord's right to "draw"
from the Letter of Credit. No condition or term of this Lease shall be deemed to
render the Letter of Credit conditional upon this Lease or to justify the issuer
of the Letter of Credit in failing to honor a draw upon such Letter of Credit in
a timely manner. In the event Landlord is determined through any dispute
resolution procedure agreed upon by the parties or by a court of competent
jurisdiction to have improperly drawn on the Letter of Credit, then Tenant shall
be entitled to receive a prompt refund of such amount from Landlord.

   21.3 Tenant's Waiver. Tenant hereby waives the provisions of Section 1950.7
        ---------------
of the California Civil Code, and all other provisions of law, now or hereafter
in force, which provide that Landlord may claim from a security deposit
(including the Letter of Credit) only those sums reasonably necessary to remedy
defaults in the payment of rent, to repair damage caused by Tenant or to clean
the Premises, it being agreed that Landlord may, in addition, claim those sums
reasonably necessary to compensate Landlord for any other loss or damage,
foreseeable or unforeseeable, caused by the act or omission of Tenant or any
officer, employee, agent or invitee of Tenant.

   21.4  Bankruptcy.  Tenant acknowledges and agrees that the Letter of Credit
         ----------
constitutes a separate and independent contract between Landlord and the Bank,
that Tenant is not a third party beneficiary of such contract, and that
Landlord's claim under the Letter of Credit for the full amount due and owing
thereunder shall not be, in any way, restricted, limited, altered or impaired by
virtue of any provision of the Bankruptcy Code, including, but not limited to,
Section 502(b)(6) of the Bankruptcy Code.

   21.5 Release of Letter of Credit. Notwithstanding the foregoing, in the event
        ---------------------------
that Tenant shall provide Landlord with audited quarterly statements which show
that Tenant's net income as established by generally accepted accounting
principles excluding non-cash goodwill amortization and in-process research and
development (the "Financial Threshold") provided that Tenant, as of the date of
each such reduction, is not in default under this Lease beyond the expiration of
any applicable notice and cure periods, Tenant shall have the right to reduce
the Letter of Credit as follows: (i) if the Financial Threshold in two (2)
consecutive quarters exceed annual Rent for such quarters, then Tenant shall
have the right to reduce the Letter of Credit to Two Million Fifty-Two Thousand
Three Hundred Sixteen and 70/100 Dollars ($2,052,316.70) (the "First
Reduction"); (ii) after the First Reduction, if the Financial Threshold in four
(4) additional consecutive quarters exceeds annual Rent for such quarters, then
Tenant shall have the right to further reduce the Letter of Credit to One
Million Five Hundred Thousand Thirty-Nine Two Hundred Thirty-Seven and 60/100
Dollars (the "Second Reduction"); and (iii) following the First Reduction and
the Second Reduction, if the Financial Threshold in four (4) additional
consecutive quarters anytime through the remainder of the Lease Term exceeds the
annual Rent for such quarters, then Tenant shall have the continuing right to
further reduce the Letter of Credit by twenty-five percent (25%) of the current
amount of the Letter of Credit until the Letter of Credit amount is Zero (0).

                                      -36-
<PAGE>

                                  ARTICLE 22
                                  ----------

                             INTENTIONALLY DELETED
                             ---------------------
                                  ARTICLE 23
                                  ----------

                                     SIGNS
                                     -----

   23.1  Full Floors.  Subject to Landlord's prior written approval, in its sole
         -----------
discretion, and provided all signs are in keeping with the quality, design and
style of the Building and Project, Tenant, if the Premises comprise an entire
floor of the Building, at its sole cost and expense, may install identification
signage anywhere in the Premises including in the elevator lobby of the
Premises, provided that such signs must not be visible from the exterior of the
Building.

   23.2 Multi-Tenant Floors. If other tenants occupy space on the floor on which
        -------------------
the Premises is located, Tenant's identifying signage shall be provided by
Landlord, at Tenant's cost, and such signage shall be comparable to that used by
Landlord for other similar floors in the Building and shall comply with
Landlord's then-current Building standard signage program.

   23.3 Prohibited Signage and Other Items. Any signs, notices, logos, pictures,
        ----------------------------------
names or advertisements which are installed and that have not been separately
approved by Landlord may be removed without notice by Landlord at the sole
expense of Tenant. Tenant may not install any signs on the exterior or roof of
the Project or the Common Areas. Any signs, window coverings, or blinds (even if
the same are located behind the Landlord-approved window coverings for the
Building), or other items visible from the exterior of the Premises or Building,
shall be subject to the prior approval of Landlord, in its sole discretion.

   23.4 Building Directory. A building directory will be located in the lobby of
        ------------------
the Building. Tenant shall have the right, at Tenant's sole cost and expense, to
designate one (1) Building standard directory listing.

                                  ARTICLE 24
                                  ----------

                              COMPLIANCE WITH LAW
                              -------------------

   Tenant shall not do anything or suffer anything to be done in or about the
Premises or the Project which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement now in force or
which may hereafter be enacted or promulgated.  At its sole cost and expense,
Tenant shall promptly comply with all such governmental measures.  Should any
standard or regulation now or hereafter be imposed on Landlord or Tenant by a
state, federal or local governmental body charged with the establishment,
regulation and enforcement of occupational, health or safety standards for
employers, employees, landlords or tenants, then Tenant agrees, at its sole cost
and expense, to comply promptly with such standards or

                                      -37-
<PAGE>

regulations. Tenant shall be responsible, at its sole cost and expense, to make
all alterations to the Premises as are required to comply with the governmental
rules, regulations, requirements or standards described in this Article 24. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any judicial action, regardless of whether Landlord is a party thereto, that
Tenant has violated any of said governmental measures, shall be conclusive of
that fact as between Landlord and Tenant.

                                  ARTICLE 25
                                  ----------

                                 LATE CHARGES
                                 ------------

   If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount plus any reasonable attorneys' fees incurred
by Landlord by reason of Tenant's failure to pay Rent and/or other charges when
due hereunder.  The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner.  In addition to the late charge
described above, any Rent or other amounts owing hereunder which are not paid
within ten (10) days after the date they are due shall bear interest from the
date when due until paid at a rate per annum equal to the lesser of (i) the
annual "Bank Prime Loan" rate cited in the Federal Reserve Statistical Release
Publication G.13(415), published on the first Tuesday of each calendar month (or
such other comparable index as Landlord and Tenant shall reasonably agree upon
if such rate ceases to be published) plus two (2) percentage points, and (ii)
the highest rate permitted by applicable law.

                                  ARTICLE 26
                                  ----------

             LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
             ----------------------------------------------------

   26.1 Landlord's Cure. All covenants and agreements to be kept or performed by
        ---------------
Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any reduction of Rent, except to the extent, if any,
otherwise expressly provided herein. If Tenant shall fail to perform any
obligation under this Lease, and such failure shall continue in excess of the
time allowed under Section 19.1.2, above, unless a specific time period is
otherwise stated in this Lease, Landlord may, but shall not be obligated to,
make any such payment or perform any such act on Tenant's part without waiving
its rights based upon any default of Tenant and without releasing Tenant from
any obligations hereunder.

   26.2  Tenant's Reimbursement.  Except as may be specifically provided to the
         ----------------------
contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord
to Tenant of statements therefor:  (i) sums equal to expenditures reasonably
made and obligations incurred by Landlord in connection with the remedying by
Landlord of Tenant's defaults pursuant to the provisions of Section 26.1; (ii)
sums equal to all losses, costs, liabilities, damages and expenses referred to
in Article 10 of this Lease; and (iii) sums equal to all expenditures made and

                                      -38-
<PAGE>

obligations incurred by Landlord in collecting or attempting to collect the Rent
or in enforcing or attempting to enforce any rights of Landlord under this Lease
or pursuant to law, including, without limitation, all reasonable legal fees and
other amounts so expended.  Tenant's obligations under this Section 26.2 shall
survive the expiration or sooner termination of the Lease Term.

                                  ARTICLE 27
                                  ----------

                               ENTRY BY LANDLORD
                               -----------------

   Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant (except in the case of an emergency) to enter the Premises to
(i) inspect them; (ii) show the Premises to prospective purchasers or tenants,
or to current or prospective mortgagees, ground or underlying lessors or
insurers; (iii) post notices of nonresponsibility; or (iv) alter, improve or
repair the Premises or the Building, or for structural alterations, repairs or
improvements to the Building or the Building's systems and equipment.
Notwithstanding anything to the contrary contained in this Article 27, Landlord
may enter the Premises at any time to (A) perform services required of Landlord,
including janitorial service; (B) take possession due to any breach of this
Lease in the manner provided herein; and (C) perform any covenants of Tenant
which Tenant fails to perform.  Landlord may make any such entries without the
abatement of Rent, except as otherwise provided in this Lease, and may take such
reasonable steps as required to accomplish the stated purposes.  Tenant hereby
waives any claims for damages or for any injuries or inconvenience to or
interference with Tenant's business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby.  For
each of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant's vaults, safes and
special security areas designated in advance by Tenant.  In an emergency,
Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises.  Any entry into the Premises by Landlord
in the manner hereinbefore described shall not be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.  No provision
of this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed to be performed
by Landlord herein.

                                  ARTICLE 28
                                  ----------

                                TENANT PARKING
                                --------------

   Landlord shall provide, for the Lease Term , the number of  parking spaces
as provided in Section 9 of the Summary.  There shall be no charge for parking
during the initial Lease Term. Tenant's continued right to use the parking
spaces is conditioned upon Tenant abiding by all reasonable rules and
regulations which are prescribed from time to time for the orderly operation and
use of the parking facility where the parking spaces are located, including any
sticker or other identification system established by Landlord and Tenant's
cooperation in seeing that Tenant's employees and visitors also comply with such
rules and regulations and Tenant not being in default under this Lease.
Landlord specifically reserves the right to change the size,

                                      -39-
<PAGE>

configuration, design, layout and all other aspects of the Project parking
facility at any time. Tenant acknowledges and agrees that Landlord may, without
incurring any liability to Tenant and without any abatement of Rent under this
Lease, from time to time, temporarily close-off or restrict access to the
Project parking facility for purposes of permitting or facilitating any such
construction, alteration or improvements. Landlord may delegate its
responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control attributed hereby to the Landlord.
The parking spaces available to Tenant pursuant to this Article 28 are provided
to Tenant solely for use by Tenant's own personnel and such right to such spaces
may not be transferred, assigned, subleased or otherwise alienated by Tenant
without Landlord's prior approval, which approval shall not be unreasonably
withheld or delayed.

                                  ARTICLE 29
                                  ----------

                           MISCELLANEOUS PROVISIONS
                           ------------------------

   29.1 Terms; Captions. The words "Landlord" and "Tenant" as used herein shall
        ---------------
include the plural as well as the singular. The necessary grammatical changes
required to make the provisions hereof apply either to corporations or
partnerships or individuals, men or women, as the case may require, shall in all
cases be assumed as though in each case fully expressed. The captions of
Articles and Sections are for convenience only and shall not be deemed to limit,
construe, affect or alter the meaning of such Articles and Sections.

   29.2  Binding Effect.  Subject to all other provisions of this Lease, each of
         --------------
the covenants, conditions and provisions of this Lease shall extend to and
shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective heirs, personal
representatives, successors or assigns, provided this clause shall not permit
any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

   29.3  No Air Rights.  No rights to any view or to light or air over any
         -------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.  If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the  Project, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.

   29.4  Modification of Lease.  Should any current or prospective mortgagee or
         ---------------------
ground lessor for the Building or Project require a modification of this Lease,
which modification will not cause an increased cost or expense to Tenant or in
any other way materially and adversely change the rights and obligations of
Tenant hereunder, then and in such event, Tenant agrees that this Lease may be
so modified and agrees to execute whatever documents are reasonably required
therefor and to deliver the same to Landlord within ten (10) business days
following a request therefor.  At the request of Landlord or any mortgagee or
ground lessor, Tenant agrees to execute a short form of Lease and deliver the
same to Landlord within ten (10) business days following the request therefor.

                                      -40-
<PAGE>

   29.5  Transfer of Landlord's Interest.  Tenant acknowledges that Landlord has
         -------------------------------
the right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, Landlord shall automatically be released from all liability under this
Lease and Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of transfer and such transferee
shall be deemed to have fully assumed and be liable for all obligations of this
Lease to be performed by Landlord, including the return of any Security Deposit,
and Tenant shall attorn to such transferee.

   29.6 Prohibition Against Recording. Except as provided in Section 29.4 of
        -----------------------------
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant.

   29.7  Landlord's Title.  Landlord's title is and always shall be paramount to
         ----------------
the title of Tenant.  Nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber the title of Landlord.

   29.8 Relationship of Parties. Nothing contained in this Lease shall be deemed
        -----------------------
or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant.

   29.9 Application of Payments. Landlord shall have the right to apply payments
        -----------------------
received from Tenant pursuant to this Lease, regardless of Tenant's designation
of such payments, to satisfy any obligations of Tenant hereunder, in such order
and amounts as Landlord, in its sole discretion, may elect.

   29.10 Time of Essence. Time is of the essence with respect to the performance
         ---------------
of every provision of this Lease in which time of performance is a factor.

   29.11  Partial Invalidity.  If any term, provision or condition contained in
          ------------------
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.

   29.12  No Warranty.  In executing and delivering this Lease, Tenant has not
          -----------
relied on any representations, including, but not limited to, any representation
as to the amount of any item comprising Additional Rent or the amount of the
Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the exhibits attached hereto.

29.13 Landlord Exculpation. The liability of Landlord or the Landlord Parties to
      --------------------
Tenant for any default by Landlord under this Lease or arising in connection
herewith or with Landlord's operation, management, leasing, repair, renovation,
alteration or any other matter relating to the Project or the Premises shall be
limited solely and exclusively to an amount which is equal to the lesser of (a)
the interest of Landlord in the Building or (b) the equity interest

                                      -41-
<PAGE>

Landlord would have in the Building if the Building were encumbered by third-
party debt in an amount equal to eighty percent (80%) of the value of the
Building (as such value is determined by Landlord), provided that in no event
shall such liability extend to any sales or insurance proceeds received by
Landlord or the Landlord Parties in connection with the Project, Building or
Premises. Neither Landlord, nor any of the Landlord Parties shall have any
personal liability therefor, and Tenant hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by, through
or under Tenant. The limitations of liability contained in this Section 29.13
shall inure to the benefit of Landlord's and the Landlord Parties' present and
future partners, beneficiaries, officers, directors, trustees, shareholders,
agents and employees, and their respective partners, heirs, successors and
assigns. Under no circumstances shall any present or future partner of Landlord
(if Landlord is a partnership), or trustee or beneficiary (if Landlord or any
partner of Landlord is a trust), have any liability for the performance of
Landlord's obligations under this Lease. Notwithstanding any contrary provision
herein, neither Landlord nor the Landlord Parties shall be liable under any
circumstances for injury or damage to, or interference with, Tenant's business,
including but not limited to, loss of profits, loss of rents or other revenues,
loss of business opportunity, loss of goodwill or loss of use, in each case,
however occurring.

   29.14  Entire Agreement.  It is understood and acknowledged that there are no
          ----------------
oral agreements between the parties hereto affecting this Lease and this Lease
constitutes the parties' entire agreement with respect to the leasing of the
Premises and supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Landlord to Tenant with respect to the subject
matter thereof, and none thereof shall be used to interpret or construe this
Lease.  None of the terms, covenants, conditions or provisions of this Lease can
be modified, deleted or added to except in writing signed by the parties hereto.

   29.15  Right to Lease.  Landlord reserves the absolute right to effect such
          --------------
other tenancies in the Project as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building or
Project.  Tenant does not rely on the fact, nor does Landlord represent, that
any specific tenant or type or number of tenants shall, during the Lease Term,
occupy any space in the Building or Project.

   29.16  Force Majeure.  Any prevention, delay or stoppage due to strikes,
          -------------
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, a "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.

   29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and
         ------------------------------
for all those claiming under Tenant, any and all rights now or hereafter
existing to redeem by order or

                                      -42-
<PAGE>

judgment of any court or by any legal process or writ, Tenant's right of
occupancy of the Premises after any termination of this Lease.

   29.18 Notices. All notices, demands, statements, designations, approvals or
         -------
other communications (collectively, "Notices") given or required to be given by
either party to the other hereunder or by law shall be in writing, shall be (A)
sent by United States certified or registered mail, postage prepaid, return
receipt requested ("Mail"), (B) transmitted by telecopy, if such telecopy is
promptly followed by a Notice sent by Mail, (C) delivered by a nationally
recognized overnight courier, or (D) delivered personally. Any Notice shall be
sent, transmitted, or delivered, as the case may be, to Tenant at the
appropriate address set forth in Section 10 of the Summary, or to such other
place as Tenant may from time to time designate in a Notice to Landlord, or to
Landlord at the addresses set forth below, or to such other places as Landlord
may from time to time designate in a Notice to Tenant. Any Notice will be deemed
given (i) three (3) days after the date it is posted if sent by Mail, (ii) the
date the telecopy is transmitted, (iii) the date the overnight courier delivery
is made, or (iv) the date personal delivery is made. As of the date of this
Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the
case may be, to the following addresses:

                    ZKS Real Estate Partners
                    3697 Mt. Diablo Boulevard, Suite 100
                    Lafayette, California 94549
                    Attention:  David Popelka
                    Telephone:  (925) 283-8280
                    Fax:  (925) 283-7638

                    and

                    Opus West  Management Corporation
                    2020 Main Street, Suite 800
                    Irvine, California 94614
                    Attention:  Kathy Clausen
                    Telephone:  (949) 622-3455
                    Fax: (949) 622-1941

                    and

                    Allen, Matkins, Leck, Gamble & Mallory
                    333 Bush Street, Suite 1700
                    San Francisco, California 94104
                    Attention:  Richard C. Mallory, Esq.
                    Telephone:  (415) 837-1515
                    Fax:  (415) 837-1516

   29.19  Joint and Several.  If there is more than one Tenant, the obligations
          -----------------
imposed upon Tenant under this Lease shall be joint and several.

                                      -43-
<PAGE>

       29.20 Authority. If Tenant is a corporation, trust or partnership,
             ---------
each individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so. In such event, Tenant shall, within ten (10) days after
execution of this Lease, deliver to Landlord satisfactory evidence of such
authority and, if a corporation, upon demand by Landlord, also deliver to
Landlord satisfactory evidence of (i) good standing in Tenant's state of
incorporation and (ii) qualification to do business in California.

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

       29.22 Governing Law; WAIVER OF TRIAL BY JURY. This Lease shall be
             --------------------------------------
construed and enforced in accordance with the laws of the State of California.
IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT
TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA,
(II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN
THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE
OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S
USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY
EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY
PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT
SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH
COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE
RELEGATED TO AN INDEPENDENT ACTION AT LAW.

       29.23 Submission of Lease. Submission of this instrument for examination
             -------------------
or signature by Tenant does not constitute a reservation of, option for or
option to lease, and it is not effective as a lease or otherwise until execution
and delivery by both Landlord and Tenant.

       29.24 Brokers. Landlord and Tenant hereby warrant to each other that they
             -------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 12 of the Summary (the "Brokers"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, costs and expenses (including without
limitation reasonable attorneys' fees) with respect to any leasing commission or
equivalent compensation alleged to be

                                      -44-
<PAGE>

owing on account of any dealings with any real estate broker or agent, other
than the Brokers, occurring by, through, or under the indemnifying party.

       29.25 Independent Covenants. This Lease shall be construed as though the
             ---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord.

       29.26 Project or Building Name and Signage. Landlord shall have the right
             ------------------------------------
at any time to change the name of the Project or Building and to install, affix
and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not use the name of the Project or Building or use pictures or
illustrations of the Project or Building in advertising or other publicity or
for any purpose other than as the address of the business to be conducted by
Tenant in the Premises, without the prior written consent of Landlord.

       29.27 Counterparts. This Lease may be executed in counterparts with the
             ------------
same effect as if both parties hereto had executed the same document.  Both
counterparts shall be construed together and shall constitute a single lease.

       29.28 Confidentiality. Tenant acknowledges that the content of this Lease
             ---------------
and any related documents are confidential information.  Tenant shall keep such
confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's financial,
legal, and space planning consultants.

       29.29 Development of the Project.
             --------------------------

              29.29.1     Subdivision. Landlord reserves the right to further
                          -----------
subdivide all or a portion of the Project. Tenant agrees to execute and deliver,
upon demand by Landlord and in the form requested by Landlord, any additional
documents needed to conform this Lease to the circumstances resulting from such
subdivision.

              29.29.2     The Other Improvements. If portions of the Project or
                          ----------------------
property adjacent to the Project (collectively, the "Other Improvements") are
owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any or all of the Other Improvements to
provide (i) for reciprocal rights of access and/or use of the Project and the
Other Improvements, (ii) for the common management, operation, maintenance,
improvement and/or repair of all or any portion of the Project and the Other
Improvements, (iii) for the allocation of a portion of the Direct Expenses to
the Other Improvements and the operating expenses and taxes for the Other
Improvements to the Project, and (iv) for the use or improvement of the Other
Improvements and/or the Project in connection with the improvement,
construction, and/or excavation of the Other Improvements and/or the Project.
Nothing contained herein shall be deemed or construed to limit or otherwise
affect Landlord's right to convey all or any portion of the Project or any other
of Landlord's rights described in this Lease.

                                      -45-
<PAGE>

              29.29.3     Construction of Project and Other Improvements. Tenant
                          ----------------------------------------------
acknowledges that portions of the Project and/or the Other Improvements may be
under construction following Tenant's occupancy of the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction.

       29.30 Building Renovations. It is specifically understood and agreed that
             --------------------
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, Building, or any part thereof and
that no representations respecting the condition of the Premises or the Building
have been made by Landlord to Tenant except as specifically set forth herein or
in the Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is
currently renovating or may during the Lease Term renovate, improve, alter, or
modify (collectively, the "Renovations") the Project, the Building and/or the
Premises. Tenant hereby agrees that such Renovations shall in no way constitute
a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent.
Landlord shall have no responsibility and shall not be liable to Tenant for any
injury to or interference with Tenant's business arising from the Renovations,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations, or for any
inconvenience or annoyance occasioned by such Renovations.

       29.31 No Violation. Tenant hereby warrants and represents that neither
             ------------
its execution of nor performance under this Lease shall cause Tenant to be in
violation of any agreement, instrument, contract, law, rule or regulation by
which Tenant is bound, and Tenant shall protect, defend, indemnify and hold
Landlord harmless against any claims, demands, losses, damages, liabilities,
costs and expenses, including, without limitation, reasonable attorneys' fees
and costs, arising from Tenant's breach of this warranty and representation.

       29.32 Communications and Computer Lines. Tenant may install, maintain,
             ---------------------------------
replace, remove or use any communications or computer wires and cables
(collectively, the "Lines") at the Project in or serving the Premises, provided
that (i) Tenant shall obtain Landlord's prior written consent, use an
experienced and qualified contractor approved in writing by Landlord, and comply
with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an
acceptable number of spare Lines and space for additional Lines shall be
maintained for existing and future occupants of the Project, as determined in
Landlord's reasonable opinion, (iii) the Lines therefor (including riser cables)
shall be appropriately insulated to prevent excessive electromagnetic fields or
radiation, and shall be surrounded by a protective conduit reasonably acceptable
to Landlord, (iv) any new or existing Lines servicing the Premises shall comply
with all applicable governmental laws and regulations, (v) as a condition to
permitting the installation of new Lines, Landlord may require that Tenant
remove existing Lines located in or serving the Premises and repair any damage
in connection with such removal, and (vi) Tenant shall pay all costs in
connection therewith. Landlord reserves the right to require that Tenant remove
any Lines located in or serving the Premises which are installed in violation of
these provisions, or which are at any time in violation of any laws or represent
a dangerous or potentially dangerous condition.

                                      -46-
<PAGE>

       29.33 No Discrimination. There shall be no discrimination against, or
             -----------------
segregation of, any person or persons on account of sex, marital status, race,
color, religion, creed, national origin or ancestry in the Transfer of the
Premises, or any portion thereof, nor shall the Tenant itself, or any person
claiming under or through it, establish or permit any such practice or practices
of discrimination or segregation with reference to the selection, location,
number, use or occupancy of tenants, lessees, subtenants, sublessees, or vendees
of the Premises, or any portion thereof.

                                  ARTICLE 30
                                  ----------

                        EXISTING ENVIRONMENTAL CONDITION
                        --------------------------------

     Tenant acknowledges receipt of the environmental summary (the
"Environmental Summary") in Exhibit F attached hereto and incorporated herein.
Pursuant to California Health & Safety Code Section 25359.7 and other relevant
sections of law requiring notice, Landlord hereby notifies Tenant that the
groundwater groundwater  in the property contain measurable levels of certain
hazardous materials as described in the Environmental Summary (the "Existing
Environmental Condition").  Upon the request of Tenant, Landlord shall make
available any and all reports concerning the Existing Environmental Condition
for Tenant's review.

                                  ARTICLE 31
                                  ----------

                                OPTION TO EXTEND
                                ----------------

       31.1 Option Right. Landlord hereby grants Tenant one (1) option to extend
            ------------
the initial Lease Term for the entire Premises for a period of five (5) years
(the "Option Term"), which option shall be exercisable only by written Exercise
Notice (as defined below) delivered by Tenant to Landlord as provided below,
provided that, as of the date of delivery of such Exercise Notice, Tenant is not
in a state of uncured monetary or other default following the expiration of the
applicable cure periods under the Lease and Tenant has not been in default
beyond the expiration of any applicable notice and cure period. Upon the proper
exercise of such option to extend, and provided that, as of the end of the
initial Lease Term, Tenant is not in default, as described above, under the
Lease, the initial Lease Term shall be extended for the Option Term. The rights
contained in this Article 31 shall be personal to the original Tenant executing
the Lease and may only be exercised by the original Tenant (and not any
assignee, sublessee or other transferee of Tenant's interest in the Lease) if
the original Tenant occupies the entire Premises as of the date of the Exercise
Notice.

       31.2  Option Rent. The annual base rent payable by Tenant during the
             -----------
Option Term (the "Option Rent") shall be equal to the greater of (i) the Base
Rent being paid by Tenant immediately prior to the Option Term, and (ii) the
"Fair Market Rent" which for purposes hereof means the annual basic rent, taking
into account whether the then current market is using leases based on a base
year, an expense stop, or a triple net, at which tenants, as of the commencement
of the Option Term, are leasing non-sublease space comparable in size, location
and quality to the Premises (and including comparable tenant improvements
therein) for a comparable term,

                                      -47-
<PAGE>

located in comparable first-class office "flex"/research and development
buildings with prudent ownership (with management practices comparable with
institutional ownership), in the vicinity of the Project (the "Project Area"),
taking into consideration all concessions and inducements generally being
granted at such time. All other terms and conditions of the Lease shall apply
throughout the Option Term; provided, however, any obligation of Landlord to
construct tenant improvements or provide an allowance shall not apply during the
Option Term, except to the extent such provisions are included in the definition
of Fair Market Rent, and Tenant shall, in no event, have the option to extend
the initial Lease Term beyond the Option Term described in Section 31.1 above.

       31.3  Exercise of Options. The option contained in this Article 31 shall
             -------------------
be exercised by Tenant, if at all, on or before the date (the "Exercise Date")
which is at least twelve (12) months prior to the expiration of the initial
Lease Term by delivering written notice ("Exercise Notice") thereof to Landlord.
Tenant may notify Landlord earlier than the Exercise Date of its intent to
exercise its option and Landlord will work with Tenant to establish the Fair
Market Rent at that time. After the Exercise Date, the parties shall follow the
procedure and the Fair Market Rent shall be determined as set forth in Section
31.4 below. Tenant's failure to deliver the Exercise Notice on or before the
Exercise Date shall be deemed to constitute Tenant's waiver of its extension
right hereunder.

       31.4  Determination of Option Rent. Landlord and Tenant shall attempt to
             ----------------------------
agree upon the Fair Market Rent, using their best good-faith efforts. If
Landlord and Tenant fail to reach agreement upon Fair Market Rent within fifteen
(15) business days following Tenant's delivery of the Exercise Notice (the
"Outside Agreement Date"), then each party shall submit to the other party a
separate written determination of the Fair Market Rent within fifteen (15)
business days after the Outside Agreement Date, and such determinations shall be
submitted to arbitration in accordance with Sections 31.4.1 through 31.4.7
below. Failure of Tenant or Landlord to submit a written determination of the
Fair Market Rent within such fifteen (15) business day period shall conclusively
be deemed to be the non-determining party's approval of the Fair Market Rent
submitted within such fifteen (15) business day period by the other party.

             31.4.1 Landlord and Tenant shall each appoint one arbitrator who
shall by profession be an independent real estate broker who shall individually
have no ongoing business relationship with Tenant or Landlord and who shall have
been active over the eight (8) year period ending on the date of such
appointment in the leasing of first-class office "flex" buildings in the Project
Area. The determination of the arbitrators shall be limited solely to the issue
of whether Landlord's or Tenant's submitted Fair Market Rent is the closest to
the actual Fair Market Rent as determined by the arbitrators, taking into
account the requirements of Section 31.2. Each such arbitrator shall be
appointed within thirty (30) days after the Outside Agreement Date.

             31.4.2 The two (2) arbitrators so appointed shall within ten (10)
business days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria as set forth hereinabove for qualification of the initial two (2)
arbitrators.

                                      -48-
<PAGE>

             31.4.3 The three (3) arbitrators shall within thirty (30) days
after the appointment of the third arbitrator reach a decision as to whether
Landlord's or Tenant's submitted Fair Market Rent is the closest to the actual
Fair Market Rent, and shall use the closest of Landlord's or Tenant's submitted
Fair Market Rent as the Fair Market Rent for purposes of calculating the Option
Rent, and shall notify Landlord and Tenant thereof.

             31.4.4 The decision of the majority of the three (3) arbitrators
shall be binding upon Landlord and Tenant.

             31.4.5 If either Landlord or Tenant fails to appoint an arbitrator
within thirty (30) days after the Outside Agreement Date, the arbitrator
appointed by one of them shall reach a decision, notify Landlord and Tenant
thereof, and such arbitrator's decision shall be binding upon Landlord and
Tenant.

             31.4.6 If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator within the time period provided in Section 31.2 above, then the
parties shall mutually select the third arbitrator, who shall be qualified under
the same criteria as set forth in Section 31.4.1 above. If Landlord and Tenant
are unable to agree upon the third arbitrator within ten (10) days, then either
party may, upon at least five (5) days' prior written notice to the other party,
request the Presiding Judge of the San Mateo County Superior Court, acting in
his private and nonjudicial capacity, to appoint the third arbitrator who shall
be qualified under the same criteria as set forth in Section 31.4.1. Following
the appointment of the third arbitrator, the panel of arbitrators shall within
thirty (30) days thereafter reach a decision as to whether Landlord's or
Tenant's submitted Fair Market Rent shall be used and shall notify Landlord and
Tenant thereof.

             31.4.7 The cost of the arbitrators and the arbitration proceeding
shall be paid by the non-prevailing party.

     IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.

"Landlord":

SIERRA POINT, L.L.C,

a Delaware limited liability company

By: /s/ Thomas W. Roberts
   -------------------------

Name:  Thomas W. Roberts
     -----------------------

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

"Tenant":

TURBOLINUX, INC.,

a Delaware corporation

By: /s/ Toni Sutliff
   -----------------------------

Name:   Toni Sutliff
     ---------------------------

Its: Sr. Dir. of Admin.
    ----------------------------

Date:  3 Feb 00
     ---------------------------

By:  /s/ Behdad Eghbali
   -----------------------------

Name:    Behdad Eghbali
     ---------------------------

Its: V. P. Corporate Development
    ----------------------------

Date:    2-3-00
     ---------------------------

                                      -49-<PAGE>

                                                                    EXHIBIT 10.8

                        EXECUTIVE EMPLOYMENT AGREEMENT

     THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of
this 28th day of February, 2000, is made by and between TurboLinux, Inc., a
Delaware corporation (hereinafter the "Company"), and T. PAUL THOMAS
(hereinafter "Executive").

                                   ARTICLE 1

                              EFFECT OF AGREEMENT

          1.1  Effect of Agreement.

     This Agreement shall be effective as of February 28th, 2000 (the "Effective
Date") and shall remain in effect so long as Executive is employed by the
Company; provided, however, that the rights and obligations of the parties
hereto contained in Articles 6 and 7 of this Agreement, and as otherwise
explicitly provided in this Agreement, shall survive any termination of this
Agreement until such time as such duty or obligation is satisfied in full.

          1.2  Consideration.

     The duties and obligations of the Company to Executive under this Agreement
shall be in consideration of Executive's continued employment with the Company.

                                  ARTICLE 2

                              EMPLOYMENT DUTIES

          2.1  Title/Responsibilities.

     Executive hereby accepts the terms of this Agreement and agrees to serve as
the President and Chief Operating Officer of the Company and Executive shall be
elected to serve as a member of the Company's Board of Directors (the "Board").
Executive shall work closely with and report directly to the Chief Executive
Officer and Board of Directors of the Company. Executive shall have all powers
and duties commensurate with such position, including but not limited to hiring
personnel necessary to carry out the responsibilities for such position. As the
President and Chief Operating Officer of the Company, Executive will be
responsible for managing the operations of the company, including finance,
general administration, sales and marketing, the development and delivery of
products, and the implementation of the overall strategy of the company. As an
executive officer of the Company, Executive will be expected to enforce the
rules and regulations of the Company. His office will be in the San Jose,
California area.

          2.2  Full-Time Attention.
<PAGE>

     Executive shall devote his best efforts and his full business time and
attention to the performance of the services customarily incident to such office
and to such other services as the Board and/or the Chief Executive Officer may
reasonably request. Executive may also serve on the board of directors of one or
more companies with the prior consent of the Board, which shall not be
unreasonably withheld, and may also continue to serve on the board of directors
of those companies listed on Schedule A, so long as such service does not
interfere with Executive's performance of his responsibilities and duties to the
Company.

          2.3  Other Activities.

     Except upon the prior consent of the Board, Executive shall not during the
period of this Agreement engage, directly or indirectly, in any other business
activity (whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to that of the
Company or to any other corporation or entity that directly or indirectly
controls, is controlled by, or is under common control with the Company (an
"Affiliated Company"), provided that Executive may own less than one percent
(1%) of the outstanding securities of any such publicly traded corporation. The
determination as to whether a business activity is or may be competitive with
the Company or an Affiliated Company shall be made by the Board, and shall be
final and binding on all parties. Nothing in this Section 2.3 is intended to
prevent Executive from accepting employment with another company, or providing
other services to another business, after Executive's cessation of all services
for the Company.

          2.4  Directorship.

     Executive will be nominated for re-election to the Company's Board and
continue serving as a member of the Board throughout the time that this
Agreement is in effect. While he remains an employee of the Company, Executive
agrees to serve as a member of the Board at no additional compensation.
Executive shall receive the same indemnification for this Board activities as
the company makes available to other members of the Board.

                                   ARTICLE 3

                                 COMPENSATION

          3.1  Annual Base Pay.

     The annual Base Salary of Executive will be two hundred seventy-five
thousand dollars ($275,000). For as long as this Agreement is effective, the
Board shall review Executive's Base Salary at least annually.

          3.2  Annual Incentive Bonus.

                                      2.

<PAGE>

     For each of the Company's fiscal years, commencing with the Company's 2000
fiscal year and for each fiscal year thereafter as long as this Agreement is in
effect, the Board shall establish after consultation with the Executive a set of
mutually agreeable performance targets for Executive, which if fully achieved
shall result in a cash payment to Executive (the "Bonus") equal to two hundred
seventy-five thousand dollars ($275,000). For the first fiscal year of
Executive's employment with the Company, fifty percent (50%) of the Bonus shall
be guaranteed, with the remaining fifty percent (50%) to be awarded based upon
Executive's achievement of the mutually agreeable performance targets. This
bonus will be due and payable within thirty days after the end of the fiscal
year. For each fiscal year thereafter, one hundred percent (100%) of the Bonus
shall be awarded based upon Executive's achievement of the mutually agreeable
performance targets that will be set by the Board, after consultation with the
Executive, at the beginning of the fiscal year. For the second fiscal year and
each fiscal year thereafter, Executive's target bonus will be equal to one
hundred percent (100%) of Executive's annual base salary, to be awarded based
upon Executive's achievement of mutually agreeable performance targets.

          3.3  Stock Options.

               (a)  Hire-On Option.

     As part of Executive's compensation for services to the Company, the
Company shall grant to the Executive an immediately exercisable nonstatutory
stock option to purchase that number of shares of the Company's common stock
equal to four percent (4.0%) of the Company's currently outstanding shares on a
fully diluted basis of the Company's stock as of February 11, 2000, which is Two
Million One Hundred Eleven Thousand (2,111,356) shares (the "Hire-On Option"),
subject to the terms of the Company's 1999 Equity Incentive Plan ("Plan"), and
with an exercise price of fifty cents ($0.50) per share. The Hire-On Option
shall vest over four (4) years of continuous service with the Company, such that
1/4th of the shares subject to the Hire-On Option shall vest on the first
anniversary of the Executive's commencement of employment with the Company, with
the balance of the shares subject to the Hire-On Option vesting in equal monthly
installments thereafter over the following thirty-six (36) months. The Company
shall retain the right to repurchase any shares of common stock purchased under
the Hire-On Option which have not become vested as provided in this Section
3.3(a) should Executive's employment terminate prior to the completion of four
(4) years of continuous service with the Company.

               (b)  Performance Option.

     As part of Executive's compensation for services to the Company, the
Company shall grant to the Executive an immediately exercisable nonstatutory
option to purchase that number of the shares of the Company's common stock equal
to one-half percent (0.5%) of the Company's currently outstanding shares on a
fully diluted basis of the Company's stock as of February 11, 2000, which is Two
Hundred Sixty Three Thousand Nine Hundred Twenty (263,920) shares (the
"Performance Option"), subject to the terms of the Plan, and with an

                                      3.

<PAGE>

exercise price of fifty cents ($0.50) per share; notwithstanding, the
Performance Option may be made outside of the Plan. The Performance Option shall
vest on the earlier of (i) the completion of six (6) years of Executive's
continuous service with the Company, or (ii) the achievement by the Company of
certain performance milestones, to be mutually agreed upon following the start
of Executive's employment. Executive will meet with the CEO and representatives
of the Board within thirty days of commencing employment and they will agree to
certain performance objectives that might reasonably be achievable within one
year to eighteen months after the date of hire. The Company shall retain the
right to repurchase any stock purchased under the Performance Option which have
not become vested as provided in this Section 3.3(b).

                    (c)  Terms of the Stock Options Grants.

        The above stock options, if approved by the Board, will be subject to
the terms and conditions of the Plan whether or not they are granted under the
Plan, any amendments to the Plan, and the Company's corresponding grant to
Executive. Subject to the provisions of this Section 3.3, Executive shall have
the right to exercise the Hire-On Option and Performance Option under an early
exercise stock purchase as provided in the Plan. If the common stock of the
Company becomes publicly-traded, the Company will use its best efforts to
register the stock purchased under the above stock options under an SEC S-8
registration or a re-offering registration under an SEC S-8 or S-3 registration.

                    (d)  Stock Loan.

        The Company will provide a full-recourse loan to Executive to exercise
the above stock options under an early exercise stock purchase as permitted
above. The loan will be provided to Executive at the lowest interest rate
allowable under Section 7872 of the Internal Revenue Code that would not result
in any imputed income for a below-market interest rate and on the most favorable
terms consistent with applicable securities laws and rules. The shares purchased
with the above sock options will be pledged as collateral and held in escrow for
the repayment of the loan and will be subject to repurchase of foreclosure by
the Company consistent with Executive's vesting schedule or schedules if
Executive terminates employment without satisfying the vesting requirements for
the above stock options or has not repaid the above-described loan.

             3.4  Mortgage Subsidy, Reimbursement of Home Sales Expenses and
Moving Expenses

                    (a)  Mortgage Subsidy.

        For a period of the shorter of three year after the Effective Date or
until two years following the effective date of the initial public offering
("IPO") of the Company's common stock, the Company will provide Executive with a
monthly mortgage allowance sufficient to cover the difference in the monthly
mortgage payments Executive incurs in excess of Executive's current mortgage
payments (which is $4060 per month) to cover the additional mortgage amount
incurred by Executive ("Mortgage Difference") not to exceed One Million

                                       4

<PAGE>

Dollars ($1,000,000). To the extent that this mortgage subsidy is not sufficient
for Executive to find housing for his family consistent with his needs and local
norms, the Company agrees to act in good faith to attempt to work out a suitable
accommodation with Executive. This monthly mortgage subsidy will be grossed up
to cover any incremental tax obligations it creates for Executive. If at the end
of three years the Company has not made an IPO, the Company shall, if asked by
Employee, make a four (4) year term loan to the Executive equal to the Mortgage
Difference, with interest payable annually at the lowest rate permitted under
Section 7872 of the Internal Revenue Code which would not result in any imputed
income to Executive and, subject to the provisions of the following sentence,
the unpaid principal due and payable on the earlier of four (4) years from the
date the loan is made or the date of the termination of Executive's employment.
All of the accrued interest and one-fourth (1/4) of the principal of the loan
shall be forgiven for each year following the date the loan is made that
Executive remains in employment with the Company.

                    (b)  Reimbursement of Home Sale and Purchase Expenses.

        In addition, the Company will reimburse Executive for all reasonable
costs associated with selling his current home and purchasing a new home,
including closing costs on the sale of his current home plus all acquisition
costs on the purchase of his new home.

                    (c)  Relocation, Housing Allowances and Home Visits.

        The Company will pay for Executive's household moving expenses including
the packing and unpacking of household goods, relocation of household goods and
relocation of Executive's family to the West Coast. The Company also will
provide Executive with temporary living expenses in an apartment or hotel until
his family relocates in the summer of 2000. The Company also will reimburse
Executive for two house hunting trips, one of which will include Executive's
children. In addition, the Company will reimburse Executive for the reasonable
cost of up to two trips per month to visit his family while they remain in
Massachusetts. Executive agrees to operate on a best efforts basis to integrate
these trips with normal business travel.

                    (d)  The Company will provide a gross-up on the relocation,
        housing and travel expenses referred to in subparagraphs (b) and (c)
        that are not deductible by Executive for income tax purposes.

                    (e)  The Company will also make a lump sum payment to you
        within ninety days after you start employment which after the deduction
        of all applicable taxes is equal to $10,000. This payment is designed to
        compensate you for all incidental moving expenses not specifically
        covered above.

             3.5  Attorneys Fees Reimbursement.

                                       5

<PAGE>

        The Company will reimburse Executive for all legal fees and costs
associated with the advice, execution or negotiation of this Agreement, up to a
maximum of ten thousand dollars ($10,000).

                                   ARTICLE 4

                    EXPENSE ALLOWANCES AND FRINGE BENEFITS

             4.1  Benefits.

        While this Agreement is in effect, the Company shall provide Executive
with the same benefits which it provides to its other senior executives,
including but not limited to medical, pension, vacation, bonus, stock,
profit-sharing and savings plans and similar benefits as such plans and benefits
may be adopted by the Company from time to time.

             4.2  Business Expense Reimbursement.

        While this Agreement is in effect, Executive shall be entitled to
receive proper reimbursement for all reasonable out-of-pocket expenses incurred
by him (in accordance with the policies and procedures established by the
Company for its senior executive officers) in performing services hereunder.
Executive agrees to furnish the Company adequate records and other documentary
evidence of such expenses for which Executive seeks reimbursement. Such expenses
shall be accounted for under the policies and procedures established by the
Company.

                                   ARTICLE 5

                           OTHER RIGHTS AND BENEFITS

             5.1  Nonexclusivity.

        Nothing in this Agreement shall prevent or limit Executive's continuing
or future participation in any benefit, bonus, incentive or other plans,
programs, policies or practices provided by the Company and for which Executive
may otherwise qualify, nor shall anything herein limit or otherwise affect such
rights as Executive may have under any stock option or other agreements with the
Company. Except as otherwise expressly provided herein, amounts which are vested
benefits or which Executive is otherwise entitled to receive under any plan,
policy, practice or program of the Company at or subsequent to the date of his
termination shall be payable in accordance with such plan, policy, practice or
program.

                                   ARTICLE 6

                      TERM AND TERMINATION OF EMPLOYMENT

             6.1  Events of Termination.

                                       6
<PAGE>

        The Executive's employment, will terminate:

                    (a)  upon the death of the Executive;

                    (b)  upon a termination of Executive's employment by the
        Company due to disability after a determination of disability of the
        Executive (as defined in Article 6.2);

                    (c)  upon termination by the Company for Cause or
        Without Cause; or

                    (d)  upon the Executive's resignation of his employment
        for any reason or no reason.

             6.2  Definition of Disability.

        For the purposes of this Agreement, the Executive will be deemed to have
a "disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties under this Agreement
with or without reasonable accommodation of 120 consecutive days, or 180 days
during any twelve-month period, as determined in accordance wit this Article
6.2. The disability of the Executive will be determined by a mutually agreeable
medical doctor. The Executive must submit to a reasonable number of examinations
by the medical doctor making the determination of disability under Article 6.2,
and the Executive hereby authorizes the disclosure and release to the Company
(who shall treat such information in strictest confidence) of such determination
and all supporting medical records. If the Executive is not legally competent,
the Executive's legal guardian or duly authorized attorney-in-fact will act in
the Executive's stead, under this Article 6.2, for the purposes of submitting
the Executive to the examinations, and providing the authorization of
disclosure, required under this Article 6.2

             6.3  Definition of "Cause."

        For the purposes of this Agreement, a termination of Executive's
employment for "Cause" shall mean a termination of Executive's employment by the
Company due to (i) Executive's conviction of any felony or any crime involving
moral turpitude or dishonesty, including a plea of guilty or not contest, (ii)
Executive's participation is a fraud or act of dishonesty either of which
materially damages the Company, (iii) Executive's conduct that, based upon a
good faith and reasonable factual investigation and determination by the
Company, demonstrates Executive's willful failure or refusal to perform his job
duties, or (iv) any other willful act of misconduct which materially damages the
Company. The Company must provide the Executive with thirty (30) days advance
written notice of intent to terminate Executive's employment for "Cause" (the
"Cure Period"). During the Cure Period, the Company, at its sole option, may
require the Executive to take a paid leave of absence and the Executive may
attempt to cure the situation. If Executive does not cure the situation to the
reasonable satisfaction of the Company by the expiration of the Cure Period, the
Executive's employment will then terminate. A termination of Executive's
employment by the Company for any other reason or in any other

                                       7

<PAGE>

circumstances will be a termination "Without Cause." The Executive's physical or
mental Disability shall not constitute "Cause" for termination of employment.

             6.4  Termination Pay.

        Effective upon the termination of Executive's employment, the Company
will pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) the sums provided in Article 6.4. For purposes of
this Article 6.4, the Executive's designated beneficiary will be such individual
beneficiary or trust, located at such address, as the Executive may designate by
notice to the Company from time to time or, if the Executive fails to give
notice to the Company of such a beneficiary, the Executive's estate.

                    (a)  Termination Other than for Cause.

        If Company terminates the Executive's employment Without Cause (or if
Executive's employment with the Company terminates on account of Executive's
death or Disability) the Company shall provide Executive with the following
severance benefits, provided that Executive first executes the employee
agreement and release substantially in the form attached hereto to Exhibit B:

                                (i)   the Company shall continue to pay to
                Executive his then current monthly Base Salary for a period of
                twelve (12) months following Executive's actual separation date;

                                (ii)  the Company shall pay Executive his
                target bonus (assuming performance at target) for the twelve
                (12) month period following Executive's actual separation date
                at such time or times as the Company would make bonus payments
                to the Company's senior executives;

                                (iii) the Company will continue Executive's
                benefits, including medical coverage, or pay for the
                continuation of such coverage, for twelve months; and

                                (iv)  the vesting of Executive's outstanding
                stock options will accelerate and, if applicable, the Company's
                repurchase right will lapse, as if Executive had been employed
                for six additional months after termination of employment.

                    (b)  Termination for Cause.

        If the Company terminates Executive's employment for Cause, the
Executive will be entitled to receive his annual base salary and benefits
through the date such termination is effective.

                                       8

<PAGE>

             6.5  Definition of "Change of Control."

        For purposes of this Agreement, the term "Change of Control" means the
consummation of any of the following transactions:

                    (a)  the stockholders of the Company approve a business
        combination (such as a merger or consolidation) of the Company with any
        other corporation or other type of business entity (such as a limited
        liability company), other than a business combination which would result
        in the voting securities of the Company outstanding immediately prior
        thereto continuing to represent (either by remaining outstanding or by
        being converted into voting securities of the surviving entity) at least
        fifty percent (50%) of the total voting power represented by the voting
        securities of the Company or such controlling surviving entity
        outstanding immediately after such business combination; or

                    (b)  the sale, lease, exchange or other transfer or
        disposition by the Company of all or substantially all (more than
        seventy percent (70%)) of the Company's assets by value.

             6.6  Termination Due to Change in Control.

                    (a)  Change in Control Severance. The Executive shall also
        be entitled to the compensation and benefits described in Article 6.4(a)
        plus the acceleration of the vesting of all of Executive's outstanding
        stock options in the event of the occurrence of a Change in Control
        while the Executive is employed by the Company, but only if upon or
        within twelve (12) months following the occurrence of the Change in
        Control, one of the following events occurs: (i) the Executive's
        employment terminated by the Company Without Cause or (ii) the Executive
        resigns within sixty days of a) his position, authority or
        responsibilities being significantly reduced; b) being asked to relocate
        his principal place of employment such that his commuting distance from
        his residence prior to the Change in Control is increased by over fifty
        (50) miles; c) his annual Base Salary or target bonus being reduced; or
        d) his benefits being materially reduced. The Company will provide
        Executive with the severance benefits described in Article 6.4(a),
        provided that Executive must first execute the employee agreement and
        release substantially in the form attached hereto as Exhibit B.

                    (b)  Parachute Payment. In the event that the acceleration
        of the vesting provided for and benefits otherwise payable to Executive
        under this Section 6.6(i) constitute "parachute payments" within the
        meaning of Section 280G of the Internal Revenue Code of 1986, as
        amended, (the "Code"), or any comparable successor provision, and (ii)
        but for this section would be subject to the excise tax imposed by
        Section 4999 of the Code, or any comparable successor provision (the
        "Excise Tax"), then Executive's benefits hereunder shall be either

                                       9

<PAGE>

                        (i)   provided to Executive in full, or

                        (ii)  provided to Executive as to such lesser extent
               which would result in no portion of such benefits being subject
               to the Excise Tax.

whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by Executive, on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the Company
and Executive otherwise agree in writing, any determination required under this
section shall be made in writing in good faith by the Accountants. In the event
of a reduction of benefits hereunder, benefits payable in cash shall be reduced
first. For purposes of making the calculations required by this section, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code, and other applicable legal authority.
The Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this section.

        The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change of Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company
upon the occurrence of a Change of Control under Article 6.5, the Company shall
appoint a nationally recognized accounting firm other than the accounting firm
engaged by the Company for general audit purposes to make the determinations
required hereunder. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder.

        The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and Executive within thirty (30) calendar days after the date on
which the parachute payments are due to be paid to the Executive. If the
accounting firm determines that no Excise Tax is payable with respect to a
Payment, it shall furnish the Company and Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
such Payment. Any good faith determinations of the accounting firm made
hereunder shall be final, binding and conclusive  upon the Company and the
Executive.

             6.7  Mitigation.

        Except as otherwise specifically provided herein, Executive shall not be
required to mitigate damages or the amount of any payment provided under this
Agreement by seeking order employment or otherwise, nor shall the amount of any
payment provided for under this

                                      10

<PAGE>

Agreement be reduced by any compensation earned by Executive as a result of
employment by another Company or by retirement benefits after the date of his
termination.

                                   ARTICLE 7

                              GENERAL PROVISIONS

                7.1  Governing Law.

        The validly, interpretation, construction and performance of this
Agreement and the rights of the parties hereunder shall be interpreted and
enforced under California law without reference to principles of conflicts of
laws. The parties expressly agree that inasmuch as the Company's headquarters
and principal place of business are located in California, it is appropriate
that California law govern this Agreement.

                7.2  Assignment; Successors; Binding Agreement.

        Executive may not assign, pledge or encumber his interest in this
Agreement or any part thereof and any attempt to do so shall be void.

        The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by operation of law or by agreement in
form and substance reasonably satisfactory to Executive, to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.

        This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legalees. If Executive should die
while any amount is at such time payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legalee or other designee or, if there be
no such designee, to his estate.

                7.3  Withholding of Taxes.

        The Company shall withhold appropriate federal, state and local income
and employment taxes from any payments hereunder.

                7.4  Notices.

        Any notices provided hereunder must be in writing and such notices or
any other written communication shall be deemed effective upon the earlier of
personal delivery (including personal delivery by telex or facsimile) or the
third day after mailing by first class mail, to the Company at its primary
office location and to Executive at his address as listed in the Company's
payroll records. Any payments made by the Company to Executive under the terms

                                      11
<PAGE>

of this Agreement shall be delivered to Executive either in person or at his
address as listed in the Company's payroll records.

                7.5  Modification; Waiver; Entire Agreement.

        No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
Executive and such officer or other representative of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to the performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth or referred to in this Agreement.

                7.6  Validity.

        Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provisions hadn ever been contained herein.

                7.7  Controlling Document.

        In case of conflict between any of the terms and conditions of this
Agreement and the documents herein referred to, any other documents or
agreements affecting the same terms and conditions of Executive's employment as
are addressed in this Agreement, the terms and conditions of this Agreement
shall control, and such other documents shall be deemed to be amended hereby.

                7.8  Employment Status.

        This Agreement does not impose on Executive any obligation to remain as
an employee or impose on the Company any obligation (i) to retain Executive as
an employee, (ii) to change the status of Executive as an at-will employee whose
employment with the Company can be terminated at any time, with or without
notice, for any reason or no reason, or (iii) to change the Company's policies
regarding termination of employment.

                7.9  Headings.

        The headings of the Articles hereof are inserted for convenience only
and shall not be deemed to constitute a part hereof nor to affect the meaning
thereof.

                                      12
<PAGE>

                7.10 Non-Publication.

        The parties mutually agree not to disclose publicly the terms of this
Agreement except to the extent that disclosure is mandated by applicable law.

                7.11 Construction.

        In the event of a conflict between the text of the Agreement and any
summary, description or other information regarding the Agreement, the text of
the Agreement shall control.

                7.12 Counterparts.

        This Agreement may be executed in one or more counterparts any one of
which need not contain signatures of more than one party, all of which taken
together shall constitute one and the same Agreement.

        Executed by the parties as of the day and year first above written.

                                        TURBOLINUX, INC.

                                        By: /s/ IRVING W. MILLER
                                           -------------------------------------
                                           Irving W. Miller,
                                           President and Chief Executive Officer

                                        EXECUTIVE:

                                         /s/ T. PAUL THOMAS
                                        ----------------------------------------
                                        T. Paul Thomas

                                      13

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