Document:

<PAGE>

                                                                    EXHIBIT 10.4

                                LEASE AGREEMENT

                                    between

                    PENINSULA OFFICE PARK ASSOCIATES, L.P.

                                 as "Landlord"

                                      and

                               BLUE MARTINI, LLC

                                  as "Tenant"
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION                                                                PAGE
-------                                                                ----
<S>                                                                     <C>
1.   PREMISES.........................................................   3
2.   TERM; POSSESSION.................................................   3
3.   RENT.............................................................   3
4.   SECURITY DEPOSIT.................................................   8
5.   USE AND COMPLIANCE WITH LAWS.....................................   9
6.   TENANT IMPROVEMENTS & ALTERATIONS................................  12
7.   MAINTENANCE AND REPAIRS..........................................  13
8.   TENANT'S TAXES...................................................  14
9.   UTILITIES AND SERVICES...........................................  15
10.  EXCULPATION AND INDEMNIFICATION..................................  16
11.  INSURANCE........................................................  17
12.  DAMAGE OR DESTRUCTION............................................  19
13.  CONDEMNATION.....................................................  20
14.  ASSIGNMENT AND SUBLETTING........................................  21
15.  DEFAULT AND REMEDIES.............................................  24
16.  LATE CHARGE AND INTEREST.........................................  26
17.  WAIVER...........................................................  26
18.  ENTRY, INSPECTION AND CLOSURE....................................  27
19.  SURRENDER AND HOLDING OVER.......................................  27
20.  ENCUMBRANCES.....................................................  28
21.  ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS...................  29
22.  NOTICES..........................................................  29
23.  ATTORNEYS' FEES..................................................  30
24.  QUIET POSSESSION.................................................  30
25.  SECURITY MEASURES................................................  30
26.  FORCE MAJEURE....................................................  31
27.  RULES AND REGULATIONS............................................  31
28.  LANDLORD'S LIABILITY.............................................  31
29.  CONSENTS AND APPROVALS...........................................  31
30.  WAIVER OF RIGHT TO JURY TRIAL....................................  32
31.  BROKERS..........................................................  32
32.  RELOCATION OF PREMISES...........................................  32
33.  ENTIRE AGREEMENT.................................................  33
34.  MISCELLANEOUS....................................................  33
35.  AUTHORITY........................................................  33
</TABLE>

                                      -i-
<PAGE>

                            INDEX OF DEFINED TERMS

<TABLE>
<S>                                                                   <C>
Additional Rent.....................................................   7
Alterations.........................................................  13
Award...............................................................  22
Base Operating Costs................................................   4
Base Taxes..........................................................   4
Broker..............................................................  35
Building............................................................   3
Building Rules......................................................  34
Building Systems....................................................  10
Business Days.......................................................  16
Business Hours......................................................  16
Claims..............................................................  17
CommenCement Date...................................................   3
Condemnation........................................................  22
Condemnor...........................................................  22
Controls............................................................  15
Date of Condemnation................................................  22
Encumbrance.........................................................  31
Environmental Losses................................................  11
Environmental Requirements..........................................  11
Event of Default....................................................  26
Expiration Date.....................................................   3
Fees................................................................  32
Handled by Tenant...................................................  11
Handling by Tenant..................................................  11
Hazardous Materials.................................................  10
HVAC................................................................  10
Interest Rate.......................................................  29
Landlord............................................................   3
Mortgagee...........................................................  31
Operating Costs.....................................................   4
Parking Facility....................................................   3
Permitted Hazardous Materials.......................................  11
Premises............................................................   3
Project.............................................................   3
Property............................................................   3
Property Manager....................................................  19
Proposed Transferee.................................................  24
Rent................................................................   9
Rental Tax..........................................................  16
Representatives.....................................................  11
Security Deposit....................................................   9
Service Failure.....................................................  17
Taxes...............................................................   7
Tenant..............................................................   3
Tenant Improvements.................................................  13
Tenant's Share......................................................   7
Tenant' s Taxes.....................................................  16
Term................................................................   3
Trade Fixtures......................................................  14
Transfer............................................................  23
Transferee..........................................................  24
Visitors............................................................  11
</TABLE>

                                     -ii-
<PAGE>

                            BASIC LEASE INFORMATION

Lease Date:           For identification purposes only, the date of this
                      Lease is September 1, 1998

Landlord:             PENINSULA OFFICE PARK ASSOCIATES, L.P., a California
                      limited partnership

Tenant:               BLUE MARTINI, LLC

Project:              Peninsula Office Park

Building Address:     2600 Campus Drive San Mateo, California

Rentable Area of      Approximately 59,283 square feet
Building:

Premises:             Floor:         One
                      Suite Number:  175
                      Rentable Area: Approximately 6,819 rentable square feet

Term:                 60 full calendar months (plus any partial month at the
                      beginning of the Term)

Commencement Date:    The later of(a) September 15, 1998, or (b) the date
                      Landlord delivers possession of the Premises to Tenant

Expiration Date:      September 30, 2003

Base Rent:            Months 01 - 15:  $3.00 per rentable square foot per month
                      Months 16 - 27:  $3.40 per rentable square foot per month
                      Months 28 - 39:  $3.50 per rentable square foot per month
                      Months 40 - 51:  $3.60 per rentable square foot per month
                      Months 52 - 60:  $3.70 per rentable square foot per month

Base Year:            The calendar year 1998

Tenant's Share:       11.5%

Security Deposit:     $151,381.80 (subject to possible reduction pursuant to the
                      provisions of Section 4 of this Lease)

Landlord's Address    Peninsula Office Park
for Payment of Rent:  File 72882
                      P.O. Box 61000
                      San Francisco, CA 94161-2882

                                      -1-
<PAGE>

Business Hours:          8:00 a.m. to 6:00 p.m. Monday - Friday (excluding
                         Holidays)

Landlord's Address       PENINSULA OFFICE PARK ASSOCIATES, L.P.
for Notices:             c/o William Wilson & Associates
                         2929 Campus Drive, Suite 145
                         San Mateo, CA 94403
                         Attention: Property Management

                         with a copy to:

                         PENINSULA OFFICE PARK ASSOCIATES, L.P.
                         c/o William Wilson & Associates
                         2929 Campus Drive, Suite 450
                         San Mateo, CA 94403
                         Attn: General Counsel

Tenant's Address         at the Premises
for Notices:

Broker(s):               Wayne Mascia Associates

Guarantor(s):            (none)

Property Manager:        William Wilson & Associates

Additional Provisions:   36.  Parking

Exhibits:
---------
Exhibit A:     The Premises
Exhibit B:     Construction Rider
Exhibit C:     Building Rules
Exhibit D:     Additional Provisions

     The Basic Lease Information set forth above is part of the Lease.  In the
event of any conflict between any provision in the Basic Lease Information and
the Lease, the Lease shall control.

                                      -2-
<PAGE>

     THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("Landlord"), and the Tenant identified in the Basic Lease
Information ("Tenant").  Landlord and Tenant hereby agree as follows:

1.  PREMISES.  Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, the office
space identified in the Basic Lease Information as the Premises (the
"Premises"), in the Building located at the address specified in the Basic Lease
Information (the "Building"). The approximate configuration and location of the
Premises is shown on Exhibit A. Landlord and Tenant agree that the rentable area
                     ---------
of the Premises for all purposes under this Lease shall be the Rentable Area
specified in the Basic Lease Information.  The Building, together with the
parking facilities serving the Building (the "Parking Facility"), and the
parcel(s) of land on which the Building and the Parking Facility are situated
(collectively, the "Property"), is part of the Project identified in the Basic
Lease Information (the "Project").

2.   TERM; POSSESSION. The term of this Lease (the "Term") shall commence on
the Commencement Date as described below and, unless sooner terminated, shall
expire on the Expiration Date set forth in the Basic Lease Information (the
"Expiration Date").  The "Commencement Date" shall be the later of (a) September
15, 1998, or (b) the date Landlord delivers possession of the Premises to
Tenant.

3.   RENT.

     3.1  Base Rent.  Tenant agrees to pay to Landlord the Base Rent set forth
          ---------
in the Basic Lease Information, without prior notice or demand, on the first day
of each and every calendar month during the Term, except that Base Rent for the
first full calendar month in which Base Rent is payable shall be paid upon
Tenant's execution of this Lease and Base Rent for any partial month at the
beginning of the Term shall be paid on the Commencement Date. Base Rent for any
partial month at the beginning or end of the Term shall be prorated based on the
actual number of days in the month.

     If the Basic Lease Information provides for any change in Base Rent by
reference to years or months (without specifying particular dates), the change
will take effect on the applicable annual or monthly anniversary of the
Commencement Date (which won't necessarily be the first day of a calendar
month).

     3.2  Additional Rent: Increases in Operating Costs and Taxes.
          -------------------------------------------------------

          (a)  Definitions.
               -----------

               (1)  "Base Operating Costs" means Operating Costs for the
calendar year specified as the Base Year in the Basic Lease Information
(excluding therefrom, however, any Operating Costs of a nature that would not
ordinarily be incurred on an annual, recurring basis).

               (2)  "Base Taxes" means Taxes for the calendar year specified as
the Base Year in the Basic Lease Information.

                                      -3-
<PAGE>

               (3)  "Operating Costs" means all costs of managing, operating,
maintaining and repairing the Property, including all costs, expenditures, fees
and charges for: (A) operation, maintenance and repair of the Property
(including maintenance, repair and replacement of glass, the roof covering or
membrane, and landscaping); (B) utilities and services (including
telecommunications facilities and equipment, recycling programs and trash
removal), and associated supplies and materials; (C) compensation (including
employment taxes and fringe benefits) for persons (at or below the level
equivalent to senior property manager or senior engineering manager) who perform
duties in connection with the operation, management, maintenance and repair of
the Building, such compensation to be appropriately allocated for persons who
also perform duties unrelated to the Building; (D) property (including coverage
for earthquake and flood if carried by Landlord), liability, rental income and
other insurance relating to the Property, and expenditures for deductible
amounts paid under such insurance with expenditures for deductible amounts paid
in connection with losses caused by earthquake amortized over a five year
period, including interest on the unamortized balance at the rate paid by
Landlord on funds borrowed to finance capital improvements (or, if Landlord
finances such improvements out of Landlord's funds without borrowing, the rate
that Landlord would have paid to borrow such funds, as reasonably determined by
Landlord); (E) licenses, permits and inspections; (F) complying with the
requirements of any law, statute, ordinance or governmental rule or regulation
or any orders pursuant thereto (collectively "Laws"); (G) amortization of
capital improvements required to comply with Laws, or which are intended to
reduce Operating Costs or improve the utility, efficiency or capacity of any
Building System, with interest on the unamortized balance at the rate paid by
Landlord on funds borrowed to finance such capital improvements (or, if Landlord
finances such improvements out of Landlord's funds without borrowing, the rate
that Landlord would have paid to borrow such funds, as reasonably determined by
Landlord), over such useful life as Landlord shall reasonably determine; (H) an
office in the Project for the management of the Property, including expenses of
furnishing and equipping such office and the rental value of any space occupied
for such purposes; (I) property management fees not to exceed customary and
commercially reasonable management fees for similar type properties in the
general geographic area of the Project; (J) accounting, legal and other
professional services incurred in connection with the operation of the Property
and the calculation of Operating Costs and Taxes; (K) a reasonable allowance for
depreciation on machinery and equipment used to maintain the Property and on
other personal property owned by Landlord in the Property (including window
coverings and carpeting in common areas); (L) contesting the validity or
applicability of any Laws that may affect the Property; (M) the Building's share
of any shared or common area maintenance fees and expenses (including costs and
expenses of operating, managing, owning and maintaining the Parking Facility and
the common areas of the Project and any fitness center or conference center in
the Project): and (N) any other cost, expenditure, fee or charge, whether or not
hereinbefore described, which in accordance with generally accepted property
management practices would be considered an expense of managing, operating,
maintaining and repairing the Property. Operating Costs for any calendar year
during which average occupancy of the Building is less than one hundred percent
(100%) shall be calculated based upon the Operating Costs that would have been
incurred if the Building had an average occupancy of one hundred percent (100%)
during the entire calendar year.

                                      -4-
<PAGE>

     Operating Costs shall not include:

     1)   capital improvements (except as otherwise provided above);

     2)   costs of special services rendered to individual tenants (including
          Tenant) for which a special charge is made;

     3)   interest and principal payments, points, fees, expenses or other
          charges on account of any loans or indebtedness incurred in connection
          with the acquisition, ownership or operation of the Building, or
          ground lease rental payments (if any);

     4)   costs of improvements for Tenant or other tenants of the Building;

     5)   costs of services or other benefits of a type which are not available
          to Tenant but which are available to other tenants or occupants, and
          costs for which Landlord is reimbursed by other tenants of the
          Building other than through payment of tenants' shares of Operating
          Costs and Taxes;

     6)   leasing commissions, finders' fees, marketing costs, attorneys' fees
          and other expenses incurred in connection with leasing, renovating,
          decorating, improving or installing leasehold improvements in tenant
          space for tenants, occupants and prospective tenants in the Building
          or enforcing such leases costs, attorney's fees, costs, and
          disbursements and other expenses incurred in connection with
          negotiations or disputes with tenants, other occupants, or legal fees
          incurred in or the sale or refinancing of the Building or in
          connection with this Lease;

     7)   depreciation or amortization, other than as specifically enumerated in
          the definition of Operating Costs above;

     8)   costs, fines or penalties incurred due to Landlord's violation of any
          Law;

     9)   reserves for capital items, bad debts or rental losses;

     10)  repairs or other work occasioned by fire, windstorm or other casualty
          or hazed to the extent Landlord receives insurance proceeds;

     11)  repairs or rebuilding necessitated by condemnation to the extent
          Landlord receives proceeds from the applicable condemning authority;

     12)  expenses incurred in tenant buildout or renovations or otherwise
          improving or decorating, painting or redecorating space for tenants or
          other occupants of space, including permits, license, design, space
          planning, and inspection costs associated therewith;

     13)  Landlord's costs of electricity and other services sold or provided to
          tenants in the Building and for which Landlord is entitled to be
          reimbursed, whether or not collected, by such tenants as a separate
          additional charge or rental over and above the basic rent or
          escalation payment payable under the Lease with such tenant;

                                      -5-
<PAGE>

     14)  expenses in connection with non-Building standard services or benefits
          of a type which are not provided to Tenant but which are provided to
          other tenants or occupants of the Building, or for which Tenant is
          charged directly but which are provided to another tenant or occupant
          of the Building without direct charge;

     15)  costs incurred due to violation by Landlord or any tenant or other
          occupant of the terms and conditions of any Lease or other rental
          arrangement covering space in the Building;

     16)  amounts paid to subsidiaries or other affiliates of Landlord (i.e.,
          persons or companies controlled by, under common control with, or
          which control, Landlord) for services on or to the Land, the Building
          or the Premises (or any portion thereof), to the extent only that the
          costs of such services exceed competitive costs of such services were
          they not so rendered by a subsidiary, or other affiliate of Landlord;

     17)  all items and services for which Tenant pays third parties directly;

     18)  charitable or political contributions;

     19)  costs associated with the operation of the business of the partnership
          or entity which constitutes Landlord, or the operation of any parent,
          subsidiary or affiliate of Landlord, as the same are distinguished
          from the costs of operation of the Building, including without
          limitation partnership accounting and legal matters, costs of
          defending any lawsuits with any mortgagee, and costs of selling,
          syndicating, financing, mortgaging or hypothecating any of Landlord's
          interest in the Building;

     20)  costs of signs in or on the Building (other than the Building
          directory in the lobby of the Building) identifying other tenants of
          the Building or their employees, divisions, subsidiaries, subtenants
          or assignees; and

     21)  capital costs of acquisition, of painting, sculpture or other art
          objects for the Project.

               (4)  "Taxes" means: all real property taxes and general, special
or district assessments or other governmental impositions, of whatever kind,
nature or origin, imposed on or by reason of the ownership or use of the
Properly; governmental charges, fees or assessments for transit or traffic
mitigation (including area-wide traffic improvement assessments and
transportation system management fees), housing, police, fire or other
governmental service or purported benefits to the Property; personal property
taxes assessed on the personal property of Landlord used in the operation of the
Properly; service payments in lieu of taxes and taxes and assessments of every
kind and nature whatsoever levied or assessed in addition to, in lieu of or in
substitution for existing or additional real or personal property taxes on the
Property or the personal property described above; any increases in the
foregoing caused by changes in assessed valuation, tax rate or other factors or
circumstances; and the reasonable cost of contesting by appropriate proceedings
the amount or validity of any taxes, assessments or charges described above.
Taxes shall not include any state and federal personal or corporate

                                      -6-
<PAGE>

income taxes measured by the income of Landlord from all sources (other than
taxes on rent at the Property), as well as any franchise, inheritance, or
estate, succession, gift tax, or capital levy, or any penalties, or interest for
late payment of Taxes. To the extent paid by Tenant or other tenants as
"Tenant's Taxes" (as defined in Section 8 - Tenant's Taxes), "Tenant's Taxes"
shall be excluded from Taxes.

               (5)  "Tenant's Share" means the Rentable Area of the Premises
divided by the total Rentable Area of the Building, as set forth in the Basic
Lease Information. If the Rentable Area of the Building is changed or the
Rentable Area of the Premises is changed by Tenant's leasing of additional space
hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.

          (b)  Additional Rent.
               ---------------

               (1)  Tenant shall pay Landlord as "Additional Rent" for each
calendar year or portion thereof during the Term Tenant's Share of the sum of(x)
the amount (if any) by which Operating Costs for such period exceed Base
Operating Costs, and (y) the amount (if any) by which Taxes for such period
exceed Base Taxes.

               (2)  Prior to the end of the Base Year and each calendar year
thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating
Costs, Taxes and Tenant's Additional Rent for the following calendar year.
Commencing on the first day of January of each calendar year and continuing on
the first day of every month thereafter in such year, Tenant shall pay to
Landlord one-twelfth (1/12th) of the estimated Additional Rent. If Landlord
thereafter estimates that Operating Costs or Taxes for such year will vary from
Landlord's prior estimate, Landlord may, by notice to Tenant, revise the
estimate for such year (and Additional Rent shall thereafter be payable based on
the revised estimate).

               (3)  As soon as reasonably practicable after the end of the Base
Year and each calendar year thereafter, Landlord shall furnish Tenant a
statement with respect to such year, showing Operating Costs, Taxes and
Additional Rent for the year, and the total payments made by Tenant with respect
thereto. Unless Tenant raises any objections to Landlord's statement within
ninety (90) days after receipt of the same, such statement shall conclusively be
deemed correct and Tenant shall have no right thereafter to dispute such
statement or any item therein or the computation of Additional Rent based
thereon. If Tenant does object to such statement, then Landlord shall provide
Tenant with reasonable verification of the figures shown on the statement and
the parties shall negotiate in good faith to resolve any disputes. Any objection
of Tenant to Landlord's statement and resolution of any dispute shall not
postpone the time for payment of any amounts due Tenant or Landlord based on
Landlord's statement, nor shall any failure of Landlord to deliver Landlord's
statement in a timely manner relieve Tenant of Tenant's obligation to pay any
amounts due Landlord based on Landlord's statement.

               (4)  If Tenant's Additional Rent as finally determined for any
calendar year exceeds the total payments made by Tenant on account thereof,
Tenant shall pay Landlord the deficiency within ten (10) days of Tenant's
receipt of Landlord's statement. If the total payments made by Tenant on account
thereof exceed Tenant's Additional Rent as finally determined for such year,
Tenant's excess payment shall be credited toward the rent next due

                                      -7-
<PAGE>

from Tenant under this Lease. For any partial calendar year at the beginning or
end of the Term, Additional Rent shall be prorated on the basis of a 365-day
year by computing Tenant's Share of the increases in Operating Costs and Taxes
for the entire year and then prorating such amount for the number of days during
such year included in the Term. Notwithstanding the termination of this Lease,
Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may
be, within ten (10) days after Tenant's receipt of Landlord's final statement
for the calendar year in which this Lease terminates, the difference between
Tenant's Additional Rent for that year, as finally determined by Landlord, and
the total amount previously paid by Tenant on account thereof.

If for any reason Base Taxes or Taxes for any year during the Term are reduced,
refunded or otherwise changed, Tenant's Additional Rent shall be adjusted
accordingly.  If Taxes are temporarily reduced as a result of space in the
Building being leased to a tenant that is entitled to an exemption from property
taxes or other taxes, then for purposes of determining Additional Rent for each
year in which Taxes are reduced by any such exemption, Taxes for such year shall
be calculated on the basis of the amount the Taxes for the year would have been
in the absence of the exemption. The obligations of Landlord to refund any
overpayment of Additional Rent and of Tenant to pay any Additional Rent not
previously paid shall survive the expiration of the Term. Notwithstanding
anything to the contrary in this Lease, if there is at any time a decrease in
Taxes below the amount of the Taxes for the Base Year, then for purposes of
calculating Additional Rent for the year in which such decrease occurs and all
subsequent periods, Base Taxes shall be reduced to equal the Taxes for the year
in which the decrease occurs.

     3.3  Payment of Rent.  All amounts payable or reimbursable by Tenant
          ---------------
under this Lease, including late charges and interest (collectively, "Rent"),
shall constitute rent and shall be payable and recoverable as rent in the manner
provided in this Lease. All sums payable to Landlord on demand under the terms
of this Lease shall be payable within ten (10) days after notice from Landlord
of the amounts due. All rent shall be paid without offset, recoupment or
deduction in lawful money of the United States of America to Landlord at
Landlord's Address for Payment of Rent as set forth in the Basic Lease
Information, or to such other person or at such other place as Landlord may from
time to time designate.

4.  SECURITY DEPOSIT.  On execution of this Lease, Tenant shall deposit with
Landlord the amount specified in the Basic Lease Information as the Security
Deposit, if any (the "Security Deposit"), as security for the performance of
Tenant's obligations under this Lease. Landlord may (but shall have no
obligation to) use the Security Deposit or any portion thereof to cure any Event
of Default under this Lease or to compensate Landlord for any damage Landlord
incurs as a result of Tenant's failure to perform any of Tenant's obligations
hereunder. In such event Tenant shall pay to Landlord on demand an amount
sufficient to replenish the Security Deposit. If Tenant is not in default at the
expiration or termination of this Lease, then within thirty (30) days following
the expiration or termination of this Lease Landlord shall return to Tenant the
Security Deposit or the balance thereof then held by Landlord and not applied as
provided above. Landlord may commingle the Security Deposit with Landlord's
general and other funds. Landlord shall not be required to pay interest on the
Security Deposit to Tenant.

     If, and only if, (x) there has been no Event of Default under the Lease
during the eighteen (18) months prior to Reduction Date (as hereinafter defined)
and (y) during each of Tenant's four

                                      -8-
<PAGE>

(4) most recent accounting quarters immediately prior to the Reduction Date
Tenant has audited financial statements showing positive net income equal to
three (3) times the sum of (A) the Base Rent, and (B) the actual Additional Rent
(as such Base Rent and Additional Rent may from time to time change) for each of
the same four (4) accounting quarters for which net income is being compared,
then when all of the preceding conditions contained in this paragraph have been
satisfied (the "Reduction Date"), then the amount of the Security Deposit shall
be reduced in twelve month increments, beginning twenty-four months after the
Commencement Date, so the amount Security Deposit shall be as follows:

<TABLE>
<CAPTION>
Months (counting from the Commencement Date through               Amount of
applicable monthly anniversary of Commencement Date)            Security Deposit
----------------------------------------------------            ----------------
<S>                                                              <C>
                    01 - 24                                        $151,381.80
                    25 - 36                                        $113,536.35
                    37 - 48                                        $ 75,690.90
                    49 - 60                                        $ 37,845.45
</TABLE>

5.   USE AND COMPLIANCE WITH LAWS.

     5.1  Use.  The Premises shall be used and occupied for general business
          ---
office purposes and for no other use or purpose. Tenant shall comply with all
present and future Laws relating to Tenant's use or occupancy of the Premises
(and make any repairs, alterations or improvements as required to comply with
all such Laws), and shall observe the "Building Rules" (as defined in Section
27 -Rules and Regulations) except that repairs or alterations required to comply
with Laws generally applicable to the condition of the Premises for use as
office space, and not required or caused by Tenant's particular use or
activities or by any Alterations made or proposed by Tenant. shall be made by
Landlord (and the cost thereof shall be included in or excluded from Operating
Costs as provided in Section 3.2(a)(3) above). Tenant shall not do, bring, keep
or sell anything in or about the Premises that is prohibited by, or that will
cause a cancellation of or an increase in the existing premium for, any
insurance policy covering the Property or any part thereof. Tenant shall not
permit the Premises to be occupied or used in any manner that will constitute
waste or a nuisance, or disturb the quiet enjoyment of or otherwise annoy other
tenants in the Building. Without limiting the foregoing, the Premises shall not
be used for educational activities, practice of medicine or any of the healing
arts, providing social services, for any governmental use (including embassy or
consulate use), or for personnel agency, customer service office, studios for
radio, television or other media, travel agency or reservation center operations
or uses. Tenant shall not, without the prior consent of Landlord, (i) bring into
the Building or the Premises anything that may cause substantial noise, odor or
vibration, overload the floors in the Premises or the Building or any of the
heating, ventilating and air-conditioning ("HVAC"), mechanical, elevator,
plumbing, electrical, fire protection, life safety, security or other systems in
the Building ("Building Systems"), or jeopardize the structural integrity of the
Building or any part thereof; (ii) connect to the utility systems of the
Building any apparatus, machinery or other equipment other than typical office
equipment; or (iii) connect to any electrical circuit in the Premises any
equipment or other load with aggregate electrical power requirements in excess
of 80% of the rated capacity of the circuit.

                                      -9-
<PAGE>

     5.2  Hazardous Materials.
          -------------------

          (a)  Definitions.
               -----------

               (1)  "Hazardous Materials" shall mean any substance: (A) that now
or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
(S) 9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. (S)
         -- ---
6901 et seq., or (B) that is toxic, explosive, corrosive, flammable,
     -- ---
radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos,
radon and urea formaldehyde foam insulation.

               (2)  "Environmental Requirements" shall mean all present and
future Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.

               (3)  "Handled By Tenant" and "Handling By Tenant" shall mean and
refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Tenant or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "Representatives") or
its guests, customers, invitees, or visitors (collectively, "Visitors"). at or
about the Premises in connection with or involving Hazardous Materials.

               (4)  "Environmental Losses" shall mean all costs and expenses of
any kind, damages, including foreseeable and unforeseeable consequential
damages, fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all losses of any kind
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises or Property.

          (b)  Tenant's Covenants.  No Hazardous Materials shall be Handled by
               ------------------
Tenant at or about the Premises or Property without Landlord's prior written
consent, which consent may be granted, denied, or conditioned upon compliance
with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities, such as
copier fluids and cleaning supplies ("Permitted Hazardous Materials"), may be
used and stored at the Premises without Landlord's prior written consent,
provided that Tenant's activities at or about the Premises and Property and the
Handling by Tenant of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Tenant shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Tenant at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling by Tenant of Hazardous
Materials other than Permitted Hazardous Materials. Tenant shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Tenant's Representatives and Visitors, and all of Tenant's obligations under
this Section (including its indemnification obligations under paragraph (e)
below) shall survive the expiration or termination of this Lease.

                                      -10-
<PAGE>

          (c)  Compliance.  Tenant shall at Tenant's expense promptly take all
               ----------
actions required by any governmental agency or entity in connection with or as a
result of the Handling by Tenant of Hazardous Materials at or about the Premises
or Property, including inspection and testing, performing all cleanup, removal
and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Tenant of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Landlord's use, operation, leasing and sale of the Property.
Tenant shall deliver to Landlord prior to delivery to any governmental agency,
or promptly after receipt from any such agency, copies of all permits,
manifests, closure or remedial action plans, notices, and all other documents
relating to the Handling by Tenant of Hazardous Materials at or about the
Premises or Property. If any lien attaches to the Premises or the Property in
connection with or as a result of the Handling by Tenant of Hazardous Materials,
and Tenant does not cause the same to be released, by payment, bonding or
otherwise, within ten (10) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released and any
sums expended by Landlord (plus Landlord's administrative costs) in connection
therewith shall be payable by Tenant on demand.

          (d)  Landlord's Rights.  Upon reasonable oral or written notice to
               -----------------
Tenant (and without notice in emergencies) Landlord shall have the right, but
not the obligation, to enter the Premises at any reasonable time (i) to confirm
Tenant's compliance with the provisions of this Section 5.2, and (ii) to perform
Tenant's obligations under this Section if Tenant has failed to do so after
reasonable notice to Tenant. Landlord shall also have the right to engage
qualified Hazardous Materials consultants to inspect the Premises and review the
Handling by Tenant of Hazardous Materials, including review of all permits,
reports, plans, and other documents regarding same. If Tenant has failed to
comply with the provisions of this Section 5.2, then Tenant shall pay to
Landlord on demand the costs of Landlord's consultants' fees and all costs
incurred by Landlord in performing Tenant's obligations under this Section.
Landlord shall use reasonable efforts to minimize any interference with Tenant's
business caused by Landlord's entry into the Premises, but Landlord shall not be
responsible for any interference caused thereby.

          (e)  Tenant's Indemnification.  Tenant agrees to indemnify, defend,
               ------------------------
protect and hold harmless Landlord and its partners or members and its or their
partners, members, directors, officers, shareholders, employees and agents from
all Environmental Losses and all other claims, actions, losses, damages,
liabilities, costs and expenses of every kind, including reasonable attorneys',
experts' and consultants' fees and costs, incurred at any time and arising from
or in connection with the Handling by Tenant of Hazardous Materials at or about
the Property or Tenant's failure to comply in full with all Environmental
Requirements with respect to the Premises.

          (f)  Landlord's Responsibilities.  Landlord shall not use any of the
               ---------------------------
Land or Building for any activities involving the use, generation, handling,
release, threatened release, treatment, storage, discharge, disposal or
transportation of any Hazardous Materials, except in such quantity or
concentration that is customarily used, stored or disposed in the ordinary
course of the business so long as such activity duly complies with applicable
Laws and good business

                                      -11-
<PAGE>

practice. If Landlord violates the foregoing covenant resulting in an
Environmental Claim (as hereinafter defined) with respect to the Premises, then
Landlord agrees to (a) notify Tenant immediately of any such Environmental Claim
and (b) clean up any contamination in to the extent required by applicable Laws,
the costs of which shall not be included in Operating Costs, except that to the
extent provided elsewhere in this Section 5.2, Tenant shall be responsible for
the costs of any Handling by Tenant of Hazardous Materials at or about the
Property or Tenant's failure to comply in full with all Environmental
Requirements with respect to the Premises. The costs for any Environmental Claim
for Hazardous Materials existing on the Project on the date of this Lease shall
not be included in Operating Costs or otherwise be the responsibility of Tenant.
"Environmental Claim" means any claim, demand, action, cause of action, suit,
damage, punitive damage, fine, penalty, expense, liability, criminal liability,
judgment, or governmental investigation relating to remediation or compliance
with requirements of Laws covering Hazardous Materials. The term "Environmental
Claim" also includes any costs incurred in responding to efforts to require
remediation and any claim based upon any asserted or actual breach or violation
of any requirements of any Laws covering Hazardous Materials.

6.   TENANT IMPROVEMENTS & ALTERATIONS.

     6.1  Landlord and Tenant shall perform their respective obligations with
respect to design and construction of any improvements to be constructed and
installed in the Premises (the "Tenant Improvements"), as provided in the
Construction Rider. Except for any Tenant Improvements to be constructed by
Tenant as provided in the Construction Rider, Tenant shall not make any
alterations, improvements or changes to the Premises, including installation of
any security system or telephone or data communication wiring, ("Alterations"),
without Landlord's prior written consent. Notwithstanding any other provision
contained herein, Tenant shall not be required to obtain Landlord's prior
consent for minor, non-structural Alterations that (a) do not affect any. of the
Building Systems, (b) are not visible from the exterior of the Premises, and (c)
cost less than One Thousand Five Hundred Dollars ($1,500), so long as Tenant
gives Landlord notice of the proposed Alterations at least ten (10) days prior
to commencing the Alterations and complies with all of the following provisions
(except that Tenant shall not be required to obtain Landlord's approval of any
plans or specifications therefor). Any such Alterations shall be completed by
Tenant at Tenant's sole cost and expense: (i) with due diligence, in a good and
workmanlike manner, using new materials; (ii) in compliance with plans and
specifications approved by Landlord; (iii) in compliance with the reasonable
construction rules and regulations promulgated by Landlord from time to time;
(iv) in accordance with all applicable Laws (including all work, whether
structural or non-structural, inside or outside the Premises, required to comply
fully with all applicable Laws and necessitated by Tenant's work); and (v)
subject to all conditions which Landlord may in Landlord's reasonable discretion
impose. Such conditions may include requirements for Tenant to: (i) provide
payment or performance bonds or additional insurance (from Tenant or Tenant's
contractors, subcontractors or design professionals); (ii) use contractors or
subcontractors designated by Landlord; and (iii) remove all or part of the
Alterations prior to or upon expiration or termination of the Term, as
designated by Landlord at the time Tenant installs the Alterations. If any work
outside the Premises, or any work on or adjustment to any of the Building
Systems, is required in connection with or as a result of Tenant's work, such
work shall be performed at Tenant's expense by contractors designated by
Landlord. Landlord's right to review and approve (or withhold approval of)
Tenant's plans, drawings, specifications, contractor(s) and other aspects of
construction work proposed by

                                      -12-
<PAGE>

Tenant is intended solely to protect Landlord, the Property and Landlord's
interests. No approval or consent by Landlord shall be deemed or construed to be
a representation or warranty by Landlord as to the adequacy, sufficiency,
fitness or suitability thereof or compliance thereof with applicable Laws or
other requirements. Except as otherwise provided in Landlord's consent; all
Alterations shall upon installation become part of the realty and be the
property of Landlord.

     6.2  Before making any Alterations, Tenant shall submit to Landlord for
Landlord's prior approval reasonably detailed final plans and specifications
prepared by a licensed architect or engineer, a copy of the construction
contract, including the name of the contractor and all subcontractors proposed
by Tenant to make the Alterations and a copy of the contractor's license. Tenant
shall reimburse Landlord upon demand for any expenses incurred by Landlord in
connection with any Alterations made by Tenant, including reasonable fees
charged by Landlord's contractors or consultants to review plans and
specifications prepared by Tenant and to update the existing as-built plans and
specifications of the Building to reflect the Alterations. Tenant shall obtain
all applicable permits, authorizations and governmental approvals and deliver
copies of the same to Landlord before commencement of any Alterations.

     6.3  Tenant shall keep the Premises and the Property free and clear of all
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any such lien attaches to the Premises or the Property,
and Tenant does not cause the same to be released by payment, bonding or
otherwise within ten (10) days after the attachment thereof, Landlord shall have
the right but not the obligation to cause the same to be released, and any sums
expended by Landlord (plus Landlord's administrative costs) in connection
therewith shall be payable by Tenant on demand with interest thereon from the
date of expenditure by Landlord at the Interest Rate (as defined in Section
16.2 -Interest). Tenant shall give Landlord at least ten (10) days' notice prior
to the commencement of any Alterations and cooperate with Landlord in posting
and maintaining notices of non-responsibility in connection therewith.

     6.4  Subject to the provisions of Section 5 - Use and Compliance with Laws
and the foregoing provisions of this Section, Tenant may install and maintain
furnishings, equipment, movable partitions, business equipment and other trade
fixtures ("Trade Fixtures") in the Premises, provided that the Trade Fixtures do
not become an integral part of the Premises or the Building. Tenant shall
promptly repair any damage to the Premises or the Building caused by any
installation or removal of such Trade Fixtures.

7.   MAINTENANCE AND REPAIRS.

     7.1  By taking possession of the Premises Tenant agrees that the Premises
are then in a good and tenantable condition. During the Term, Tenant at Tenant's
expense but under the direction of Landlord, shall repair and maintain the
Premises, including the interior walls, floor coverings, ceiling (ceiling tile's
and grid), Tenant Improvements, Alterations, fire extinguishers, outlets and
fixtures, and any appliances (including dishwashers, hot water heaters and
garbage disposers) in the Premises, in a first class condition, and keep the
Premises in a clean, safe and orderly condition.

                                      -13-
<PAGE>

     7.2  Landlord shall maintain or cause to be maintained in reasonably good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the Building, the Building Systems, and the public
and common areas of the Property, such as elevators, stairs, corridors and
restrooms; provided, however, that Tenant shall pay the cost of repairs for any
damage occasioned by Tenant's use of the Premises or the Property or any act or
omission of Tenant or Tenant's Representatives or Visitors, to the extent (if
any) not covered by Landlord's property insurance. Landlord shall be under no
obligation to inspect the Premises. Tenant shall promptly report in writing to
Landlord any defective condition known to Tenant which Landlord is required to
repair. As a material part of the consideration for this Lease, Tenant hereby
waives any benefits of any applicable existing or future Law, including the
provisions of California Civil Code Sections 1932(l ), 1941 and 1942, that
allows a tenant to make repairs at its landlord's expense.

     7.3  Landlord hereby reserves the right, at any time and from time to time,
without liability to Tenant, and without constituting an eviction, constructive
or otherwise, or entitling Tenant to any abatement of rent or to terminate this
Lease or otherwise releasing Tenant from any of Tenant's obligations under this
Lease:

          (a)  To make alterations, additions, repairs, improvements to or in or
to decrease the size of area of, all or any part of the Building, the fixtures
and equipment therein, and the Building Systems (except that Landlord shall not
have any right under this provision to materially reduce the size of the
Premises, or to permanently, materially and adversely affect Tenant's access to
and use of the Premises, except only as may be required to comply with Laws or
as a result of any fire or other casualty or Condemnation);

          (b)  To change the Building's name or street address;

          (c)  To install and maintain any and all signs on the exterior and
interior of the Building;

          (d)  To reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, lay-out and nature of the common
areas (including the Parking Facility) and other tenancies and premises in the
Property and to create additional rentable areas through use or enclosure of
common areas; and

          (e)  If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "Controls"), to comply with such
Controls, whether mandatory, or voluntary, or make any alterations to the
Property related thereto.

          (f)  In exercising its rights under this Section 7.3, Landlord agrees
to use reasonable efforts to minimize any interruption to or disruption of
Tenant's use of the Premises.

8.   TENANT'S TAXES.  "Tenant's Taxes" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is

                                      -14-
<PAGE>

levied directly against Tenant or levied against Landlord or the Property, (b)
all rental, excise, sales or transaction privilege taxes arising out of this
Lease (excluding, however, state and federal personal or corporate income taxes
measured by the income of Landlord from all sources) imposed by any taxing
authority upon Landlord or upon Landlord's receipt of any rent payable by Tenant
pursuant to the terms of this Lease ("Rental Tax"), and (c) any increase in
Taxes attributable to inclusion of a value placed on Tenant's personal property,
Trade Fixtures or Alterations. Tenant shall pay any Rental Tax to Landlord in
addition to and at the same time as Base Rent is payable under this Lease, and
shall pay all other Tenant's Taxes before delinquency (and, at Landlord's
request, shall furnish Landlord satisfactory evidence thereof). If Landlord pays
Tenant's Taxes or any portion thereof, Tenant shall reimburse Landlord upon
demand for the amount of such payment, together with interest at the Interest
Rate from the date of Landlord's payment to the date of Tenant's reimbursement.

9.   UTILITIES AND SERVICES.

     9.1  Description of Services.  Landlord shall furnish to the Premises:
          -----------------------
reasonable amounts of heat, ventilation and air-conditioning during the Business
Hours specified in the Basic Lease Information ("Business Hours") on weekdays
except public holidays ("Business Days"); reasonable amounts of electricity; and
janitorial services five days a week (except public holidays). Landlord shall
also provide the Building with .normal fluorescent tube replacement, window
washing, elevator service, and common area toilet room supplies. Any additional
utilities or services that Landlord may agree to provide (including lamp or tube
replacement for other than Building Standard lighting fixtures) shall be at
Tenant's sole expense.

     9.2  Payment for Additional Utilities and Services.
          ---------------------------------------------

          (a)  Upon request by Tenant in accordance with the procedures
established by Landlord from time to time for furnishing HVAC service at times
other than Business Hours on Business Days, Landlord shall furnish such service
to Tenant and Tenant shall pay for such services on an hourly basis at the then
prevailing rate established for the Building by Landlord. As of the date of this
Lease, the prevailing rate for furnishing HVAC Service at times other than
Business Hours on Business Days is $30.00 per hour per floor which may be
changed from time to time in Landlord's sole discretion.

          (b)  If the temperature otherwise maintained in any portion of the
Premises by the HVAC systems of the Building is materially affected as a result
of (i) any lights, machines or equipment used by Tenant in the Premises, or (ii)
the occupancy of the Premises by more than one person per 150 square feet of
rentable area, then Landlord shall have the right to install any machinery or
equipment reasonably necessary to restore the temperature, including
modifications to the standard air-conditioning equipment. The cost of any such
equipment and modifications, including the cost of installation and any
additional cost of operation and maintenance of the same, shall be paid by
Tenant to Landlord upon demand.

          (c)  If Tenant's usage of electricity, water or any other utility
service exceeds the use of such utility Landlord reasonably determines to be
typical, normal and customary for the Building, Landlord may determine the
amount of such excess use by any reasonable means (including the installation at
Landlord's request but at Tenant's expense of a separate meter or

                                      -15-
<PAGE>

other measuring device) and charge Tenant for the cost of such excess usage. In
addition, Landlord may impose a reasonable charge for the use of any additional
or unusual janitorial services required by Tenant because of any unusual Tenant
Improvements or Alterations, the carelessness of Tenant or the nature of
Tenant's business (including hours of operation).

     9.3  Interruption of Services.  In the event of an interruption in or
          ------------------------
failure or inability to provide any services or utilities to the Premises or
Building for any reason (a "Service Failure"), such Service Failure shall not,
regardless of its duration, impose upon Landlord any liability whatsoever,
constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to
an abatement of rent or to terminate this Lease or otherwise release Tenant from
any of Tenant's obligations under this Lease. Tenant hereby waives any benefits
of any applicable existing or future Law, including the provisions of California
Civil Code Section 1932(1), permitting the termination of this Lease due to such
interruption, failure or inability.

10.  EXCULPATION AND INDEMNIFICATION.

     10.1 Landlord's Indemnification of Tenant.  Landlord shall indemnify,
          ------------------------------------
protect, defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("Claims") asserted by any
third party against Tenant for loss, injury or damage, to the extent such loss,
injury or damage is caused by the willful misconduct or negligent acts or
omissions of Landlord or its authorized representatives.

     10.2 Tenant's Indemnification of Landlord.  Tenant shall indemnify,
          ------------------------------------
protect, defend and hold Landlord and Landlord's authorized representatives
harmless from and against Claims arising from (a) the acts or omissions of
Tenant or Tenant's Representatives or Visitors in or about the Property, or (b)
any construction or other work undertaken by Tenant on the Premises (including
any design defects), or (c) any breach or default under this Lease by Tenant, or
(d) any loss, injury or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises during the Term,
excepting only Claims described in this clause (d) to the extent they are caused
by the willful misconduct or negligent acts or omissions of Landlord or its
authorized representatives.

     10.3 Damage to Tenant and Tenant's Property.  Landlord shall not be liable
          --------------------------------------
to Tenant for any loss, injury or other damage to Tenant or to Tenant's property
in or about the Premises or the Property from any cause (including defects in
the Property or in any equipment in the Property; fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes
or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above,
or about the Premises or the Property; or acts of other tenants in the
Property). Tenant hereby waives all claims against Landlord for any such loss,
injury or damage and the cost and expense of defending against claims relating
thereto, including any loss, injury or damage caused by Landlord's negligence
(active or passive) or willful misconduct. Notwithstanding any other provision
of this Lease to the contrary, in no event shall Landlord be liable to Tenant
for any punitive or consequential damages or damages for loss of business by
Tenant.

     10.4 Survival.  The obligations of the parties under this Section 10 shall
          --------
survive the expiration or termination of this Lease.

                                      -16-
<PAGE>

11.  INSURANCE.

     11.1 Tenant's Insurance.
          ------------------

          (a)  Liability Insurance.  Tenant shall maintain in full force
               -------------------
throughout the Term, commercial general liability insurance providing coverage
on an occurrence form basis with limits of not less than Two Million Dollars
($2,000,000.00) each occurrence for bodily injury and property damage combined,
Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million
Dollars ($2,000,000.00) products and completed operations annual aggregate.
Tenant's liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage including, to the maximum extent
possible, coverage for the indemnification obligations of Tenant under this
Lease, and personal and advertising injury coverage; (ii) provide that the
insurance company has the duty to defend all insureds under the policy; (iii)
provide that defense costs are paid in addition to and do not deplete any of the
policy limits; (iv) cover liabilities arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property; (v) extend
coverage to cover liability for the actions of Tenant's Representatives and
Visitors; and (vi) designate separate limits for the Property. Each policy of
liability insurance required by this Section shall: (i) contain a cross
liability endorsement or separation of insureds clause; (ii) provide that any
waiver of subrogation rights or release prior to a loss does not void coverage;
(iii) provide that it is primary to and not contributing with, any policy of
insurance carried by Landlord covering the same loss; (iv) provide that any
failure to comply with the reporting provisions shall not affect coverage
provided to Landlord, its partners, property managers and Mortgagees; and (v)
name Landlord, its partners, the Property Manager identified in the Basic Lease
Information (the "Property Manager"), and such other parties in interest as
Landlord may from time to time reasonably designate to Tenant in writing, as
additional insureds. Such additional insureds shall be provided at least the
same extent of coverage as is provided to Tenant under such policies. All
endorsements effecting such additional insured status shall be at least as broad
as additional insured endorsement form number CG 20 11 11 85 promulgated by the
Insurance Services Office.

          (b)  Property Insurance.  Tenant shall at all times maintain in effect
               ------------------
with respect to any Alterations and Tenant's Trade Fixtures and personal
property, commercial property insurance providing coverage, on an "all risk" or
"special form" basis, in an amount equal to at least 90% of the full replacement
cost of the covered property. Tenant may carry such insurance under a blanket
policy, provided that such policy provides coverage equivalent to a separate
policy. During the Term, the proceeds from any such policies of insurance shall
be used for the repair or replacement of the Alterations, Trade Fixtures and
personal property so insured. Landlord shall be provided coverage under such
insurance to the extent of its insurable interest and, if requested by Landlord,
both Landlord and Tenant shall sign all documents reasonably necessary or proper
in connection with the settlement of any claim or loss under such insurance.
Landlord ,,viii have no obligation to carry insurance on any Alterations or on
Tenant's Trade Fixtures or personal property.

          (c)  Requirements For All Policies.  Each policy of insurance required
               -----------------------------
under this Section 11.1 shall: (i) be in a form, and written by an insurer,
reasonably acceptable to

                                      -17-
<PAGE>

Landlord, (ii) be maintained at Tenant's sole cost and expense, and (iii)
require at least thirty (30) days' written notice to Landlord prior to any
cancellation, nonrenewal or modification of insurance coverage. Insurance
companies issuing such policies shall have rating classifications of "A" or
better and financial size category, ratings of "VII" or better according to the
latest edition of the A.M. Best Key Rating Guide. All insurance companies
issuing such policies shall be admitted carriers licensed to do business in the
state where the Property is located. Any deductible amount under such insurance
shall not exceed $5,000. Tenant shall provide to Landlord, upon request,
evidence that the insurance required to be carried by Tenant pursuant to this
Section, including any endorsement effecting the additional insured status, is
in full force and effect and that premiums therefor have been paid.

          (d)  Updating Coverage.  Tenant shall increase the amounts of
               -----------------
insurance as required by any Mortgagee, and, not more frequently than once every
three (3) years, as recommended by Landlord's insurance broker, if, in the
opinion of either of them, the amount of insurance then required under this
Lease is not adequate. Any limits set forth in this Lease on the amount or type
of coverage required by Tenant's insurance shall not limit the liability of
Tenant under this Lease.

          (e)  Certificates of Insurance.  Prior to occupancy of the Premises by
               -------------------------
Tenant, and not less than thirty (30) days prior to expiration of any policy
thereafter, Tenant shall furnish to Landlord a certificate of insurance
reflecting that the insurance required by this Section is in force, accompanied
by an endorsement showing the required additional insureds satisfactory to
Landlord in substance and form. Notwithstanding the requirements of this
paragraph, Tenant shall at Landlord's request provide to Landlord a certified
copy of each insurance policy required to be in force at any time pursuant to
the requirements of this Lease or its Exhibits.

     11.2 Landlord's Insurance. During the Term, to the extent such coverages
          --------------------
are available at a commercially reasonable cost, Landlord shall maintain in
effect insurance on the Building with responsible insurers, on an "all risk" or
"special form" basis, insuring the Building and the Tenant Improvements in an
amount equal to at least 90% of the replacement cost thereof, excluding land,
foundations, footings and underground installations. Landlord may, but shall not
be obligated to, carry insurance against additional perils and/or in greater
amounts.

     11.3 Mutual Waiver of Right of Recovery & Waiver of Subrogation.  Landlord
          ----------------------------------------------------------
and Tenant each hereby waive any right of recovery against each other and the
partners, managers, members, shareholders, officers, directors and authorized
representatives of each other for any loss or damage that is covered by any
policy of property insurance maintained by either party (or required by this
Lease to be maintained) with respect to the Premises or the Property or any
operation therein, regardless of cause, including negligence (active or passive)
of the party benefiting from the waiver. If any such policy of insurance
relating to this Lease or to the Premises or the Property does not permit the
foregoing waiver or if the coverage under any such policy would be invalidated
as a result of such waiver, the party maintaining such policy shall obtain from
the insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by such policy.

                                      -18-
<PAGE>

12.  DAMAGE OR DESTRUCTION.

     12.1 Landlord's Duty to Repair.
          -------------------------

          (a)  If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - Landlord's Right to Terminate
and 12.3 - Tenant's Right to Terminate. Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; provided, however, that in no event shall Landlord have
any obligation for repair or restoration beyond the extent of insurance proceeds
received by Landlord for such repair or restoration, or for any of Tenant's
personal property, Trade Fixtures or Alterations.

          (b)  If Landlord is required or elects to repair damage to the
Premises and/or the Property, this Lease shall continue in effect, but Tenant's
Base Rent and Additional Rent shall be abated with regard to any portion of the
Premises that Tenant is prevented from using by reason of such damage or its
repair from the date of the casualty until substantial completion of Landlord's
repair of the affected portion of the Premises as required under this Lease. In
no event shall Landlord be liable to Tenant by reason of any injury to or
interference with Tenant's business or property arising from fire or other
casualty or by reason of any repairs to any part of the Property necessitated by
such casualty.

     12.2 Landlord's Right to Terminate.  Landlord may elect to terminate this
          -----------------------------
Lease following damage by fire or Other casualty under the following
circumstances:

          (a)  If, in the reasonable judgment of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;

          (b)  If, in the reasonable judgment of Landlord, adequate proceeds are
not, for any reason, made available to Landlord from Landlord's insurance
policies (and/or from Landlord's funds made available for such purpose, at
Landlord's sole option) to make the required repairs;

          (c)  If the Building is damaged or destroyed to the extent that, in
the reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent (25%) of the full replacement cost of the
Building, whether or not the Premises are at all damaged or destroyed; or (d) If
the fire or other casualty occurs during the last year of the Term.

If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of
this Section 12.2 occur or arise, Landlord shall give Tenant notice within one
hundred and twenty (120) days after the date of the casualty, specifying whether
Landlord elects to terminate this Lease as provided above and, if not.
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease.

                                      -19-
<PAGE>

     12.3 Tenant's Right to Terminate.  If all or a substantial part of the
          ---------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, and Landlord does not elect to
terminate as provided above, then Tenant may elect to terminate this Lease if
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease is greater than one ( 1 ) year following the fire
or other casualty, in which event Tenant may elect to terminate this Lease by
giving Landlord notice of such election to terminate within thirty (30) days
after Landlord's notice to Tenant pursuant to Section 12.2 - Landlord's Right to
Terminate.

     12.4 Waiver.  Landlord and Tenant each hereby waive the provisions of
          ------
California Civil Code Sections 1932(2), 1933(4) and any other applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to
Terminate.

13.  CONDEMNATION.

     13.1 Definitions.
          -----------

          (a)  "Award" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.

          (b)  "Condemnation" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or quasi-
public authority, private corporation or individual having such power
("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Landlord to any such authority, either under threat of
condemnation or while legal proceedings for condemnation are pending.

          (c)  "Date of Condemnation" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.

     13.2 Effect on Lease.
          ---------------

          (a)  If the Premises are totally taken by Condemnation, this Lease
shall terminate as of the Date of Condemnation. If a portion but not all of the
Premises is taken by Condemnation. this Lease shall remain in effect; provided,
however, that if the portion of the Premises remaining after the Condemnation
will be unsuitable for Tenant's continued use, then upon notice to Landlord
within thirty (30) days after Landlord notifies Tenant of the Condemnation,
Tenant may terminate this Lease effective as of the Date of Condemnation.

          (b)  If twenty-five percent (25%) or more of the Project or of the
parcel(s) of land on which the Building is situated or of the Parking Facility
or of the floor area in the Building is taken by Condemnation, or if as a result
of any Condemnation the Building is no longer reasonably suitable for use as an
office building, whether or not any portion of the Premises is taken, Landlord
may elect to terminate this Lease, effective as of the Date of Condemnation, by
notice to Tenant within thirty (30) days after the Date of Condemnation.

                                      -20-
<PAGE>

          (c)  If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.

     13.3 Restoration.  If this Lease is not terminated as provided in Section
          -----------
13.2- Effect on Lease, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; provided, however, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below), in no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.

     13.4 Abatement and Reduction of Rent.  If any portion of the Premises is
          -------------------------------
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.

     13.5 Awards.  Any Award made shall be paid to Landlord, and Tenant hereby
          ------
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; provided, however, that
Tenant shall be entitled to receive, or to prosecute a separate claim for, an
Award for a temporary taking of the Premises or a portion thereof by a Condemnor
where this Lease is not terminated (to the extent such Award relates to the
unexpired Term), or an Award or portion thereof separately designated for
relocation expenses or the interruption of or damage to Tenant's business or as
compensation for Tenant's personal property, Trade Fixtures or Alterations.

     13.6 Waiver.  Landlord and Tenant each hereby waive the provisions of
          ------
California Code of Civil Procedure Section t 265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.

14.  ASSIGNMENT AND SUBLETTING.

     14.1 Landlord's Consent Required.  Tenant shall not assign this Lease or
          ---------------------------
any interest therein, or sublet or license or permit the use or occupancy of the
Premises or any part thereof by or for the benefit of anyone other than Tenant,
or in any other manner transfer all or any part of Tenant's interest under this
Lease (each and all a "Transfer"), without the prior written consent of
Landlord, which consent (subject to the other provisions of this Section 14)
shall not be unreasonably withheld. If Tenant is a business entity, any direct
or indirect transfer of fifty percent (50%) or more of the ownership interest of
the entity (whether in a single transaction or

                                      -21-
<PAGE>

in the aggregate through more than one transaction) shall be deemed a Transfer.
Notwithstanding any provision in this Lease to the contrary, Tenant shall not
mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any
part of Tenant's interest under this Lease.

     14.2 Reasonable Consent.
          ------------------

          (a)  Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "Proposed Transferee"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a current balance
sheet, income statements for the last two years and such other reasonable
financial and other information concerning the Proposed Transferee as Landlord
may request; and (iv) a copy of the proposed assignment, sublease or other
agreement governing the proposed Transfer. Within ten (10) Business Days after
Landlord receives all such information it shall notify Tenant whether it
approves or disapproves such Transfer or if it elects to proceed under Section
14.7 - Landlord's Right to Space.

          (b)  Tenant acknowledges and agrees that, among other circumstances
for which Landlord could reasonably withhold consent to a proposed Transfer, it
shall be reasonable for Landlord to withhold consent where (i) the Proposed
Transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed
Transferee's business operating ability or history, reputation or
creditworthiness or the character of the business to be conducted by the
Proposed Transferee at the Premises, (iii) the Proposed Transferee is a
governmental agency or unit or an existing tenant in the Project, unless, in the
case of an existing tenant, Landlord does not have contiguous space in the
Project available to lease to the existing tenant containing the same or more
square feet than the existing tenant identifies in writing that the existing
tenant requires, (iv) the proposed Transfer would violate any "exclusive" rights
of any tenants in the Project, (v) Landlord or Landlord's agent has shown space
in the Building to the Proposed Transferee or responded to any inquiries from
the Proposed Transferee or the Proposed Transferee's agent concerning
availability of space in the Building, at any time within the preceding nine
months, or (vi) Landlord otherwise determines that the proposed Transfer would
have the effect of decreasing the value of the Building or increasing the
expenses associated with operating, maintaining and repairing the Property. In
no event may Tenant publicly advertise all or any portion of the Premises for
assignment or sublease at a rental less than that then sought by Landlord for a
direct lease (non-sublease) of comparable space in the Project

     14.3 Excess Consideration.  If Landlord consents to the Transfer, Landlord
          --------------------
shall be entitled to receive as Additional Rent hereunder, fifty percent (50%)
of all "Sublease Profits" (as defined below).  "Sublease Profits" shall mean any
consideration paid by the Transferee for the assignment or sublease and, in the
case of a sublease, the excess of the rent and other consideration payable by
the subtenant over the amount of Base Rent and Additional Rent payable hereunder
applicable to the subleased space, less any and all direct, out-of-pocket
expenses and cash concessions, including costs for necessary Alterations and
brokerage commission, paid by Tenant to procure the assignee or subtenant.
Tenant shall pay to Landlord as additional rent, within ten (10) days after
receipt by Tenant, any such excess consideration paid by any transferee (the
"Transferee") for the Transfer provided any capital expenditures and

                                      -22-
<PAGE>

brokerage commissions in connection with any sublease shall be amortized over
the term of the sublease.

     14.4 No Release Of Tenant.  No consent by Landlord to any Transfer shall
          --------------------
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether occurring before or after such consent, assignment, subletting or other
Transfer.  Each Transferee shall be jointly and severally liable with Tenant
(and Tenant shall be jointly and severally liable with each Transferee) for the
payment of rent (or, in the case of a sublease, rent in the amount set forth in
the sublease) and for the performance of all other terms and provisions of this
Lease.  The consent by Landlord to any Transfer shall not relieve Tenant or any
such Transferee from the obligation to obtain Landlord's express prior written
consent to any subsequent Transfer by Tenant or any Transferee.  The acceptance
of rent by Landlord from any other person (whether or not such person is an
occupant of the Premises) shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any Transfer.

     14.5 Expenses and Attorneys' Fees.  Tenant shall pay to Landlord on demand
          ----------------------------
all costs and expenses (including reasonable attorneys' fees not to exceed One
Thousand Five Hundred Dollars [$1,500.00] per request for Landlord's consent to
a Transfer) incurred by Landlord in connection with reviewing or consenting to
any proposed Transfer (including any request for consent to, or any waiver of
Landlord's rights in connection with, any security interest in any of Tenant's
property at the Premises).

     14.6 Effectiveness of Transfer.  Prior to the date on which any permitted
          -------------------------
Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant
shall deliver to Landlord a counterpart of the fully executed Transfer document
and Landlord's standard form of Consent to Assignment or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease.  Failure or refusal of a
Transferee to execute any such instrument shall not release or discharge the
Transferee from liability as provided herein.  The voluntary, involuntary or
other surrender of this Lease by Tenant, or a mutual cancellation by Landlord
and Tenant, shall not work a merger, and any such surrender or cancellation
shall, at the option of Landlord, either terminate all or any existing subleases
or operate as an assignment to Landlord of any or all of such subleases.

     14.7 Landlord's Right to Space.  Notwithstanding any of the above
          -------------------------
provisions of this Section to the contrary, if Tenant notifies Landlord that it
desires to enter into a Transfer, Landlord, in lieu of consenting to such
Transfer, may elect (x) in the case of an assignment or a sublease of the entire
Premises, to terminate this Lease, or (y) in the case of a sublease of less than
the entire Premises, to terminate this Lease as it relates to the space proposed
to be subleased by Tenant. In such event, this Lease will terminate (or the
space proposed to be subleased will be removed from the Premises subject to this
Lease and the Base Rent and Tenant's Share under this Lease shall be
proportionately reduced) on the earlier of sixty (60) days after the date of
Landlord's notice to Tenant making the election set forth in this Section 14.7
or the date the Transfer was proposed to be effective, and Landlord may lease
such space to any party, including the prospective Transferee identified by
Tenant.

     14.8 Assignment of Sublease Rents.  Tenant hereby absolutely and
          ----------------------------
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and

                                      -23-
<PAGE>

agrees that Landlord, as assignee or as attorney-in-fact for Tenant for purposes
hereof, or a receiver for Tenant appointed on Landlord's application may (but
shall not be obligated to) collect such rents and other consideration and apply
the same toward Tenant's obligations to Landlord under this Lease; provided,
however, that Landlord grants to Tenant at all times prior to occurrence of any
breach or default by Tenant a revocable license to collect such rents (which
license shall automatically and without notice be and be deemed to have been
revoked and terminated immediately upon any Event of Default).

     14.9 Transfer to Affiliate.  Notwithstanding any provision contained in
          ---------------------
the Section 14 to the contrary, Tenant shall have the right, without the consent
of Landlord, upon ten (10) days prior written notice to Landlord, to transfer
Tenant's interest in this Lease to either (i) a successor corporation related to
Tenant by merger, consolidation, or non-bankruptcy reorganization, (ii) a
purchaser of at least ninety percent (90%) of Tenant's assets as an ongoing
concern, or (iii) an "Affiliate" of Tenant, and the provisions of Sections 14.2,
14.3 and 14.7 shall not apply with respect to the transfer to the Affiliate, but
any transfer pursuant to the provisions of this Section 14.9 shall be subject to
all other terms and conditions of this Lease, including the provisions of this
Section 14.9. Tenant shall remain liable under this Lease after any such
transfer. For the purposes of this Article 14, the term "Affiliate" of Tenant
shall mean and refer to any entity controlling, controlled by or under common
control with Tenant or Tenant's parent, as the case may be. "Control" as used
herein shall mean the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such controlled entity;
and the ownership, or possession of the right to vote, in the ordinary direction
of its affairs, of at least fifty percent (50%) of the voting interest in any
entity. Notwithstanding Tenant's right to Transfer to an Affiliate pursuant to
the provisions of this Section 14.9, Tenant may not, through use of its rights
under this Article 14 in two or more transactions (whether separate transactions
or steps or phases of a single transaction), at one time or over time, whether
by first assigning this Lease to a subsidiary and then merging the subsidiary
into another entity or selling the stock of the subsidiary or by other means,
assign or sublease the Premises, or transfer control of Tenant, to any person or
entity which is not a subsidiary, affiliate or controlling corporation of the
original Tenant, as then constituted, existing prior to the commencement of such
transactions, without first obtaining Landlord's prior written consent pursuant
to the provisions of Section 14.2. For purposes of this Lease, a sale of
Tenant's capital stock through any public exchange shall not be deemed an
assignment, subletting or other transfer of this Lease or the Premises requiring
Landlord's consent.

15.  DEFAULT AND REMEDIES.

     15.1 Events of Default.  The occurrence of any of the following shall
          -----------------
constitute an "Event of Default" by Tenant:

          (a)  Tenant fails to make any payment of rent when due, or any amount
required to replenish the security deposit as provided in Section 4 above, if
payment in full is not received by Landlord within three (3) days after written
notice that it is due.

          (b)  Tenant abandons the Premises.

                                      -24-
<PAGE>

          (c)  Tenant fails timely to deliver any subordination document,
estoppel certificate or financial statement requested by Landlord within the
applicable time period specified in Sections 20 - Encumbrances - and 21 -
Estoppel Certificates and Financial Statements - below.

          (d)  Tenant violates the restrictions on Transfer set forth in Section
14 - Assignment and Subletting.

          (e)  Tenant ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any state or federal bankruptcy or other statute, law or
regulation affecting creditors' rights; all or substantially all of Tenant's
assets are subject to judicial seizure or attachment and are not released within
30 days, or Tenant consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets.

          (f)  Tenant fails, within ninety (90) days after the commencement of
any proceedings against Tenant seeking relief under any state or federal
bankruptcy or other statute, law or regulation affecting creditors' rights, to
have such proceedings dismissed, or Tenant fails, within ninety (90) days after
an appointment, without Tenant's consent or acquiescence, of any trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.

          (g)  Tenant fails to perform or comply with any provision of this
Lease other than those described in (a) through (f) above, and does not fully
cure such failure within fifteen (15) days after notice to Tenant or, if such
failure cannot be cured within such fifteen (15)-day period. Tenant tails within
such fifteen (15)-day period to commence, and thereafter diligently proceed
with, all actions necessary to cure such failure as soon as reasonably possible
but in all events within ninety (90) days of such notice.

     15.2 Remedies.  Upon the occurrence of an Event of Default, Landlord shall
          --------
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:

          (a)  Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including re-entry into the Premises, efforts to relet the Premises,
reletting of the Premises for Tenant's account, storage of Tenant's personal
property and Trade Fixtures, acceptance of keys to the Premises from Tenant or
exercise of any other rights and remedies under this Section, shall constitute
an acceptance of Tenant' s surrender of the Premises or constitute a termination
of this Lease or of Tenant's right to possession of the Premises. Upon such
termination in writing of Tenant's right to possession of the Premises, as
herein provided, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
and any other applicable existing or future Law providing for recovery of
damages for such breach, including the worth at the time of award of the amount
by which the rent which would be payable by Tenant hereunder for the remainder
of the Term after the date of the award of damages,

                                      -25-
<PAGE>

including Additional Rent as reasonably estimated by Landlord, exceeds the
amount of such rental loss as Tenant proves could have been reasonably avoided,
discounted at the discount rate published by the Federal Reserve Bank of San
Francisco for member banks at the time of the award plus one percent (1%).

          (b)  Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).

          (c)  Landlord may cure the Event of Default at Tenant's expense. I f
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.

          (d)  Landlord may remove all Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to store
any or all of Tenant's property left in the Premises, Landlord may consider such
property to be abandoned by Tenant, and Landlord may thereupon dispose of such
property in any manner deemed appropriate by Landlord. Any proceeds realized by
Landlord on the disposal of any such property shall be applied first to offset
all expenses of storage and sale, then credited against Tenant's outstanding
obligations to Landlord under this Lease, and any balance remaining after
satisfaction of all obligations of Tenant under this Lease shall be delivered to
Tenant.

16.  LATE CHARGE AND INTEREST.

     16.1 Late Charge.  If any payment of rent is not received by Landlord when
          -----------
due, Tenant shall pay to Landlord on demand as a late charge an additional
amount equal to four percent (4%) of the overdue payment. A late charge shall
not be imposed more than once on any particular installment not paid when due,
but imposition of a late charge on any payment not made when due does not
eliminate or supersede late charges imposed on other (prior) payments not made
when due or preclude imposition of a late charge on other installments or
payments not made when due.

     16.2 Interest.  In addition to the late charges referred to above, which
          --------
are intended to defray Landlord's costs resulting from late payments, any
payment from Tenant to Landlord not paid when due shall at Landlord's option
bear interest from the date due until paid to Landlord by Tenant at the rate of
fifteen percent (15%) per annum or the maximum lawful rate that Landlord may
charge to Tenant under applicable laws, whichever is less (the "INTEREST RATE").
Acceptance of any late charge and/or interest shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other tights and remedies under this Lease.

17.  WAIVER.  NO provisions of this Lease shall be deemed waived by Landlord
unless such waiver is in a writing signed by Landlord. The waiver by Landlord of
any breach of any

                                      -26-
<PAGE>

provision of this Lease shall not be deemed a waiver of such provision or of any
subsequent breach of the same or any other provision of this Lease. No delay or
omission in the exercise of any right or remedy of Landlord Upon any default by
Tenant shall impair such right or remedy or be construed as a waiver. Landlord's
acceptance of any payments of rent due under this Lease Shall not be deemed a
waiver of any default by Tenant under this Lease (including Tenant's recurrent
failure to timely pay rent) other than Tenant's nonpayment of the accepted sums,
and no endorsement or statement on any check or payment or in any letter or
document accompanying any check or payment shall be deemed an accord and
satisfaction. Landlord' s consent to or approval of any act by Tenant requiting
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

18.  ENTRY, INSPECTION AND CLOSURE.  Upon reasonable oral or written notice to
Tenant (and without notice in emergencies), Landlord and its authorized
representatives may enter the Premises at all reasonable times to: (a) determine
whether the premises are in good condition, (b) determine whether Tenant is
complying with its obligations under this Lease, (c) perform any maintenance or
repair of the Premises or the Building that Landlord has the right or obligation
to perform, (d) install or repair improvements for other tenants where access to
the Premises is required for such installation or repair, (e) serve, post or
keep posted any notices required or allowed under the provisions of this Lease,
(f) show the Premises to prospective brokers, agents, buyers, transferees,
Mortgagees or tenants, or (g) do any other act or thing necessary for the safety
or preservation of the Premises or the Building. When reasonably necessary
Landlord may temporarily close entrances, doors, corridors, elevators or other
facilities in the Building without liability to Tenant by reason of such
closure. Landlord shall conduct its activities under this Section in a manner
that will minimize inconvenience to Tenant without incurring additional expense
to Landlord. In no event shall Tenant be entitled to an abatement of rent on
account of any entry by Landlord, and Landlord shall not be liable in any manner
for any inconvenience, loss of business or other damage to Tenant or other
persons arising out of Landlord's entry on the Premises in accordance with this
Section. No action by Landlord pursuant to this paragraph shall constitute an
eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of
rent or to terminate this Lease or otherwise release Tenant from any of Tenant's
obligations under this LEASE.

19.  SURRENDER AND HOLDING OVER.

     19.1 Surrender.  Upon the expiration or termination of this Lease, Tenant
          ---------
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear, damage from casualty or condemnation and any changes resulting from
approved Alterations; provided, however, that prior to the expiration or
termination of this Lease Tenant shall remove all telephone and other cabling
installed in the Building by Tenant and remove from the Premises all Tenant's
personal property and any Trade Fixtures and all Alterations that Landlord has
elected to require Tenant to remove as provided in Section 6.1 - Tenant
Improvements & Alterations, and repair any damage caused by such removal. If
such removal is not completed before the expiration or termination of the Term,
Landlord shall have the right (but no obligation) to remove the same, and Tenant
shall pay Landlord on demand for all costs of removal and storage thereof and
for the rental value of the Premises for the period from the end of the Term
through the end of the time

                                      -27-
<PAGE>

reasonably required for such removal. Landlord shall also have the right to
retain or dispose of all or any portion of such property if Tenant does not pay
all such costs and retrieve the property within ten (10) days after notice from
Landlord (in which event title to all such property described in Landlord's
notice shall be transferred to and vest in Landlord). Tenant waives all Claims
against Landlord for any damage or loss to Tenant resulting from Landlord's
removal, storage, retention, or disposition of any such property. Upon
expiration or termination of this Lease or of Tenant's possession, whichever is
earliest, Tenant shall surrender all keys to the Premises or any other part of
the Building and shall deliver to Landlord all keys for or make known to
Landlord the combination of locks on all safes, cabinets and vaults that may be
located in the Premises. Tenant's obligations under this Section shall survive
the expiration or termination of this Lease.

     19.2 Holding Over.  If Tenant (directly or through any Transferee or other
          ------------
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or termination of this Lease, Tenant's continued possession shall be
on the basis of a tenancy at the sufferance of Landlord. No act or omission by
Landlord, other than its specific written consent, shall constitute permission
for Tenant to continue in possession of the Premises, and if such consent is
given or declared to have been given by a court judgment, Landlord may terminate
Tenant's holdover tenancy at any time upon seven (7) days written notice. In
such event, Tenant shall continue to comply with or perform all the terms and
obligations of Tenant under this Lease, except that the monthly Base Rent during
Tenant's holding over shall be twice the Base Rent payable in the last full
month prior to the termination hereof. Acceptance by Landlord of rent after such
termination shall not constitute a renewal or extension of this Lease; and
nothing contained in this provision shall be deemed to waive Landlord's right of
re-entry or any other right hereunder or at law. Tenant shall indemnify, defend
and hold Landlord harmless from and against all Claims arising or resulting
directly or indirectly from Tenant's failure to timely surrender the Premises,
including (i) any rent payable by or any loss, cost, or damages claimed by any
prospective tenant of the Premises, and (ii) Landlord's damages as a result of
such prospective tenant rescinding or refusing to enter into the prospective
lease of the Premises by reason of such failure to timely surrender the
Premises.

20.  ENCUMBRANCES.

     20.1 Subordination.  This Lease is expressly made subject and subordinate
          -------------
to any mortgage, deed of trust, ground lease, underlying lease or like
encumbrance affecting any part of the Property or any interest of Landlord
therein which is now existing or hereafter executed or recorded ("Encumbrance");
provided, however, that such subordination shall only be effective, as to future
Encumbrances, if the holder of the Encumbrance agrees that this Lease shall
survive the termination of the Encumbrance by lapse of time, foreclosure or
otherwise so long as Tenant is not in default under this Lease. Provided the
conditions of the preceding sentence are satisfied, Tenant shall execute and
deliver to Landlord, within ten (10) Business Days after written request
therefor by Landlord and in a form reasonably requested by Landlord, any
additional documents evidencing the subordination of this Lease with respect to
any such Encumbrance and the nondisturbance agreement of the holder of any such
Encumbrance. If the interest of Landlord in the Property is transferred pursuant
to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall
immediately and automatically attorn to the new

                                      -28-
<PAGE>

owner, and this Lease shall continue in full force and effect as a direct lease
between the transferee and Tenant on the terms and conditions set forth in this
Lease.

     20.2 Mortgagee Protection.  Tenant agrees to give any holder of any
          --------------------
Encumbrance covering any part of the Property ("Mortgagee"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise)of the address of such Mortgagee. If Landlord
shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.

21.  ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.

     21.1 Estoppel Certificates.  Within ten (10) Business Days after written
          ---------------------
request therefor, Tenant shall execute and deliver to Landlord, in a form
provided by or satisfactory to Landlord. a certificate stating that this Lease
is in full force and effect, describing any amendments or modifications hereto,
acknowledging that this Lease is subordinate or prior, as the case may be, to
any Encumbrance and stating any other information Landlord may reasonably
request, including the Term, the monthly Base Rent, the date to which Rent has
been paid, the amount of any security deposit or prepaid rent. whether either
party hereto is in default under the terms of the Lease, and whether Landlord
has completed its construction obligations hereunder (if any). Tenant
irrevocably constitutes, appoints and authorizes Landlord as Tenant's special
attorney-in-fact for such purpose to complete, execute and deliver such
certificate if Tenant fails timely to execute and deliver such certificate as
provided above. Any person or entity purchasing, acquiring an interest in or
extending financing with respect to the Property shall be entitled to rely upon
any such certificate. If Tenant fails to deliver such certificate within ten
(10) days after Landlord's second written request therefor, Tenant shall be
liable to Landlord for any damages incurred by Landlord including any profits or
other benefits from any financing of the Property or any interest therein which
are lost or made unavailable as a result, directly or indirectly, of Tenant's
failure or refusal to timely execute or deliver such estoppel certificate.

     21.2 Financial Statements.  Within ten (10) days after written request
          --------------------
therefor, but not more than once a year, Tenant shall deliver to Landlord a copy
of the financial statements (including at least a year end balance sheet and a
statement of profit and loss) of Tenant (and of each guarantor of Tenant's
obligations under this Lease) for each of the three most recently completed
years, prepared in accordance with generally accepted accounting principles
(and, if such is Tenant's normal practice, audited by an independent certified
public accountant), all then available subsequent interim statements, and such
other financial information as may reasonably be requested by Landlord or
required by any Mortgagee.

22.  NOTICES.  Any notice, demand, request, consent or approval that either
party desires or is required to give to the other party under this Lease shall
be in writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return

                                      -29-
<PAGE>

receipt requested, postage prepaid, addressed to the other party at the party's
address for notices set forth in the Basic Lease Information. Any notice
required pursuant to any Laws may be incorporated into, given concurrently with
or given separately from any notice required under this Lease. Notices shall be
deemed to have been given and be effective on the earlier of(a) receipt (or
refusal of delivery or receipt); or (b) one (1) day after acceptance by the
independent service for delivery, if sent by independent messenger or courier
service, or three (3) days after mailing if sent by mail in accordance with this
Section. Either party may change its address for notices hereunder, effective
fifteen (15) days after notice to the other party complying with this Section.
If tenant sublets the Premises, notices from Landlord shall be effective on the
subtenant when given to Tenant pursuant to this Section.

23.  ATTORNEYS' FEES.  In the event of any dispute between Landlord and Tenant
in any way related to this Lease, and whether involving contract and/or tort
claims, the non-prevailing party shall pay to the prevailing party all
reasonable attorneys' fees and costs and expenses of any type, without
restriction by statute, court rule or otherwise, incurred by the prevailing
party in connection with any action or proceeding (including any appeal and the
enforcement of any judgment or award), whether or not the dispute is litigated
or prosecuted to final judgment (collectively, "Fees"). The "prevailing party"
shall be determined based upon an assessment of which party's major arguments or
positions taken in the action or proceeding could fairly be said to have
prevailed (whether by compromise, settlement, abandonment by the other party of
its claim or defense, final decision, after any appeals, or otherwise) over the
other party's major arguments or positions on major disputed issues. Any Fees
incurred in enforcing a judgment shall be recoverable separately from any other
amount included in the judgment and shall survive and not be merged in the
judgment. The Fees shall be deemed an "actual pecuniary loss" within the meaning
of Bankruptcy Code Section 365(b)(1)(B), and notwithstanding the foregoing, all
Fees incurred by either party in any bankruptcy case filed by or against the
other party, from and after the order for relief until this Lease is rejected or
assumed in such bankruptcy case, will be "obligations of the debtor" as that
phrase is used in Bankruptcy Code Section 365(d)(3).

24.  QUIET POSSESSION.  Subject to Tenant's full and timely performance of all
of Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 - Encumbrances, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.

25.  SECURITY MEASURES.  Landlord may, but shall be under no obligation to,
implement security measures for the Property, such as the registration or search
of all persons entering or leaving the Building, requiring identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for Building
or elevator access and other actions that Landlord deems necessary or
appropriate to prevent any threat of property loss or damage, bodily injury or
business interruption; provided, however, that such measures shall be
implemented in a way as not to inconvenience tenants of the Building
Unreasonably. If landlord uses an access card system, Landlord may require
Tenant to pay Landlord a deposit for each after-hours Building access card
issued to Tenant, in the amount specified in the Basic Lease Information. Tenant
shall be responsible for any loss, theft or breakage of any such cards, which
must be returned by Tenant to Landlord upon expiration or earlier termination of
the Lease. Landlord may retain the deposit for any card not so returned.
Landlord shall at all times have the right to change, alter or reduce

                                      -30-
<PAGE>

any such security services or measures. Tenant shall cooperate and comply with,
and cause Tenant's Representatives and Visitors to cooperate and comply with,
such security measures. Landlord, its agents and employees shall have no
liability to Tenant or its Representatives or Visitors for the implementation or
exercise of, or the failure to implement or exercise, any such security measures
or for any resulting disturbance of Tenant's use or enjoyment of the Premises.

26.  FORCE MAJEURE.  If either Landlord or Tenant is delayed, interrupted or
prevented from performing any of its obligations under this Lease (other than,
with respect to Tenant the payment of Base Rent, Additional Rent or any other
charge payable by Tenant to Landlord under this lease), including Landlord's
obligations under the Construction Rider and such delay, interruption or
prevention is due to fire, act of God, governmental act or failure to act, labor
dispute, unavailability of materials or any cause outside the reasonable control
of Landlord or Tenant, then the time for performance of the affected obligations
of Landlord or Tenant, as the case may be, shall be extended for a period
equivalent to the period of such delay, interruption or prevention. The
inability to pay money shall in no event constitute force majeure.

27.  RULES AND REGULATIONS.  Tenant shall be bound by and shall comply with the
rules and regulations attached to and made A part of this Lease as Exhibit C to
                                                                   ---------
the extent those rules and regulations are not in conflict with the terms of
this Lease, as well as any reasonable rules and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant thereof
(collectively, the "Building Rules"). Landlord shall not be responsible to
Tenant or to any other person for any violation of, or failure to observe, the
Building Rules by any other tenant or other person.

28.  LANDLORD'S LIABILITY.  THE term "Landlord," as used in this Lease shall
mean only the owner or owners of the Building at the time in question. In the
event of any conveyance of title to the Building, then from and after the date
of such conveyance, the transferor Landlord shall be relieved of all liability
with respect to Landlord's obligations to be performed under this Lease after
the date of such conveyance. Notwithstanding any other term or provision of this
Lease, the Liability of Landlord for its obligations under this Lease is limited
solely to Landlord's interest in the building as the same may from time to time
be encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's partners
or members or its or their respective partners, shareholders, members,
directors, officers or managers on account of any of Landlord's obligations or
actions under this Lease.

29.  CONSENTS AND APPROVALS.

     29.1   Determination in Good Faith. Wherever the consent, approval,
            ---------------------------
judgment or determination of Landlord is required or permitted under this Lease,
Landlord may exercise its good faith business judgment in granting or
withholding such consent or approval or in making such judgment or determination
without reference to any extrinsic standard of reasonableness, unless the
specific provision contained in this Lease providing for such consent, approval,
judgment or determination specifies that Landlord's consent or approval is not
to be unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease, Tenant shall

                                      -31-
<PAGE>

be entitled to injunctive relief but shall not to be entitled to monetary
damages or to terminate this Lease for such failure.

     29.2   No Liability Imposed on Landlord.  The review and/or approval by
            --------------------------------
Landlord of any item or matter to be reviewed or approved by Landlord under the
terms of this Lease or any Exhibits or Addenda hereto shall not impose upon
Landlord any liability for the accuracy or sufficiency of any such item or
matter or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Property, and no third parties, including Tenant or the Representatives and
Visitors of Tenant or any person or entity claiming by, through or under Tenant,
shall have any rights as a consequence thereof.

30.  WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant waive their respective
rights to trial by jury of any contract or tort claim, counterclaim, cross-
complaint, or cause of action in any action, proceeding, or hearing brought by
either party against the other on any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, or Tenant's
use or occupancy of the Premises, including any claim of injury or damage or the
enforcement of any remedy under any current or future law, statute, regulation,
code, or ordinance.

31.  BROKERS. Landlord shall pay the fee or commission of the broker or brokers
identified in the Basic Lease Information (the "Broker") in accordance with
Landlord's separate written agreement with the Broker, if any. Tenant warrants
and represents to Landlord that in the negotiating or making of this Lease
neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or
finder who might be entitled to a fee or commission for this Lease other than
the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or
claims, including costs, expenses and attorney's fees incurred by Landlord
asserted by any other broker or finder for a fee or commission based upon any
dealings with or statements made by Tenant or Tenant's Representatives. Landlord
agrees to indemnify and hold Tenant harmless from and against any claim by third
parties claiming by, through, or under Landlord for commissions due or alleged
to be due in connection with this Lease.

32.  RELOCATION OF PREMISES. For the purpose of maintaining an economical and
proper distribution of tenants acceptable to Landlord throughout the Project,
Landlord shall have the right from time to time, not to exceed two (2) times
during the Term, to relocate the Premises within the Project, provided that (a)
the rentable and usable area of the new Premises is of equivalent size to the
existing Premises, subject to a variation of up to ten percent (10%), (b) the
new Premises shall be on the first floor of the Building, (c) Landlord shall pay
the cost of providing tenant improvements in the new Premises, which shall be
substantially comparable in layout to those in the existing Premises, (d)
Landlord shall pay reasonable costs (to the extent such costs are submitted in
writing to Landlord and approved in writing by Landlord prior to such move) of
moving Tenant's Trade Fixtures and personal property, including cabling and
wiring to the new Premises, and (e) any such relocation shall take place only
over a week-end. Landlord shall deliver to Tenant written notice of Landlord's
election to relocate the Premises, specifying the new location and the amount of
rent payable therefor, at least sixty (60) days prior to the date the relocation
is to be effective.

                                      -32-
<PAGE>

33.  ENTIRE AGREEMENT.  This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of
space by Tenant in the Building, and supersede all prior or contemporaneous
agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral, all of which are merged herein.
Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Project or this Lease
except as expressly set forth herein, and no rights. easements or licenses shall
be acquired by Tenant by implication or otherwise unless expressly set forth
herein. The submission of this Lease for examination does not constitute an
option for the Premises and this Lease shall become effective as a binding
agreement only upon execution and delivery thereof by Landlord to Tenant.

34.  MISCELLANEOUS.  This Lease may not be amended or modified except by a
writing signed by Landlord and Tenant. Subject to Section 14 - Assignment and
Subletting and Section 28 - Landlord's Liability, this Lease shall be binding on
and shall inure to the benefit of the parties and their respective successors,
assigns and legal representatives. The determination that any provisions hereof
may be void, invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease, or the same
provisions under other circumstances. This Lease shall be construed and
interpreted in accordance with the laws (excluding conflict of laws
principles)of the State in which the Building is located. The provisions of this
Lease shall be construed in accordance with the fair meaning of the language
used and shall not be strictly construed against either party, even if such
party drafted the provision in question. When required by the context of this
Lease, the singular includes the plural. Wherever the term "including" is used
in this Lease, it shall be interpreted as meaning "including, but not limited
to" the matter or matters thereafter enumerated. The captions contained in this
Lease are for purposes of convenience only and are not to be used to interpret
or construe this Lease. If more than one person or entity is identified as
Tenant hereunder, the obligations of each and all of them under this Lease shall
be joint and several. Time is of the essence with respect to this Lease, except
as to the conditions relating to the delivery of possession of the Premises to
Tenant. Neither Landlord nor Tenant shall record this Lease.

35.  AUTHORITY.  If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations. Landlord represents and
warrants that (i) Landlord is a validly formed limited liability company which
is duly authorized and existing and is qualified to do business in the State of
California; (ii) Landlord, and the individuals executing this Lease for
Landlord, have the right and authority to enter into this Lease; and (iii) this
Lease is binding upon Landlord in accordance with its terms.

                                      -33-
<PAGE>

     IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.

TENANT:                         LANDLORD:

BLUE MARTINI, LLC               PENINSULA OFFICE PARK
                                ASSOCIATES, L.P.,
                                a California limited partnership

By /s/ Monte Zweben             By:  Peninsula Office Park Investors, LLC
  -------------------------          a California limited liability company
Name: Monte Zweben                   Sole General Partner
     ----------------------
Title: CEO                           By:  Opportunity Capital Partners III,
      ---------------------               LLC a California limited liability
                                          company,

                                          By: /s/ Robert Paratte
                                              -------------------------------
                                              _______________________________
                                              Manager

                                      -34-
<PAGE>

                                   EXHIBIT A
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                                LEASE AGREEMENT
                         DATED AS OF SEPTEMBER 1, 1998
                                    BETWEEN
             PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                    BLUE MARTINI, INC., AS TENANT ("LEASE")

                    [DIAGRAM OF THE PREMISES APPEARS HERE]

                                   6,819 RSP
           --------------------------------------------------------
           Peninsula Office Park - 2600 Campus Drive, San Mateo, CA

                               Exhibit A, Page 1
<PAGE>

                                   EXHIBIT B
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                                LEASE AGREEMENT
                         DATED AS OF SEPTEMBER l, 1998
                                    BETWEEN
             PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                    BLUE MARTINI, LLC. AS TENANT ("LEASE")

                              CONSTRUCTION RIDER
                              ------------------

     1.   No Work to be Performed by Landlord.  Tenant has inspected and
          -----------------------------------
examined the Premises and has elected to lease the Premises as provided in the
Lease on a strictly "AS IS" basis, except that Landlord shall (a) patch walls
where necessary, (b) repaint the Premises using Building standard paint, and (c)
remove the existing chain link fence within the existing storage. Except for (a)
patching walls where necessary, (b) repainting the Premises using Building
standard paint, and (c) removing the existing chain link fence in the existing
storage room, Landlord shall have no obligation to perform any work to prepare
the Premises for use or occupancy by Tenant. Tenant shall be solely responsible
for making any alterations or improvements to the Premises required or desired
by Tenant, subject to and in accordance with the provisions of Article 6 -
Alterations - of the Lease.

     2.   Delivery of Premises.  Landlord shall use reasonable efforts to
          --------------------
deliver possession of the Premises to Tenant on or before the scheduled
Commencement Date specified in the Lease. If Landlord is unable for any reason
to deliver possession of the Premises to Tenant on or before the scheduled
Commencement Date, neither Landlord nor Landlord's representatives shall be
liable to Tenant for any damage resulting from the delay in delivering
possession to Tenant and the Lease shall remain in full force and effect unless
and until it is terminated under the express provisions of this Paragraph. If
the Commencement Date has not occurred within two (2) months after the scheduled
Commencement Date, either party, by written notice to the other party given
within ten (10) days after the expiration of such two (2) month period, may
terminate the Lease without any liability to the other party.

     3.   Access to Premises.  Landlord may allow Tenant and Tenant's
          ------------------
Representatives to enter the Premises prior to the Commencement Date to permit
Tenant to make the Premises ready for Tenant's use and occupancy; provided,
however, that prior to such entry of the Premises, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance, as described in
Section 11.1 - Tenant's Insurance of the Lease, shall be in effect as of the
time of such entry. Such permission may be revoked at any time upon twenty-four
(24) hours' notice. Tenant agrees that Landlord shall not be liable in any way
for any injury, loss or damage which may occur to any of Tenant's property
placed upon or installed in the Premises prior to the Commencement Date, the
same being at Tenant's sole risk, and Tenant shall be liable for all injury,
loss or damage to persons or property arising as a result of such entry into the
Premises by Tenant or Tenant's Representatives.

                               Exhibit B, Page 1
<PAGE>

     4.   Ownership of Tenant Improvements.  All Tenant Improvements, whether
          --------------------------------
installed by Landlord or Tenant, shall become a part of the Premises. shall be
the property of Landlord and, subject to the provisions of the Lease, shall be
surrendered by Tenant with the Premises, without any compensation to Tenant, at
the expiration or termination of the Lease in accordance with the provisions of
the Lease.

                                                            INITIALS:

                                                            Landlord   ______
                                                            Tenant     ______

                               Exhibit B, Page 2
<PAGE>

                                   EXHIBIT C
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                                LEASE AGREEMENT
                         DATED AS OF SEPTEMBER 1, 1998
                                    BETWEEN
              PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                    BLUE MARTINI, LLC., AS TENANT ("LEASE")

                                 BUILDING RULES
                                 --------------

     The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.

     1.   Use of Common Areas.  Tenant will not obstruct the sidewalks, halls,
          -------------------
passages, exits, entrances, elevators or stairways of the Building ("Common
Areas"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.

     2.   No Access to Roof.  Tenant has no right of access to the roof of the
          -----------------
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, toss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building.

     3.   Signage.  No sign, placard, picture, name, advertisement or notice
          -------
visible from the exterior of the Premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building without the
prior written consent of Landlord. Landlord reserves the right to adopt and
furnish Tenant with general guidelines relating to signs in or on the Building.
All approved signage will be inscribed, painted or affixed at Tenant's expense
by a person approved by Landlord, which approval will not be unreasonably
withheld.

     4.   Prohibited Uses.  The Premises will not be used for manufacturing,
          ---------------
for the storage of merchandise held for sale to the general public, for lodging
or for the sale of goods to the general public. Tenant will not permit any food
preparation on the Premises except that Tenant may use Underwriters' Laboratory
approved microwave ovens and equipment for brewing coffee, tea, hot chocolate
and similar beverages so long as such use is in accordance with ail applicable
federal, state and city laws, codes, ordinances, rules and regulations.

                               Exhibit C, Page 1
<PAGE>

     5.   Janitorial Services.  Tenant will not employ any person for the
          -------------------
purpose of cleaning the Premises or permit any person to enter the Building for
such purpose other than Landlord's janitorial service, except with Landlord's
prior written consent. Tenant will not necessitate, and will be liable for the
cost of, any undue amount of janitorial labor by reason of Tenant's carelessness
in or indifference to the preservation of good order and cleanliness in the
Premises. Janitorial service will not be furnished to areas in the Premises on
nights when such areas are occupied after 9:30 p.m., unless such service is
extended by written agreement to a later hour in specifically designated areas
of the Premises.

     6.   Keys and Locks.  Landlord will furnish Tenant, free of charge, two
          --------------
keys to each door or lock in the Premises. Landlord may make a reasonable charge
for any additional or replacement keys. Tenant will not duplicate any keys,
alter any locks or install any new or additional lock or bolt on any door of its
Premises or on any other part of the Building without the prior written consent
of Landlord and, in any event, Tenant will provide Landlord with a key for any
such lock. On the termination of the Lease, Tenant will deliver to Landlord all
keys to any locks or doors in the Building which have been obtained by Tenant.

     7.   Freight.  Upon not less than twenty-four hours prior notice to
          -------
Landlord, which notice may be oral, an elevator will be made available for
Tenant's use for transportation of freight, subject to such scheduling as
Landlord in its discretion deems appropriate. Tenant shall not transport freight
in loads exceeding the weight limitations of such elevator. Landlord reserves
the right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building, and no
property will be received in the Building or carried up or down the freight
elevator or stairs except during such hours and along such routes and by such
persons as may be designated by Landlord. Landlord reserves the right to require
that heavy objects will stand on wood strips of such length and thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such property from any cause, and Tenant will be
liable for all damage or injuries caused by moving or maintaining such property.

     8.   Nuisances and Dangerous Substances.  Tenant will not conduct itself or
          ----------------------------------
permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Property in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant will
not install or operate any phonograph, radio receiver, musical instrument, or
television or other similar device in any part of the Common Areas and shall not
operate any such device installed in the Premises in such manner as to disturb
or annoy other tenants of the Building. Tenant will not use or keep in the
Premises or the Property any kerosene, gasoline or other combustible fluid or
material other than limited quantities thereof reasonably necessary for the
maintenance of office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant will not use or keep any foul or noxious gas or substance in
the Premises or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, or interfere in any way with other tenants
or those having business therein. Tenant will not bring or keep any, animals in
or about the Premises or the Property.

                               Exhibit C, Page 2
<PAGE>

     9.   Building Name and Address.  Without Landlord's prior written consent,
          -------------------------
Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.

     10.  Building Directory.  A directory for the Building will be provided
          ------------------
for the display of the name and location of tenants. Landlord reserves the right
to approve any additional names Tenant desires to place in the directory and, if
so approved, Landlord may assess a reasonable charge for adding such additional
names.

     11.  Window Coverings.  No curtains, draperies, blinds, shutters, shades,
          ----------------
awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, and
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.

     12.  Floor Coverings.  Tenant will not lay or otherwise affix linoleum,
          ---------------
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.

     13.  Wiring and Cabling Installations.  Landlord will direct Tenant's
          --------------------------------
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed.  No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord.  The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord.

     14.  Office Closing; Procedures.  Tenant will see that the doors of the
          --------------------------
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant will
keep the doors to the Building corridors closed at all times except for ingress
and egress.

     15.  Plumbing Facilities.  The toilet rooms, toilets, urinals, wash bowls
          -------------------
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.

     16.  Use of Hand Trucks.  Tenant will not use or permit to be used in the
          ------------------
Premises or in the Common Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.

     17.  Refuse.  Tenant shall store all Tenant's trash and garbage within the
          ------
Premises or in other facilities designated By Landlord for such purpose.  Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary

                               Exhibit C, Page 3
<PAGE>

manner of removing and disposing of trash and garbage in the city in which the
Building is located without being in violation of any law or ordinance governing
such disposal. All trash and garbage removal shall be made in accordance with
directions issued from time to time by Landlord, only through such Common Areas
provided for such purposes and at such times as Landlord may designate. Tenant
shall comply with the requirements of any recycling program adopted by Landlord
for the Building.

     18.  Soliciting.  Canvassing, peddling, soliciting and distribution of
          ----------
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.

     19.  Parking.  Tenant will use, and cause Tenant's Representatives and
          -------
Visitors to use, any parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park, or
permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of non-compliance with such parking
regulations.

     20.  Fire, Security and Safety Regulations.  Tenant will comply with all
          -------------------------------------
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.

     21.  Responsibility for Theft.  Tenant assumes any and all responsibility
          ------------------------
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.

     22.  Sales and Auctions. Tenant will not conduct or permit to be conducted
          ------------------
any sale by auction in, upon or from the Premises or elsewhere in the Property,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors or pursuant to any bankruptcy or other insolvency
proceeding.

     23.  Waiver of Rules.  Landlord may waive any one or more of these Building
          ---------------
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent Landlord from thereafter enforcing these
Building Rules against any or all of the tenants of the Building.

     24.  Effect on Lease.  These Building Rules are in addition to, and shall
          ---------------
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease.  Violation of these Building
Rules constitutes a failure to fully perform the provisions of the Lease, as
referred to in Section 15.1 - "Events of Default".

     25.  Non-Discriminatory Enforcement.  Subject to the provisions of the
          ------------------------------
Lease (and the provisions of other leases with respect to other tenants),
Landlord shall use reasonable efforts to

                               Exhibit C, Page 4
<PAGE>

enforce these Building Rules in a non-discriminatory manner, but in no event
shall Landlord have any liability for any failure or refusal to do so (and
Tenant's sole and exclusive remedy for any such failure or refusal shall be
injunctive relief preventing Landlord from enforcing any of the Building Rules
against Tenant in a manner that discriminates against Tenant).

     26.  Additional and Amended Rules.  Landlord reserves the right to rescind
          ----------------------------
or amend these Building Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.

                                                       INITIALS:

                                                       Landlord   ______
                                                       Tenant     ______

                               Exhibit C, Page 5
<PAGE>

                                   EXHIBIT D

                       ATTACHED TO AND FORMING A PART OF
                                LEASE AGREEMENT
                         DATED AS OF SEPTEMBER 1, 1998
                                    BETWEEN
             PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                    BLUE MARTINI, LLC. AS TENANT ("LEASE")

                          ADDITIONAL PROVISIONS RIDER
                          ---------------------------

36.  PARKING.

     (a) Tenant's Parking Rights.  Landlord shall provide Tenant, on an
         -----------------------
unassigned and non-exclusive basis, for use by Tenant and Tenant's
Representatives and Visitors, at the users' sole risk, twenty (20) parking
spaces in the Parking Facility. If Tenant leases additional office space
pursuant to this Lease, Landlord shall provide Tenant, also on an unassigned,
non-exclusive and unlabelled basis, one (1) additional parking space in the
Parking Facility for each three hundred thirty-three (333) rentable square feet
of additional office space leased to Tenant. The parking spaces to be made
available to Tenant hereunder may contain a reasonable mix of spaces for compact
cars and up to ten percent (10%) of the unassigned spaces may also be designated
by Landlord as Building visitors' parking.

     (b) Availability of Parking Spaces.  Landlord shall take reasonable actions
         ------------------------------
to ensure the availability of the parking spaces leased by Tenant, but Landlord
does not guarantee the availability of those spaces at all times against the
actions of other tenants of the Building and users of the Parking Facility.
Access to the Parking Facility may, at Landlord's option, be regulated by card,
pass, bumper sticker, decal or other appropriate identification issued by
Landlord.  Landlord retains the right to revoke the parking privileges of any
user of the Parking Facility who violates the rules and regulations governing
use of the Parking Facility (and Tenant shall be responsible for causing any
employee of Tenant or other person using parking spaces allocated to Tenant to
comply with all parking rules and regulations).

     (c) Assignment and Subletting.  Notwithstanding any other provision of the
         -------------------------
Lease to the contrary, Tenant shall not assign its rights to the parking spaces
or any interest therein, or sublease or otherwise allow the use of all or any
part of the parking spaces to or by any other person, except with Landlord's
prior written consent, which may be granted or withheld by Landlord in its sole
discretion.  In the event of any separate assignment or sublease of parking
space rights that is approved by Landlord, Landlord shall be entitled to
receive, as additional Rent hereunder, one hundred percent (100%) of any profit
received by Tenant in connection with such assignment or sublease.

     (d) Condemnation, Damage or Destruction.  In the event the Parking Facility
         -----------------------------------
is the subject of a Condemnation, or is damaged or destroyed, and this Lease is
not terminated, and if in such event the available number of parking spaces in
the Parking Facility is permanently reduced, then Tenant's rights to use parking
spaces hereunder may, at the election of Landlord,

                               Exhibit D, Page 1
<PAGE>

thereafter be reduced in proportion to the reduction of the total number of
parking spaces in the Parking Facility. In such event, Landlord reserves the
right to reduce the number of parking spaces to which Tenant is entitled or to
relocate some or all of the parking spaces to which Tenant is entitled to other
areas in the Parking Facility.

                                                       INITIALS:

                                                       Landlord   ______
                                                       Tenant     /s/ MZ
                                                                  ------

                               Exhibit D, Page 2
<PAGE>

                           FIRST AMENDMENT TO LEASE
                           ------------------------

     This First Amendment to Lease (the "Agreement") is made and entered into as
of May 12, 1999 by and between PENINSULA OFFICE PARK ASSOCIATES, L.P., a
California limited partnership ("Landlord") and BLUE MARTINI, INC., a California
limited liability company ("Tenant").

                                    Recitals
                                    --------

     A.  Landlord and Tenant entered into a Lease Agreement dated September 1,
1998 (the "Lease") by which Tenant leases from Landlord Suite 175 (the "Existing
Premises") containing approximately 6,819 rentable square feet on the first
floor of the building known as Peninsula Office Park 6 located at 2600 Campus
Drive, San Mateo, California (the "Building").  Capitalized terms not otherwise
defined in this Agreement shall have the meaning given them in the Lease.

     B.  The Term of the Lease is scheduled to expire September 30, 2003 (the
"Expiration Date").

     C.  Landlord and Tenant desire to amend the Lease to provide for (i) Tenant
to lease Suite 180 (the "Expansion Premises") containing approximately 5,108
rentable square feet on the first floor of the Building, and (ii) an extension
of the Term of the Lease, all upon and subject to the terms and conditions set
forth in this Agreement.  The approximate configuration and location of the
Expansion Premises is shown on Exhibit A attached hereto.

     NOW THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

1  Leasing.  Landlord leases to Tenant and Tenant leases from Landlord the
   -------
   Expansion Premises commencing on the date (the "Expansion Premises
   Commencement Date," also referred to as "EPCD") which is the earlier of (a)
   twenty (20) days after the date Landlord delivers possession of the Expansion
   Premises to Tenant after Landlord has obtained possession of the Expansion
   Premises from the Existing Tenant, or (b) the date upon which Tenant, with
   Landlord's written permission, actually occupies and conducts business in any
   portion of the Expansion Premises, and continuing until the Expiration Date
   (as hereinafter amended). Commencing on the Expansion Premises Commencement
   Date and continuing through the Term, as extended herein, the Expansion
   Premises shall be included in the "Premises" for all purposes under the Lease
   (and the "Premises" shall consist of both the Original Premises and the
   Expansion Premises, totaling approximately 11,927 rentable square feet).

                                       45
<PAGE>

2  Existing Tenant.  The Expansion Premises are occupied by a tenant (the
   ---------------
   "Existing Tenant") pursuant to a lease which expires June 30, 1999. Landlord
   agrees to use good faith efforts to obtain possession of the Expansion
   Premises from the Existing Tenant upon expiration of the lease with the
   Existing Tenant, but shall not be liable for any claims, damages or
   liabilities if the Existing Tenant does not vacate the Expansion Premises
   upon expiration of the term of its lease, and Landlord is unable to deliver
   possession of the Expansion Premises to Tenant upon expiration of the lease
   with the Existing Tenant.

3  Term and Expiration Date.  The Term of the Lease is hereby extended by
   -------------------------
   approximately ten (10) calendar months to be sixty (60) full calendar months
   following the Expansion Premises Commencement Date. The Expiration Date shall
   be the last day of the sixtieth (60th) calendar month following the Expansion
   Premises Commencement Date.

4  Condition of Expansion Premises.  Tenant hereby accepts the Expansion
   --------------------------------
   Premises in their existing "AS IS" condition, agrees that the Expansion
   Premises is in good and tenantable condition, and acknowledges that Landlord
   has no obligation to improve or alter the Expansion Premises. Any Alterations
   Tenant makes to the Expansion Premises shall be made only in accordance with
   the provisions of Section 6 of the Lease. Tenant shall contract with
   Commercial Interior Contractors ("CIC") to construct any Alterations desired
   by Tenant in the Expansion Premises. Tenant acknowledges and agrees that CIC
   is an affiliate of Landlord. Landlord shall contribute up to $5.00 per
   rentable square foot in the Expansion Premises (the "Allowance") toward the
   cost of the design (including preparation of space plans and construction
   documents), construction and installation of the Alterations. The balance, if
   any, of the cost of the Alterations ("Additional Cost"), including, but not
   limited to, customary and reasonable usual markups for overhead, supervision
   and profit, shall be paid by Tenant to CIC. Upon completion of the
   Alterations, and upon Tenant presenting evidence to Landlord that the
   Alterations have been completed, and that Tenant has paid the Additional Cost
   to CIC, Landlord shall pay the Allowance to CIC.

5  Base Rent for Expansion Premises.  In addition to the Base Rent payable by
   ---------------------------------
   Tenant for the Existing Premises, Tenant shall pay the following Base Rent
   for the Expansion Premises:

          Months                       Base Rent
          ------                       ---------

          EPCD - 12/31/99:             $3.20 per rentable square foot per month
          01/01/00 - 12/31/00:         $3.40 per rentable square foot per month
          01/01/01 - 12/31/01:         $3.50 per rentable square foot per month
          01/01/02 - 12/31/02:         $3.60 per rentable square foot per month
          01/01/03 - 12/31/03:         $3.70 per rentable square foot per month
          01/01/04 - Expiration Date:  $3.80 per rentable square foot per month

                                       46
<PAGE>

6.  Base Rent for Existing Premises.  Tenant shall pay Base Rent for the
    --------------------------------
    Existing Premises through September 30, 2003 in accordance with the
    provisions of the Lease. Commencing October 1, 2003 and continuing until the
    Expiration Date Tenant shall pay $3.80 per rentable square foot per month as
    Base Rent for the Existing Premises.

7.  Base Year and Tenant's Share.  Effective on the Expansion Premises
    -----------------------------
    Commencement Date the Base Year for the Premises shall be calendar year
    1999. From and after the Expansion Premises Commencement Date Tenant's Share
    shall be 20.12%.

8.  Additional Security Deposit.  Upon execution and delivery of this Agreement
    ----------------------------
    to by Tenant to Landlord, Tenant shall deposit with Landlord the sum of
    $16,345.60 to be held by Landlord as a Security Deposit, in addition to the
    existing Security Deposit, in accordance with the provisions of Section 4 of
    the Lease.

9.  Sign on Existing Monument.  So long as Blue Martini, Inc. has not assigned
    -------------------------
    this Lease or sublet any of the Premises (it being intended that all rights
    pursuant to this provision are and shall be personal to the original Tenant
    under this Lease and shall not be transferable or exercisable for the
    benefit of any Transferee), and so long as Blue Martini, Inc. occupies at
    least 11,927 rentable square feet in the Building, Blue Martini, Inc. shall
    have the right to install and maintain in a first class condition a sign on
    the existing sign monument located adjacent to the Building, for no
    additional rent, subject to governmental approval of a separate signage
    application and subject to review and approval by Landlord, in Landlord's
    sole discretion, of the size, design, materials, color, illumination, and
    all other aspects of any proposed sign. All costs and expenses of processing
    governmental applications, permits, construction, installation and
    maintenance of Tenant's sign shall be borne by Tenant.

10.  Broker.  Tenant warrants and represents to Landlord that in the negotiating
     -------
     or making of this Agreement neither Tenant nor anyone acting on Tenant's
     behalf has dealt with any broker or finder who might be entitled to a fee
     or commission for this Agreement. Tenant shall indemnify and hold Landlord
     harmless from any claim or claims, including costs, expenses and attorney's
     fees incurred by Landlord asserted by any broker or finder for a fee or
     commission based upon any dealings with or statements made by Tenant or
     Tenant's Representatives. Landlord agrees to indemnify and hold Tenant
     harmless from and against any claim by third parties claiming by, through,
     or under Landlord for commissions due or alleged to be due in connection
     with this Agreement.

11.  Ratification of Lease.  The Lease, as modified by this Agreement, remains
     ----------------------
     in full force and effect, and Landlord and Tenant ratify the same. This
     Agreement shall be binding upon and inure to the benefit of the parties and
     their respective successors and assigns.

         If Tenant is a corporation or a partnership, each of the persons
executing this Agreement on behalf of Tenant warrants and represents that Tenant
is a duly authorized and existing entity that Tenant has full right and
authority to enter into this Agreement and that the persons signing on behalf of
Tenant are authorized to do so and have the power to bind

                                       47
<PAGE>

Tenant to this Agreement. Tenant shall provide Landlord, upon request, with
evidence reasonably satisfactory to Landlord confirming the foregoing
representations.

     Except as herein amended, the Lease remains unchanged and is in full
force and effect in accordance with the terms and provisions contained therein.

     This First Amendment is hereby executed and delivered in multiple
counterparts, each of which shall have the force and effect of an original.

<TABLE>
<CAPTION>
LANDLORD:                                                 TENANT:
<S>                                                       <C>
PENINSULA OFFICE PARK ASSOCIATES, L.P.,                   BLUE MARTINI, INC.,
a California limited partnership                          a California limited liability company

By:  CORNERSTONE HOLDINGS, INC.,                             By:  /s/ Monte Zweben
     Delaware limited liability company,                        ---------------------------
     general partner                                            Name:______________________
                                                               Title:______________________

By: /s/ Robert Paratte                                         By:
   --------------------------                                     --------------------------
Name: Robert Paratte                                           Name:
     ------------------------                                       ------------------------
Title:                                                         Title:
      -----------------------                                        -----------------------
</TABLE>

                                       48
<PAGE>

                                   EXHIBIT A
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                            FIRST AMENDMENT TO LEASE
                            DATED AS OF MAY 12, 1999
                                    BETWEEN
              PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                  BLUE MARTINI, INC.., AS TENANT ("AGREEMENT")

                             THE EXPANSION PREMISES
                             ----------------------

                          [Floor plan showing location
                    and configuration of Expansion Premises
                                to be inserted.]

                                                   INITIALS:

                                                   Landlord  ______
                                                   Tenant    MZ
                                                             ------

                                       49
<PAGE>

                           SECOND AMENDMENT TO LEASE
                           -------------------------

     This Second Amendment to Lease (the "Agreement") is made and entered into
as of August 5, 1999 by and between PENINSULA OFFICE PARK ASSOCIATES, L.P., a
California limited partnership ("Landlord") and BLUE MARTINI, INC., a California
corporation ("Tenant").

                                    Recitals
                                    --------

     A.  Landlord and Tenant entered into a Lease Agreement (the "Original
Lease") dated September 1, 1998 and a First Amendment to Lease (the "First
Amendment") dated as of May 12, 1999 (as so amended, the "Amended Lease").
Under the terms of the Amended Lease, Tenant leases from Landlord Suite 175 (the
"Initial Premises") containing approximately 6,819 rentable square feet on the
first floor and Suite 180 (the "First Expansion Premises") containing
approximately 5,108 rentable square feet on the first floor of the of the
building known as Peninsula Office Park 6 located at 2600 Campus Drive, San
Mateo, California (the "Building").  As of the date of this Agreement the
Premises contain approximately 11,927 rentable square feet, consisting of the
Initial Premises and the First Expansion Premises (together, the "Existing
Premises").

     B.  The Term of the Amended Lease is scheduled to expire June 30, 2004 (the
"Expiration Date").

     C.  Landlord and Tenant desire to amend the Amended Lease to provide for
(i) Tenant to lease Suite 280 (the "Second Expansion Premises") containing
approximately 7,370 rentable square feet on the second floor of the Building,
(ii) an extension of the Term, and (iii) to make certain other changes in the
Amended Lease, all upon and subject to the terms and conditions set forth in
this Agreement.  The approximate configuration and location of the Second
Expansion Premises is shown on Exhibit A attached hereto.

     NOW THEREFORE, in consideration of the foregoing recitals, and mutual
agreements contained herein, the parties hereto agree as follows:

1.  Capitalized Terms.  All capitalized terms not otherwise defined in this
    ------------------
    Agreement shall have the meaning given them in the Amended Lease.

2.  Definition of Lease.  The Amended Lease, as further amended by this
    --------------------
    Agreement, is herein called the "Lease."

3.  Leasing of Second Expansion Premises.  Landlord leases to Tenant and Tenant
    -------------------------------------
    leases from Landlord the Second Expansion Premises commencing on September
    1, 1999 (the "Second Expansion Premises Commencement Date"). Commencing on
    the Second Expansion Premises Commencement Date and continuing through the
    Term, as extended herein, the Second Expansion Premises shall be included in
    the "Premises" for all purposes under the Lease (and the "Premises" shall
    consist of both the Existing Premises and the Second Expansion Premises,
    totaling approximately 19,297 rentable square feet).

                                       50
<PAGE>

4.  Existing Tenant.  The Second Expansion Premises are occupied by a tenant
    ----------------
    (the "Existing Tenant") pursuant to a lease which expires December 31, 1999.
    Landlord agrees to use good faith efforts to enter into a lease termination
    agreement with the Existing Tenant and to deliver possession of the Second
    Expansion Premises to Tenant on the Second Expansion Premises Commencement
    Date, but Landlord shall not be liable for any claims, damages or
    liabilities if Landlord does not enter into a lease termination agreement
    for the Second Expansion Premises with the Existing Tenant, and Landlord is
    unable to deliver possession of the Second Expansion Premises to Tenant
    prior to the Second Expansion Premises Commencement Date.

5.  Term and Expiration Date.  The Term of the Lease is hereby extended by
    -------------------------
    approximately two (2) calendar months to be sixty (60) full calendar months
    following the Second Expansion Premises Commencement Date. The Expiration
    Date shall August 31, 2004 (the revised "Expiration Date").

6.  Condition of Second Expansion Premises.  Tenant hereby accepts the Second
    ---------------------------------------
    Expansion Premises in their existing "AS IS" condition, agrees that the
    Second Expansion Premises is in good and tenantable condition, and
    acknowledges that Landlord has no obligation to improve or alter the Second
    Expansion Premises. Any Alterations Tenant makes to the Second Expansion
    Premises shall be made only in accordance with the provisions of Section 6
    of the Original Lease. Tenant shall contract with Commercial Interior
    Contractors ("CIC") to construct any Alterations desired by Tenant in the
    Second Expansion Premises. Tenant acknowledges and agrees that CIC is an
    affiliate of Landlord. Landlord shall contribute up to $8.00 per rentable
    square foot in the Second Expansion Premises (the "Allowance") toward the
    cost of the design (including preparation of space plans and construction
    documents), construction and installation of the Alterations (which may be
    used for Alterations in the Existing Premises). The balance, if any, of the
    cost of the Alterations ("Additional Cost"), including, but not limited to,
    customary and reasonable usual markups for overhead, supervision and profit,
    shall be paid by Tenant to CIC. Upon completion of the Alterations, and upon
    Tenant presenting evidence to Landlord that the Alterations have been
    completed, and that Tenant has paid the Additional Cost to CIC, Landlord
    shall pay the Allowance to CIC.

7.  Base Rent for Second Expansion Premises.  In addition to the Base Rent
    ----------------------------------------
    payable by Tenant for the Existing Premises, Tenant shall pay the following
    Base Rent for the Expansion Premises:

     Months        Base Rent
     ------        ---------

     09/01/99 - 12/31/99:    $3.20 per rentable square foot per month
     01/01/00 - 12/31/00:    $3.45 per rentable square foot per month
     01/01/01 - 12/31/01:    $3.65 per rentable square foot per month
     01/01/02 - 12/31/02:    $3.75 per rentable square foot per month
     01/01/03 - 08/31/04:    $3.85 per rentable square foot per month

8.  Base Rent for Existing Premises.  Tenant shall pay Base Rent for the
    --------------------------------
    Existing Premises through June 30, 2004 in accordance with the provisions of
    the Amended Lease. Commencing July 1, 2004 and continuing until the
    Expiration Date Tenant shall pay $3.85 per rentable square foot per month as
    Base Rent for the Existing Premises.

                                       51
<PAGE>

9.  Base Year and Tenant's Share.  The Base Year for the Second Expansion
    -----------------------------
    Premises shall be calendar year 1999.  From and after the Second Expansion
    Premises Commencement Date Tenant's Share shall be 32.55%.

10.  Amendment of Section 4 of the Original Lease and Additional Security
     --------------------------------------------------------------------
     Deposit. Effective as of the date of this Agreement, Section 4 of the
     -------
     Original Lease is hereby deleted in its entirety and replaced with the
     following:

         "4. SECURITY DEPOSIT. On execution of this Agreement, Tenant shall
         deposit with Landlord the letter of credit identified in Paragraph 12
         below and Landlord shall hold the cash amount specified in Paragraph 11
         below as the Security Deposit (collectively, the "Security Deposit",
         which term shall include amounts drawn on the letter of credit), as
         security for the performance of Tenant's obligations under this Lease.
         Landlord may (but shall have no obligation to) use the Security Deposit
         or any portion thereof to cure any breach or default by Tenant under
         the Lease, to fulfill any of Tenant's obligations under the Lease, or
         to compensate Landlord for any damage it incurs as a result of Tenant's
         failure to perform any of Tenant's obligations under the Lease. In such
         event, Tenant shall pay to Landlord on demand an amount sufficient to
         replenish the Security Deposit to the full amount of the cash specified
         in the Basic Lease Information and the applicable Face Amount (defined
         in Section 12 below) of the letter of credit. If at the expiration or
         termination of this Lease, Tenant is not in default, has otherwise
         fully performed all of Tenant's obligations under this Lease, and there
         are no outstanding Claims (defined in Section 10.1 of the Original
         Lease, and including all existing and potential Claims) for which
         Tenant is responsible, Landlord shall return to Tenant the Security
         Deposit or the balance thereof then held by Landlord and not applied as
         provided above. Landlord may commingle the Security Deposit with
         Landlord's general and other funds. Landlord shall not be required to
         pay interest on the Security Deposit to Tenant. Tenant acknowledges
         that Landlord has agreed to accept a letter of credit in lieu of an
         additional cash deposit as an accommodation to Tenant and Tenant agrees
         that the letter of credit and all amounts drawn thereunder shall be
         treated for all purposes under this Lease as if a cash deposit had been
         tendered to Landlord upon the execution of this Lease."

11.  Amount of Cash Security Deposit.  As of the date of this Agreement Landlord
     --------------------------------
     is holding a cash Security Deposit totaling $167,727.40 (the "Existing
     Security Deposit"). Upon Tenant's delivery of the L/C described in
     Paragraph 12 below, in the Face Amount shown in Paragraph 12 below, (a)
     Landlord shall continue to hold the sum of $65,620.00 as the cash portion
     of the Security Deposit, and (b) Landlord shall refund to Tenant the sum of
     $102,107.40 out of such existing Security Deposit.

12.  Letter of Credit.
     -----------------

         (a)  Upon execution of this Agreement, Tenant shall deliver to Landlord
     an unconditional, irrevocable, transferable and negotiable standby letter
     of credit (the "L/C") in an amount equal to $182,107.40 ("Face Amount"),
     issued by a bank or trust company ("Issuer") and in form

                                       52
<PAGE>

     and content acceptable to Landlord, in its sole and absolute discretion, as
     additional security for the performance of Tenant's obligations under this
     Lease. An L/C in the form attached hereto as Exhibit B is hereby approved
                                                  ---------
     by Landlord. The L/C shall name Landlord as beneficiary thereunder and
     provide that draws, including partial draws, at Landlord's election, will
     be honored upon the delivery to the Issuer of a certificate signed by
     Landlord, or its authorized agent, that Tenant has failed to perform its
     obligations under the Lease. The L/C shall also provide that it will be
     automatically extended upon each renewal date unless the Issuer thereof
     delivers to Landlord, no later than forty-five (45) days prior to the
     stated expiration date of the L/C, written notice of Issuer's intent not to
     extend or renew the L/C. During any period that Tenant is required to
     maintain the L/C, Tenant shall, at least thirty (30) days prior to any
     expiration or termination of the L/C, provide Landlord either with written
     confirmation that the existing L/C will be automatically extended and
     renewed or with a new L/C that satisfies all of the requirements for the
     L/C in this Paragraph 12. In addition, upon a proposed sale or other
     transfer of any interest in the Building, the Land, this Lease or Landlord
     (including consolidations, mergers, or other entity changes), Tenant, at
     its sole cost and expense and upon ten (10) Business Days' notice, shall,
     concurrent with Landlord's delivery to Tenant of the then outstanding L/C,
     deliver to any such transferees, successors, or assigns a replacement L/C
     on identical terms (except for the stated beneficiary) from the same Issuer
     or another bank or trust company acceptable to Landlord, in Landlord's sole
     discretion, naming the new landlord as the beneficiary thereof. Tenant's
     failure to perform or observe any of the covenants set forth in this
     Paragraph 12 for any reason shall entitle Landlord to draw on the full
     amount of the L/C and shall constitute an Event of Default under this Lease
     without the requirement of any notice from Landlord. Any amount(s) drawn
     under the L/C shall be held or used by Landlord in accordance with the
     terms of Section 4 of the Lease.

         (b) If as of the first (1st), second (2nd), third (3rd) and fourth
     (4th) anniversary dates following the Second Expansion Premises
     Commencement Date, (i) no prior or current Event of Default has occurred,
     and no event or condition exists or has occurred which with the passage of
     time or delivery of notice by Landlord, or both, would constitute an Event
     of Default, and (ii) Tenant has delivered to Landlord, on or before such
     anniversary dates, audited financial statements prepared in accordance with
     generally accepted accounting principles consistently applied and certified
     by Tenant's chief financial officer as being complete and accurate which
     confirm that Tenant has achieved and sustained positive net earnings for
     each of the four consecutive calendar quarters immediately preceding each
     applicable anniversary date, the Face Amount of the L/C may be immediately
     reduced to (A) $145,685.92 on the first (1st) anniversary date of the
     Second Expansion Premises Commencement Date, (B) $109,264.41 on the second
     (2nd) anniversary date of the Second Expansion Premises Commencement Date,
     (C) $72,842.92 on the third (3rd) anniversary date of the Second Expansion
     Premises Commencement Date, and (D) $36,421.48 on the fourth (4th)
     anniversary date of the Second Expansion Premises Commencement Date, as
     applicable (the "L/C Burnoff")..

13.  Broker.  Tenant warrants and represents to Landlord that in the negotiating
     ------
     or making of this Agreement neither Tenant nor anyone acting on Tenant's
     behalf has dealt with any broker or finder who might be entitled to a fee
     or commission for this Agreement. Tenant shall indemnify and hold Landlord
     harmless from any claim or claims, including costs, expenses and

                                       53
<PAGE>

     attorney's fees incurred by Landlord asserted by any broker or finder for a
     fee or commission based upon any dealings with or statements made by Tenant
     or Tenant's Representatives. Landlord agrees to indemnify and hold Tenant
     harmless from and against any claim by third parties claiming by, through,
     or under Landlord for commissions due or alleged to be due in connection
     with this Agreement.

14.  Ratification of Amended Lease.  The Amended Lease, as modified by this
     ------------------------------
     Agreement, remains in full force and effect, and Landlord and Tenant ratify
     the same. This Agreement shall be binding upon and inure to the benefit of
     the parties and their respective successors and assigns.

         If Tenant is a corporation or a partnership, each of the persons
executing this Agreement on behalf of Tenant warrants and represents that Tenant
is a duly authorized and existing entity that Tenant has full right and
authority to enter into this Agreement and that the persons signing on behalf of
Tenant are authorized to do so and have the power to bind Tenant to this
Agreement. Tenant shall provide Landlord, upon request, with evidence reasonably
satisfactory to Landlord confirming the foregoing representations.

         Except as herein amended, the Amended Lease remains unchanged and is in
full force and effect in accordance with the terms and provisions contained
therein.

         This Second Amendment is hereby executed and delivered in multiple
counterparts, each of which shall have the force and effect of an original.

<TABLE>
<CAPTION>
LANDLORD:                                                    TENANT:
<S>                                                          <C>
PENINSULA OFFICE PARK ASSOCIATES, L.P.,                      BLUE MARTINI, INC.,
a California limited partnership                             a California corporation

By:  CORNERSTONE HOLDINGS, INC.,                             By: /s/ Monte Zweben
     a Delaware limited liability company,                      --------------------------
     general partner                                            Name: Monte Zweben
                                                                     ----------------------
                                                                Title: CEO
                                                                      ---------------------
     By: /s/ Robert Paratte                                  By:
        ---------------------------                             ---------------------------
     Name: Robert Paratte                                    Name:
          -------------------------                               -------------------------
     Title:                                                  Title:
           ------------------------                                ------------------------
</TABLE>

                                       54
<PAGE>

                                   EXHIBIT A
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                           SECOND AMENDMENT TO LEASE
                           DATED AS OF AUGUST 5, 1999
                                    BETWEEN
              PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                  BLUE MARTINI, INC.., AS TENANT ("AGREEMENT")

                         THE SECOND EXPANSION PREMISES
                         -----------------------------

                          [Floor plan showing location
                 and configuration of Second Expansion Premises
                                to be inserted.]

                                                   INITIALS:

                                                   Landlord  ______
                                                   Tenant    ______

                                       55
<PAGE>

                           THIRD AMENDMENT TO LEASE
                           ------------------------

     This Third Amendment to Lease (the "Agreement") is made and entered into as
of January 11, 2000 by and between PENINSULA OFFICE PARK ASSOCIATES, L.P., a
California limited partnership ("Landlord") and BLUE MARTINI, INC., a California
corporation ("Tenant").

                                    Recitals
                                    --------

     A.  Landlord and Tenant entered into a Lease Agreement (the "Original
Lease") dated September 1, 1998, a First Amendment to Lease (the "First
Amendment") dated as of May 12, 1999, and a Second Amendment to Lease (the
"Second Amendment") dated as of August 5, 1999 (as so amended, the "Amended
Lease").  Under the terms of the Amended Lease, Tenant leases from Landlord
Suite 175 (the "Initial Premises") containing approximately 6,819 rentable
square feet on the first floor, Suite 180 (the "First Expansion Premises")
containing approximately 5,108 rentable square feet on the first floor, and
Suite 280 (the "Second Expansion Premises") containing approximately 7,370
rentable square feet on the second floor of the of the building known as
Peninsula Office Park 6 located at 2600 Campus Drive, San Mateo, California (the
"Building").  As of the date of this Agreement the Premises contain
approximately 19,297 rentable square feet, consisting of the Initial Premises,
the First Expansion Premises and Second Expansion Premises (collectively, the
"Existing Premises").

     B.  The Term of the Amended Lease is scheduled to expire August 31, 2004
(the "Expiration Date").

     C.  Landlord and Tenant desire to amend the Amended Lease to provide for
(i) Tenant to lease Suite 285 (the "Third Expansion Premises") containing
approximately 8,342 rentable square feet on the second floor of the Building,
(ii) an extension of the Term, and (iii) to make certain other changes in the
Amended Lease, all upon and subject to the terms and conditions set forth in
this Agreement.  The approximate configuration and location of the Third
Expansion Premises is shown on Exhibit A attached hereto.

     NOW THEREFORE, in consideration of the foregoing recitals, and mutual
agreements contained herein, the parties hereto agree as follows:

1.  Capitalized Terms.  All capitalized terms not otherwise defined in this
    ------------------
    Agreement shall have the meaning given them in the Amended Lease.

2.  Definition of Lease.  The Amended Lease, as further amended by this
    --------------------
    Agreement, is herein called the "Lease."

3.  Leasing of Third Expansion Premises.  Subject to Landlord obtaining
    ------------------------------------
    possession of the Third Expansion Premises from the Existing Tenant (as
    defined below), Landlord leases

                                       56
<PAGE>

    to Tenant and Tenant leases from Landlord the Third Expansion Premises
    commencing on the date Landlord delivers possession of the Third Expansion
    Premises to Tenant (herein called either the "Third Expansion Premises
    Commencement Date" or "TEPCD") after Landlord has (a) obtained possession of
    the Third Expansion Premises from the Existing Tenant, and (b) constructed
    the Demising Wall (as defined below). Commencing on the Third Expansion
    Premises Commencement Date and continuing through the Term, as extended
    herein, the Third Expansion Premises shall be included in the "Premises" for
    all purposes under the Lease (and the "Premises" shall consist of both the
    Existing Premises and the Third Expansion Premises, totaling approximately
    27,639 rentable square feet).

4.  Existing Tenant.  As of the date of this Agreement the Third Expansion
    ----------------
    Premises are occupied by a tenant (the "Existing Tenant") pursuant to a
    lease which expires April 30, 2001. Landlord agrees to use good faith
    efforts to enter into a partial lease termination agreement with the
    Existing Tenant and to deliver possession of the Third Expansion Premises to
    Tenant on or before January 31, 2000 (the "Scheduled Third Expansion
    Premises Commencement Date"), but Landlord shall not be liable for any
    claims, damages or liabilities if Landlord does not enter into a partial
    lease termination agreement for the Third Expansion Premises with the
    Existing Tenant, and Landlord is unable to deliver possession of the Third
    Expansion Premises to Tenant prior to the Scheduled Third Expansion Premises
    Commencement Date. Notwithstanding anything to the contrary contained in
    this Agreement, if Landlord has not delivered possession of the Third
    Expansion Premises to Tenant on or before February 29, 2000, then Tenant may
    terminate this Agreement by written notice to Landlord, such notice of
    termination to be given, if at all, on or before March 10, 2000. If Tenant
    terminates this Agreement pursuant to the provisions of the immediately
    preceding sentence, then the L/C (as defined below) delivered by Tenant to
    Landlord in connection with this Agreement shall immediately become invalid,
    and within ten (10) days after Landlord receives such notice from Tenant
    terminating this Agreement, Landlord shall return to Tenant (a) the original
    L/C, and (b) all Base Rent paid by Tenant to Landlord under this Agreement.

5.  Term and Expiration Date.  If this Agreement is not terminated pursuant to
    -------------------------
    the provisions of Paragraph 4 above, then the Term of the Lease is hereby
    extended by approximately five (5) calendar months to be sixty (60) full
    calendar months following the Third Expansion Premises Commencement Date.
    The Expiration Date is hereby changed to be January 31, 2005 (the "Revised
    Expiration Date").

6.  Condition of Third Expansion Premises.  Tenant hereby accepts the Third
    --------------------------------------
    Expansion Premises in their existing "AS IS" condition, agrees that the
    Third Expansion Premises is in good and tenantable condition, and
    acknowledges that Landlord has no obligation to improve or alter the Third
    Expansion Premises. Any Alterations Tenant makes to the Third Expansion
    Premises shall be made only in accordance with the provisions of Section 6
    of the Original Lease. Tenant shall contract with Commercial Interior
    Contractors ("CIC") to construct any Alterations desired by Tenant in the
    Third Expansion Premises. The sums charged by CIC for any such Alterations
    shall be

                                       57
<PAGE>

    competitive in the marketplace. Tenant acknowledges and agrees that CIC is
    an affiliate of Landlord. The cost of any Alterations shall be paid by
    Tenant to CIC.

7.  Demising Wall.  Landlord shall contribute up to $44,000.00 (the "Allowance")
    --------------
    toward the cost of constructing and installing a demising wall (the
    "Demising Wall") between the Third Expansion Premises and Suite 200 in a
    good and workmanlike manner using Building standard materials. CIC shall
    construct such Demising Wall. Unless this Agreement is terminated by Tenant
    pursuant to the provisions of Paragraph 4 above, then Tenant shall be
    responsible for all costs in excess of the Allowance ("Additional Costs") to
    construct and install the Demising Wall. Tenant shall pay any Additional
    Costs to Landlord within ten (10) Business Days following Tenant's receipt
    of (a) an invoice for any such Additional Costs, and (b) evidence from
    Landlord that Landlord has paid to CIC the total costs of constructing and
    installing the Demising Wall.

8.  Base Rent for Third Expansion Premises.  In addition to the Base Rent
    ---------------------------------------
    payable by Tenant for the Existing Premises, Tenant shall pay the following
    Base Rent for the Third Expansion Premises:

         Months                  Base Rent
         ------                  ---------

         TEPCD - 01/14/01:       $3.45 per rentable square foot per month
         01/15/01 - 01/14/02:    $3.80 per rentable square foot per month
         01/15/02 - 01/14/03:    $3.90 per rentable square foot per month
         01/15/03 - 01/14/04:    $4.00 per rentable square foot per month
         01/15/04 - 01/31/05:    $4.10 per rentable square foot per month

9.  Base Rent for Existing Premises.  Tenant shall pay Base Rent for the
    --------------------------------
    Existing Premises through August 31, 2004 in accordance with the provisions
    of the Amended Lease. Commencing September 1, 2004 and continuing until the
    Revised Expiration Date Tenant shall pay $4.10 per month per rentable square
    foot in the Existing Premises as Base Rent for the Existing Premises.

10.  Base Year and Tenant's Share.  The Base Year for the Third Expansion
     -----------------------------
     Premises shall be calendar year 2000. From and after the Third Expansion
     Premises Commencement Date Tenant's Share shall be 46.62%.

11.  Letter of Credit.
     -----------------

         (a).  Upon execution of this Agreement, Tenant shall deliver to
     Landlord an unconditional, irrevocable, transferable and negotiable standby
     letter of credit (the "L/C") in an amount equal to $96,350.10 ("Face
     Amount"), issued by a bank or trust company ("Issuer") and in form and
     content acceptable to Landlord, in its sole and absolute discretion, as
     additional security for the performance of Tenant's obligations under this
     Lease. An L/C in the form attached hereto as Exhibit B is hereby approved
                                                  ---------
     by Landlord. The L/C shall name Landlord as beneficiary thereunder and
     provide that draws, including partial draws, at Landlord's election, will
     be honored upon the delivery

                                       58
<PAGE>

     to the Issuer of a certificate signed by Landlord, or its authorized agent,
     that Tenant has failed to perform its obligations under the Lease. The L/C
     shall also provide that it will be automatically extended upon each renewal
     date unless the Issuer thereof delivers to Landlord, no later than forty-
     five (45) days prior to the stated expiration date of the L/C, written
     notice of Issuer's intent not to extend or renew the L/C. During any period
     that Tenant is required to maintain the L/C, Tenant shall, at least thirty
     (30) days prior to any expiration or termination of the L/C, provide
     Landlord either with written confirmation that the existing L/C will be
     automatically extended and renewed or with a new L/C that satisfies all of
     the requirements for the L/C in this Paragraph 12. In addition, upon a
     proposed sale or other transfer of any interest in the Building, the Land,
     this Lease or Landlord (including consolidations, mergers, or other entity
     changes), Tenant, at its sole cost and expense and upon ten (10) Business
     Days' notice, shall, concurrent with Landlord's delivery to Tenant of the
     then outstanding L/C, deliver to any such transferees, successors, or
     assigns a replacement L/C on identical terms (except for the stated
     beneficiary) from the same Issuer or another bank or trust company
     acceptable to Landlord, in Landlord's sole discretion, naming the new
     landlord as the beneficiary thereof. Tenant's failure to perform or observe
     any of the covenants set forth in this Paragraph 12 for any reason shall
     entitle Landlord to draw on the full amount of the L/C and shall constitute
     an Event of Default under this Lease without the requirement of any notice
     from Landlord. Any amount(s) drawn under the L/C shall be held or used by
     Landlord in accordance with the terms of Section 4 of the Lease.

         (b). If as of the first (1st), second (2nd), third (3rd) and fourth
     (4th) anniversary dates following the Third Expansion Premises Commencement
     Date, (i) no prior or current Event of Default has occurred, and no event
     or condition exists or has occurred which with the passage of time or
     delivery of notice by Landlord, or both, would constitute an Event of
     Default, and (ii) Tenant has delivered to Landlord, on or before such
     anniversary dates, audited financial statements prepared in accordance with
     generally accepted accounting principles consistently applied and certified
     by Tenant's chief financial officer as being complete and accurate which
     confirm that Tenant has achieved and sustained positive net earnings for
     each of the four consecutive calendar quarters immediately preceding each
     applicable anniversary date, the Face Amount of the L/C may be immediately
     reduced to (A) $77,080.10 on the first (1st) anniversary date of the Third
     Expansion Premises Commencement Date, (B) $57,810.06 on the second (2nd)
     anniversary date of the Third Expansion Premises Commencement Date, (C)
     $38,540.10 on the third (3rd) anniversary date of the Third Expansion
     Premises Commencement Date, and (D) $19,270.02 on the fourth (4th)
     anniversary date of the Third Expansion Premises Commencement Date, as
     applicable (the "L/C Burnoff").

12.  Broker.  Tenant warrants and represents to Landlord that in the negotiating
     -------
     or making of this Agreement neither Tenant nor anyone acting on Tenant's
     behalf has dealt with any broker or finder who might be entitled to a fee
     or commission for this Agreement. Tenant shall indemnify and hold Landlord
     harmless from any claim or claims, including costs, expenses and attorney's
     fees incurred by Landlord asserted by any broker or finder for a fee or
     commission based upon any dealings with or statements made by

                                       59
<PAGE>

     Tenant or Tenant's Representatives. Landlord agrees to indemnify and hold
     Tenant harmless from and against any claim by third parties claiming by,
     through, or under Landlord for commissions due or alleged to be due in
     connection with this Agreement.

13.  Ratification of Amended Lease.  The Amended Lease, as modified by this
     ------------------------------
     Agreement, remains in full force and effect, and Landlord and Tenant ratify
     the same. This Agreement shall be binding upon and inure to the benefit of
     the parties and their respective successors and assigns.

         If Tenant is a corporation or a partnership, each of the persons
     executing this Agreement on behalf of Tenant warrants and represents that
     Tenant is a duly authorized and existing entity that Tenant has full right
     and authority to enter into this Agreement and that the persons signing on
     behalf of Tenant are authorized to do so and have the power to bind Tenant
     to this Agreement. Tenant shall provide Landlord, upon request, with
     evidence reasonably satisfactory to Landlord confirming the foregoing
     representations.

         Except as herein amended, the Amended Lease remains unchanged and is in
     full force and effect in accordance with the terms and provisions contained
     therein.

         This Third Amendment is hereby executed and delivered in multiple
     counterparts, each of which shall have the force and effect of an original.

<TABLE>
<CAPTION>
LANDLORD:                                                    TENANT:
<S>                                                          <C>
PENINSULA OFFICE PARK ASSOCIATES, L.P.,                      BLUE MARTINI, INC.,
a California limited partnership                             a California corporation

By:  CORNERSTONE HOLDINGS, INC.,                             By: /s/ Monte Zweben
     a Delaware limited liability company,                      --------------------------
     general partner                                            Name: Monte Zweben
                                                                     ----------------------
                                                                Title: CEO
                                                                      ----------------------

     By: /s/ Robert Paratte                                  By:__________________________
        ------------------------------------                    Name:______________________
     Name: Robert Paratte                                       Title:______________________
          ----------------------------------
     Title: Authorized Signature
           ---------------------------------
</TABLE>

(For corporate entities, signature by TWO corporate officers is required:  one
by (x) the chairman of the board, the president, or any vice president; and the
other by (y) the secretary, any assistant secretary, the chief financial
officer, or any assistant treasurer.)

                                       60
<PAGE>

                                   EXHIBIT A
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                            THIRD AMENDMENT TO LEASE
                          DATED AS OF JANUARY 11, 2000
                                    BETWEEN
              PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                  BLUE MARTINI, INC., AS TENANT ("AGREEMENT")

                          THE THIRD EXPANSION PREMISES
                          ----------------------------

                          [Floor plan showing location
                 and configuration of Third Expansion Premises
                                to be inserted.]

                                                   INITIALS:

                                                   Landlord  AM
                                                             ------
                                                   Tenant    MZ
                                                             ------

                                       61
<PAGE>

                                   EXHIBIT B
                                   ---------

                       ATTACHED TO AND FORMING A PART OF
                            THIRD AMENDMENT TO LEASE
                          DATED AS OF JANUARY 11, 2000
                                    BETWEEN
              PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD,
                                      AND
                  BLUE MARTINI, INC., AS TENANT ("AGREEMENT")

                         APPROVED LETTER OF CREDIT FORM
                         ------------------------------

[Letterhead of Issuing Bank]
[must be a Bank whose location, credit and practices Landlord has approved]

RE:  IRREVOCABLE COMMERCIAL LETTER OF CREDIT NO. _________

TO:  [Name of project owner] ("Landlord"), ____________________________________
__________________ [Landlord's address]

Gentlemen:

We hereby issue our Irrevocable Commercial Letter of Credit in your favor, for
the account of _____________________________ [name of tenant and type of entity
(e.g. "ABC Corporation, a California corporation")] ("Tenant"), in the amount of
______________________________ Dollars ($__________).  This amount is available
to you on presentation of your sight draft drawn upon us referring to the above
letter of credit number, date and amount being drawn hereunder, accompanied by
the signed statement of you or your authorized agent, Cornerstone Properties
Limited Partnership dba Wilson Cornerstone Properties Limited Partnership, that
the amount drawn hereunder is being drawn pursuant to the terms of the
_______________ [title of lease document (e.g. Office Lease, Lease Agreement,
etc.)] dated as of __________, between Tenant, as tenant, and Landlord, as
landlord, for certain premises located at _______________

__________________________ (the "Lease").

Any draft presented for payment must be presented on or before ________________
[term should be at least one year], the date this Letter of Credit expires.
Partial drawings are permitted.

If you sell or otherwise transfer any interest in the "Building" (as defined in
the Lease) [be sure to use the defined terms used in the Lease (e.g. if the
building is called the "Property" in the Lease, then use that term here)], in
the land upon which the same is located, in the Lease, or in

                                       62
<PAGE>

Landlord (including consolidations, mergers or other entity changes), you shall
have the right to transfer this Letter of Credit to your transferee(s),
successors or assigns.

We hereby certify that this is an unconditional and irrevocable Letter of Credit
and agree that a draft drawn under and in compliance with the terms hereof will
be honored upon presentation at our office at _________________________________
[it must be a location easily accessible to us (e.g. no country banks located in
some tiny town in the Southeastern corner of Texas].

This Letter of Credit shall automatically be extended and renewed for successive
one year periods at the end of the stated expiration date and each anniversary
thereof unless we notify you in writing, no later than forty-five (45) days
prior to the then applicable expiration date, that we will not extend and renew
the Letter of Credit for another one year term.

Except to the extent inconsistent with the express provisions hereof, this
Letter of Credit is subject to and governed by Uniform Customs and Practice for
Documentary Credits (1993 Revision) International Chamber of Commerce
publication number 500.

                                             [Name of Bank]

                                             _________________________________
                                             Authorized Signature

                                                              INITIALS:
                                                              Landlord  AM
                                                                        ------
                                                              Tenant    MZ
                                                                        ------

                                       63<PAGE>

                                                                    Exhibit 10.5

                         AGREEMENT AND PLAN OF MERGER

     THIS AGREEMENT AND PLAN OF MERGER dated as of January 12, 1999 (this
"Agreement"), is entered into between BLUE MARTINI SOFTWARE, INC., a Delaware
corporation ("Blue Corp.") and BLUE MARTINI LLC, a Delaware limited liability
company ("Blue LLC") (Blue LLC and Blue Corp. are collectively referred to
herein as the "Constituent Entities").

                              W I T N E S S E T H

     WHEREAS, Blue LLC is a limited liability company duly organized and
existing under the laws of the State of Delaware;

     WHEREAS, Blue Corp. is a corporation duly organized and existing under the
laws of the State of Delaware;

     WHEREAS, the Board of Directors of Blue Corp. and the Managers of Blue LLC
deem it advisable and in the best interests of their respective entities and
stockholders or members, as applicable, that Blue LLC be merged with and into
Blue Corp. with Blue Corp. being the Surviving Entity (as defined below); and

     WHEREAS, it is intended that the Merger (as defined below) qualify as a
tax-free transaction within the meaning of Section 351 of the Internal Revenue
Code of 1986, as amended;

     NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants and subject to the conditions herein set forth, the Constituent
Entities agree as follows:

     1.   Merger.  At the Effective Time of the Merger (hereinafter defined),
Blue LLC shall be merged with and into Blue Corp. in a merger (the "Merger") to
be consummated pursuant to and on the terms and conditions set forth in this
Agreement and in accordance with the laws of the State of Delaware. Blue Corp.
shall be the surviving entity of the Merger (the "Surviving Entity"), and shall
continue its corporate existence as a corporation governed by the laws of the
State of Delaware under the name "Blue Martini Software, Inc." Its principal
office in the State of Delaware is located at 1209 Orange Street, Wilmington,
Delaware.

     2.   Effective Time of the Merger.  The time when the Merger shall become
effective (the "Effective Time of the Merger") shall be at the time and date
when a copy of a Certificate of Merger has been filed with the Secretary of
State of the State of Delaware pursuant to Section 264 of the Delaware General
Corporation Law (the "Delaware Act").

     3.   Certificate of Incorporation and Bylaws.  From and after the Effective
Time of the Merger, the Certificate of Incorporation and Bylaws of Blue Corp.,
as in effect immediately prior to the Effective Time of the Merger, shall be the
Certificate of Incorporation and Bylaws of the Surviving Entity, until changed
or amended as provided herein.

     4.   Directors and Officers.  From and after the Effective Time of the
Merger, the directors on the Board of Directors and officers of Blue Corp. as of
the Effective Time of the

                                       1
<PAGE>

Merger shall continue to serve as the directors on the Board of Directors and
officers of the Surviving Entity, each of whom shall hold office subject to the
provisions of the Delaware Act and the Certificate of Incorporation and Bylaws
of the Surviving Entity from and after the Effective Time of the Merger.

     5.   Treatment of Membership Interests of Blue LLC.  On or after the
Effective Date, each membership interest designated as a Class A Unit of Blue
LLC shall be exchanged for one (1) share of Series A Preferred Stock of Blue
Corp. and shall be so registered on the books and records of the Surviving
Entity or its transfer agents. On or after the Effective Date, each membership
interest designated as a Class B Unit of Blue LLC shall be exchanged for one (1)
share of Common Stock of Blue Corp. and shall be so registered on the books and
records of the Surviving Entity or its transfer agent.

     6.   Effects of the Merger.  At the Effective Time of the Merger:

               (i)    the Constituent Entities shall be merged into a single
entity, which shall be the Surviving Entity;

               (ii)   the separate existence of Blue LLC shall cease;

               (iii)  the Surviving Entity shall have all of the rights,
privileges, immunities and powers and shall be subject to all the duties and
liabilities of a corporation organized under the Delaware Act;

               (iv)   the Surviving Entity shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, of each of the Constituent Entities;

               (v)    all property, real, personal and mixed, and all debt due
on whatever account, if any, and all other choses in action, due to each of the
Constituent Entities, shall be taken and deemed to be transferred to and vested
in the Surviving Entity without further act or deed;

               (vi)   title to any real estate, or any interest therein vested
in any of the Constituent Entities shall not revert or be in any way impaired by
reason of the Merger;

               (vii)  the Surviving Entity shall be responsible and liable for
all of the liabilities and obligations of each of the Constituent Entities;

               (viii) any existing claim or pending action or proceeding by or
against any of the Constituent Entities may be prosecuted as if the merger had
not taken place or the Surviving Entity may be substituted in its place, and any
judgment rendered against any of the Constituent Entities may be enforced
against the Surviving Entity; and

               (ix)   neither the rights of creditors nor any liens upon any
property of any of the Constituent Entities shall be impaired by the Merger.

                                       2
<PAGE>

     7.   Termination.

          (a)  Circumstances of Termination.  This Agreement may be terminated
(notwithstanding approval by the members or stockholders of any party hereto):

               (i)  By the mutual consent in writing of the Managers or Board of
Directors of the Constituent Entities hereto prior to the Effective Time of the
Merger; or

               (ii) By the Board of Directors of any Constituent Entity if the
Effective Time of the Merger has not occurred by February 28, 1999.

          (b)  Effect of Termination.  In the event of a termination of this
Agreement pursuant to Section 7(a) hereof, each party shall pay the costs and
expenses incurred by it in connection with this Agreement and no party (or any
of its officers, directors and stockholders, managers or members) shall have any
further liability to any other party for any costs, expenses, damages or loss of
anticipated profits hereunder.

     8.   General Provisions.

          (a)  Further Assurances.  If at any time the Surviving Entity shall
consider or be advised that any further assignment or assurance in law or other
action is necessary or desirable to vest, perfect or confirm, of record or
otherwise, in the Surviving Entity the title to any property or rights of Blue
LLC acquired or to be acquired as a result of the Merger, the proper officers
and directors of Blue LLC and officers and directors of the Surviving Entity,
shall be and they hereby are, severally and fully authorized to execute and
deliver such deeds, assignments and assurances in law and to take such other
action as may be necessary or proper in the name of Blue LLC or the Surviving
Entity and otherwise to carry out the purpose of this Agreement.

          (b)  Notices.  All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person or sent
by prepaid first class registered or certified mail, return receipt requested at
the principal executive offices of such person.

          (c)  Entire Agreement.  This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other agreement,
representation or communication, whether oral or written, between the parties
hereto relating to the transactions contemplated herein or the subject matter
hereof.

          (d)  Headings.  The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

          (e)  Governing Law.  This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware.

          (f)  Assignment.  This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns; provided,
however, that any assignment

                                       3
<PAGE>

by any party of its rights under this Agreement without the written consent of
the other parties shall be void.

          (g)  Amendment.  This Agreement may not be amended except pursuant to
an instrument in writing signed on behalf of each of the parties hereto.

          (h)  Counterparts.  This Agreement may be executed simultaneously in
two or more counterparts each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

          (i)  Tax Consequences.  For federal income purposes, the Merger is
intended to constitute a transaction within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended.

                                       4
<PAGE>

     IN WITNESS WHEREOF, pursuant to authority duly given by their respective
Board of Directors, the Constituent Entities have caused this Agreement to be
signed in their respective corporate names by their respective corporate
officers, as of the date first above written.

                              BLUE MARTINI SOFTWARE, INC.,
                              a Delaware corporation

                              By:   /s/ Monte Zweben
                                    --------------------------------------
                                    Monte Zweben
                                    President

                              By:   /s/ Eric Jensen
                                 -----------------------------------------
                                    Eric Jensen
                                    Secretary

                              BLUE MARTINI LLC,
                              a Delaware limited liability company

                              By:   /s/ Monte Zweben
                                 -----------------------------------------
                                    Monte Zweben
                                    President

                              By:   /s/ Eric Jensen
                                 -----------------------------------------
                                    Eric Jensen
                                    Secretary

                                       5

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