<PAGE>   1
                                                                    EXHIBIT 10.7

COPY





                                      LEASE


                                 BY AND BETWEEN


                         SILICON VALLEY PROPERTIES, LLC,
                      a Delaware limited liability company
                                   as Landlord

                                       and

                                NEW FOCUS, INC.,
                            a California corporation
                                    as Tenant



                             For Premises located at

                   2580 Junction Avenue, San Jose, California




<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>

<S>                                                                    <C>
SUMMARY OF BASIC LEASE TERMS                                             1

ARTICLE 1 DEFINITIONS                                                    1

ARTICLE 2 DEMISE, CONSTRUCTION, AND ACCEPTANCE                           3

ARTICLE 3 RENT                                                           4

ARTICLE 4 USE OF PREMISES                                                5

ARTICLE 5 TRADE FIXTURES AND ALTERATIONS                                 7

ARTICLE 6 REPAIR AND MAINTENANCE                                         9

ARTICLE 7 WASTE DISPOSAL AND UTILITIES                                   10

ARTICLE 8 COMMON OPERATING EXPENSES                                      12

ARTICLE 9 INSURANCE                                                      14

ARTICLE 10 LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY              16

ARTICLE 11 DAMAGE TO PREMISES                                            17

ARTICLE 12 CONDEMNATION                                                  18

ARTICLE 13 DEFAULT AND REMEDIES                                          19

ARTICLE 14 ASSIGNMENT AND SUBLETTING                                     21

ARTICLE 15 GENERAL PROVISIONS                                            25
</TABLE>



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                          SUMMARY OF BASIC LEASE TERMS
<TABLE>
<CAPTION>
SECTION                                           TERMS                           (LEASE REFERENCE)
-------                                           -----                           -----------------

<S>                            <C>                                                <C>
    A.  Lease Reference Date:  December 23, 1999                                  (Introduction)

    B.  Landlord:              SILICON VALLEY PROPERTIES, LLC                     (Introduction)
                               a Delaware limited liability company

    C.  Tenant:                New Focus, Inc.                                    (Introduction)
                               a California corporation

    D.  Premises:              That area consisting of approximately              (section 1.20)
                               51,985 square feet of gross leasable area
                               the address of which is 2580 Junction Avenue,
                               San Jose, California, within the Building
                               as shown on Exhibit A.

    E.  Project:               The land and improvements shown on Exhibit A       (section 1.21)
                               consisting of multiple commercial buildings
                               the aggregate gross leasable area of which
                               is approximately 259,521 square feet.

    F.  Building:              The building in which the Premises are located     (section 1.7)
                               known as 2580 Junction Avenue, San Jose,
                               California containing approximately
                               51,985 square feet of gross leasable area.

    G.  Tenant's Share:        100% of the Building (i.e., 51,985/51,985)         (section 1.28)
                               20.03% of the Project (i.e., 51,985/259,521)

    H.  Tenant's Allocated     Tenant shall be entitled to use                    (section 4.5)
        Parking Stalls:        the parking available to the Building stalls.

    I.  Scheduled              March 15, 2000                                     (section 1.24)
        Commencement Date:

    J.  Lease Term:            Eighty-four (84) calendar months, plus if the      (section 1.18)
                               Commencement Date is other than the first day
                               of a calendar month, the first month shall
                               include the remainder of the calendar month in
                               which the Commencement Date occurs plus the first
                               full calendar month thereafter; provided,
                               however, that the inclusion of any partial month
                               in the first full calendar month shall not
                               entitle Tenant to any additional free rent.
                               Any free rent shall be applied on a daily basis
                               (based on a 30 day month) so that Tenant does
                               not receive additional free rent if the first
                               month includes a full calendar month plus any
                               partial month. Base Monthly Rent and Additional
                               Rent for any partial month shall be prorated on
                               a daily basis.

</TABLE>



                                        1

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<TABLE>
<CAPTION>

<S>                            <C>                                                <C>
    K.  Base Monthly Rent:     Months (following the Commencement Date)           (section 3.1)
                                                                                  Base Monthly Rent

                               1-3 (the "Free Rent Period")                       -0-
                               4-12                                               $94,342.38
                               13-24                                              $97,981.33
                               25-36                                              $101,765.84
                               37-48                                              $105,701.72
                               49-60                                              $109,795.05
                               61-72                                              $114,052.10
                               73-84                                              $118,479.44

                               During the Free Rent Period, no Base Monthly Rent
                               shall be due and payable, but all Additional
                               Rent, including, without limitation, "Tenant's
                               Share" of "Common Operating Expenses" (as such
                               terms are hereinafter defined) shall be due and
                               payable. If the Commencement Date is other than
                               the first day of a calendar month, then the Free
                               Rent Period shall be calculated on the basis of a
                               30 day month and applied on a daily basis.

    L.  Prepaid Rent:          $94,342.38, plus Tenant's Share of Common          (section 3.3)
                               Operating Expenses for one full month.

    M.  Security Deposit:      $1,184,794.40, which may in the form of a Letter   (section 3.5)
                               of Credit as as provided in Addendum No. 1
                               attached hereto.

    N.  Permitted Use:         General office, administration, research and       (section 4.1)
                               development and light manufacturing.

    O.  Permitted Tenant's     $25,000.00                                         (section 5.2)
        Alterations limit:

    P.  Tenant's Liability     $3,000,000.00                                      (section 9.1)
        Insurance Minimum:

    Q.  Landlord's Address:    c/o The Martin Group                               (section 1.3)
                               2290 North First Street, Suite 108
                               San Jose, California 95131
                               Attn: Property Manager

        With a copy to:        Divco West Group, LLC
                               150 Almaden Blvd., Suite 700
                               San Jose, CA 95113
                               Attn.: Asset Manager

    R.  Tenant's Address:                                                         (section 1.3)

        Before the
        Commencement Date:     2630 Walsh Avenue
                               Santa Clara, CA 95051
                               Attn.: David Shoquist

        From and after the
        Commencement Date:     at the Premises,
                               attn.: David Shoquist

    S.  Retained Real Estate   Wayne Mascia Associates representing Tenant and    (section 15.13)
        Brokers:               Colliers Parrish International, Inc. representing
                               Landlord.

    T.  Lease:                 This Lease includes the summary of the Basic       (section 1.17)
                               Lease Terms, the Lease, and the following
                               exhibits and addenda:
</TABLE>



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        Exhibit A - Project Site Plan and Outline of the Premises

        Exhibit B - Work Letter for Tenant Improvements

        Exhibit C - Acceptance Agreement

        Addendum No. 1

    The foregoing Summary is hereby incorporated into and made a part of this
Lease. Each reference in this Lease to any terms of the Summary shall mean the
respective information set forth above and shall be construed to incorporate all
of the terms provided under the particular paragraph pertaining to such
information. In the event of any conflict between the Summary and the Lease, the
Summary shall control.

LANDLORD:                                 TENANT:

SILICON VALLEY PROPERTIES, LLC,           By: NEW FOCUS, INC.
a Delaware limited liability company          a California corporation

By: Divco West Group, LLC,                By:
    a Delaware limited liability company     ----------------------------------
    Its Agent                             Name:
                                               --------------------------------
                                          Title:
                                                -------------------------------

By:                                       Dated: December __, 1999
   ----------------------------------
Name: Scott Smithers
Its:  President

Dated: December __, 1999



                                        3
<PAGE>   6

Project, including the parking areas, access and perimeter roads, pedestrian
sidewalks, landscaped areas, trash enclosures, recreation areas and the like.

      1.10  Common Operating Expenses: The term "Common Operating Expenses" is
defined in paragraph8.2.

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

      1.12  Event of Tenant's Default: The term "Event of Tenant's Default" is
defined in paragraph13.1.

      1.13  Hazardous Materials: The terms "Hazardous Materials" and "Hazardous
Materials Laws" are defined in paragraph 7.2E.

      1.14  Insured and Uninsured Peril: The terms "Insured Peril" and
"Uninsured Peril" are defined in paragraph 11.2E.

      1.15  Law: The term "Law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal, county, state, federal or other government
agency or authority having jurisdiction over the parties to this Lease or the
Premises, or both, in effect either at the Effective Date or any time during the
Lease Term, including, without limitation, any Hazardous Material Law (as
defined in paragraph7.2E) and the Americans with Disabilities Act, 42 U.S.C.
section 12101 et. seq. and any rules, regulations, restrictions, guidelines,
requirements or publications promulgated or published pursuant thereto.

      1.16  Lease: The term "Lease" shall mean the Summary and all elements of
this Lease identified in Section T of the Summary, all of which are attached
hereto and incorporated herein by this reference.

      1.17  Lease Term: The term "Lease Term" shall mean the term of this Lease
which shall commence on the Commencement Date and continue for the period
specified in Section J of the Summary.

      1.18  Lender: The term "Lender" shall mean any beneficiary, mortgagee,
secured party, lessor, or other holder of any Security Instrument.

      1.19  Permitted Use: The term "Permitted Use" shall mean the use specified
in Section N of the Summary.

      1.20  Premises: The term "Premises" shall mean that building area
described in Section D of the Summary that is within the Building.

      1.21  Project: The term "Project" shall mean that real property and the
improvements thereon which are specified in Section E of the Summary, the
aggregate gross leasable area of which is referred to herein as the "Project
Gross Leasable Area."

      1.22  Private Restriction: The term "Private Restrictions" shall mean all
recorded covenants, conditions and restrictions, private agreements, reciprocal
easement agreements, and any other recorded instruments affecting the use of the
Premises which (i) exist as of the Effective Date (and a copy of same have been
previously delivered to Tenant), or (ii) are recorded after the Effective Date
and are approved by Tenant.

      1.23  Real Property Taxes: The term "Real Property Taxes" is defined in
paragraph 8.3.

      1.24  Scheduled Commencement Date: The term "Scheduled Commencement Date"
shall mean the date specified in Section I of the Summary.

      1.25  Security Instrument: The term "Security Instrument" shall mean any
underlying lease, mortgage or deed of trust which now or hereafter affects the
Project, and any renewal, modification, consolidation, replacement or extension
thereof.



                                        2
<PAGE>   7

      1.26  Summary: The term "Summary" shall mean the Summary of Basic Lease
Terms executed by Landlord and Tenant that is part of this Lease.

      1.27  Tenant's Alterations: The term "Tenant's Alterations" shall mean all
improvements, additions, alterations, and fixtures installed in the Premises by
Tenant at its expense which are not Trade Fixtures.

      1.28  Tenant's Share: The term "Tenant's Share" shall mean the percentage
obtained by dividing Tenant's gross leasable area identified in Section D of the
Summary by the Building Gross Leasable Area, which as of the Effective Date is
the percentage identified in Section G of the Summary, and by the Project Gross
Leasable Area, which as of the Effective Date is the percentage identified in
Section G of the Summary.

      1.29  Trade Fixtures: The term "Trade Fixtures" shall mean (i) Tenant's
inventory, furniture, signs, and business equipment, and (ii) anything affixed
to the Premises by Tenant at its expense for purposes of trade, manufacture,
ornament or domestic use (except replacement of similar work or material
originally installed by Landlord) which can be removed without material injury
to the Premises unless such thing has, by the manner in which it is affixed,
become an integral part of the Premises.

                 ARTICLE 2 DEMISE, CONSTRUCTION, AND ACCEPTANCE

      2.1   Demise of Premises: Landlord hereby leases to Tenant, and Tenant
leases from Landlord, for the Lease Term upon the terms and conditions of this
Lease, the Premises for Tenant's own use in the conduct of Tenant's business
together with (i) the non-exclusive right to use the number of Tenant's
Allocated Parking Stalls within the Common Area (subject to the limitations set
forth in paragraph4.5), and (ii) the non-exclusive right to use the Common Area
for ingress to and egress from the Premises. Landlord reserves the use of the
exterior walls, the roof and the area beneath and above the Premises, together
with the right to install, maintain, use, and replace ducts, wires, conduits and
pipes leading through the Premises in locations which will not materially
interfere with Tenant's use of the Premises.

      2.2   Commencement Date: The Lease Term shall commence on the Commencement
Date as defined in paragraph 1.8 hereof.

      2.3   Construction of Improvements: Landlord shall construct certain
improvements that shall constitute or become part of the Premises if required
by, and then in accordance with, the terms of Exhibit B.

      2.4   Delivery and Acceptance of Possession: The Scheduled Commencement
Date is the date estimated by the parties that will be thirty (30) days after
the date Landlord obtains possession of the Premises from the existing tenant.
Since the Tenant Improvements may not be Substantially Completed by the
Scheduled Commencement Date, Tenant will not be able to use all of the Premises
while the Tenant Improvements are being constructed. Subject to the scope of the
Tenant Improvements contained in the Construction Plans (as defined in Exhibit B
attached hereto), the parties contemplate that Tenant will be able to occupy
approximately one-half of the Premises while Landlord's contractor is
constructing the Tenant Improvements in the remainder of the Premises. Tenant
agrees to cooperate with Landlord's contractor in connection with the
construction of the Tenant Improvements and not to interfere with the work of
the contractor, including any work that may have to be done in the area of the
Premises being occupied by Tenant. Tenant acknowledges and accepts the various
inconveniences that may be associated with the use of any portion of the
Premises and Common Areas during the construction of the Tenant Improvements,
such as construction obstacles, noise and debris, the passage of work crews,
uneven air conditioning service and other typical conditions incident to the
construction of improvements. Tenant agrees that such inconveniences and
annoyances shall not give Tenant any rights against Landlord. Tenant shall
accept possession and enter into good faith occupancy of the entire Premises and
commence the operation of its business therein within 30 days after the Tenant
Improvements have been Substantially Completed. Tenant acknowledges that it has
had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in its then existing condition, "as-is", including all patent defects, but
excluding all latent defects, which Landlord shall promptly repair after receipt
of written notice of such latent defect. Tenant agrees to provide notice



                                        3

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to Landlord of any latent defects promptly after Tenant discovers such latent
defect. Tenant's taking possession of any part of the Premises shall be deemed
to be an acceptance by Tenant of any work of improvement done by Landlord in
such part as complete and in accordance with the terms of this Lease except for
defects of which Tenant has given Landlord written notice prior to the time
Tenant takes possession. After the Commencement Date and Substantial Completion
of the Tenant Improvements, Landlord and Tenant shall together execute an
acceptance agreement in the form attached as Exhibit C, appropriately completed.
Tenant's obligation to pay Base Monthly Rent and Additional Rent in accordance
with this Lease shall not be excused or delayed because of Tenant's failure to
execute such acceptance agreement.

      2.5   Early Occupancy: Landlord agrees that Tenant may have early
occupancy of approximately one-half of the Premises in the area reasonably
approved by Landlord where the majority of the work for Tenant Improvements will
not be done to the extent such early occupancy is permitted under applicable
law. Such right to early occupancy shall commence on the day following the date
that Landlord obtains possession of the Premises from the existing tenant until
the Commencement Date (the "Early Occupancy Period") and Landlord agrees to
notify Tenant when such early occupancy is available. During the Early Occupancy
Period, Tenant may use such portion of the Premises it may occupy early to
install its Trade Fixtures and to extent permitted under applicable Law, for any
use permitted under this Lease; provided, however, that Tenant does not
interfere with the construction of the Tenant Improvements. During the Early
Occupancy Period, all of the terms and provisions of the Lease shall apply,
except the Lease Term shall not commence until the Commencement Date and Tenant
shall not be required to pay any Base Monthly Rent or Tenant's Share of Common
Operating Expenses; however, Tenant shall be obligated to pay for its utilities.

                                 ARTICLE 3 RENT

      3.1   Base Monthly Rent: Commencing on the Commencement Date (but subject
to the Free Rent Period) and continuing throughout the Lease Term, Tenant shall
pay to Landlord the Base Monthly Rent set forth in Section K of the Summary.

      3.2   Additional Rent: Commencing on the Commencement Date and continuing
throughout the Lease Term, Tenant shall pay the following as additional rent
(the "Additional Rent"): (i) any late charges or interest due Landlord pursuant
to paragraph3.4; (ii) Tenant's Share of Common Operating Expenses as provided in
paragraph8.1; (iii) Landlord's share of any Subrent received by Tenant upon
certain assignments and sublettings as required by paragraph14.1; (iv) any legal
fees and costs due Landlord pursuant to paragraph15.9; and (v) any other charges
due Landlord pursuant to this Lease.

      3.3   Payment of Rent: Concurrently with the execution of this Lease by
both parties, Tenant shall pay to Landlord the amount set forth in Section L of
the Summary as prepayment of rent for credit against the first installment(s) of
Base Monthly Rent. All rent required to be paid in monthly installments shall be
paid in advance ON the first day of each calendar month during the lease term.
if Section K of the Summary provides that the Base Monthly Rent is to be
increased during the Lease Term and if the date of such increase does not fall
on the first day of a calendar month, such increase shall become effective on
the first day of the next calendar month. All rent shall be paid in lawful money
of the United States, without any abatement, deduction or offset whatsoever
(except as specifically provided in paragraph11.4 and paragraph12.3), and
without any prior demand therefor. Rent shall be paid to Landlord at its address
set forth in Section Q of the Summary, or at such other place as Landlord may
designate from time to time. Tenant's obligation to pay Base Monthly Rent and
Tenant's Share of Common Operating Expenses shall be prorated at the
commencement and expiration of the Lease Term.

      3.4   Late Charge, Interest and Quarterly Payments:

            (a)   Late Charge. Tenant acknowledges that the late payment by
Tenant of any installment of rent, or any other sum of money required to be paid
by Tenant under this Lease, will cause Landlord to incur certain costs and
expenses not contemplated under this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs and expenses will
include, without limitation, attorneys' fees, administrative and collection
costs, and processing and accounting expenses and other costs and expenses
necessary and incidental thereto. If any Base Monthly Rent or Additional Rent is
not received by Landlord from Tenant when due such payment is due, then Tenant
shall immediately pay to Landlord a late charge equal to 10% of such delinquent
rent as



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liquidated damages for Tenant's failure to make timely payment; provided,
however, that Landlord agrees that Tenant shall not have to pay such late charge
if it makes its payment in full within five (5) days after receipt of written
notice from Landlord, except that this notice and cure period shall only be
applicable for the first two times Tenant fails to pay any Base Monthly Rent or
Additional Rent when due during each calendar year. If Landlord has provided two
notices of a late payment or default during a calendar year, Landlord shall not
be obligated to provide any notice thereafter for the remainder of such calendar
year and such late charge shall be due if payment is not made when due without
any grace period or notice. In no event shall this provision for a late charge
be deemed to grant to Tenant a grace period or extension of time within which to
pay any rent or prevent Landlord from exercising any right or remedy available
to Landlord upon Tenant's failure to pay any rent due under this Lease in a
timely fashion, including any right to terminate this Lease pursuant to
paragraph13.2B.

            (b)   Interest. If any rent remains delinquent for a period in
excess of five (5) days then, in addition to such late charge, Tenant shall pay
to Landlord interest on any rent that is not paid when due at the Agreed
Interest Rate following the date such amount became due until paid.

            (c)   Quarterly Payments. If Tenant during any six (6) month period
shall be more than five (5) days delinquent in the payment of any rent or other
amount payable by Tenant hereunder on three (3) or more occasions, then,
notwithstanding anything herein to the contrary, Landlord may, by written notice
to Tenant, elect to require Tenant to pay all Base Monthly Rent and Additional
Rent quarterly in advance. Such right shall be in addition to and not in lieu of
any other right or remedy available to Landlord hereunder or at law on account
of Tenant's default hereunder

      3.5   Security Deposit: On the Effective Date, Tenant shall deposit with
Landlord the amount set forth in Section M of the Summary as security for the
performance by Tenant of its obligations under this Lease, and not as prepayment
of rent (the "Security Deposit"). Landlord may from time to time apply such
portion of the Security Deposit as is reasonably necessary for the following
purposes: (i) to remedy any default by Tenant in the payment of rent; (ii) to
repair damage to the Premises caused by Tenant; (iii) to clean the Premises upon
termination of the Lease; and (iv) to remedy any other default of Tenant to the
extent permitted by Law and, in this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may be put contained in
California Civil Code Section 1950.7. In the event the Security Deposit or any
portion thereof is so used, Tenant agrees to pay to Landlord promptly upon
demand an amount in cash sufficient to restore the Security Deposit to the full
original amount. Landlord shall not be deemed a trustee of the Security Deposit,
may use the Security Deposit in business, and shall not be required to segregate
it from its general accounts. Tenant shall not be entitled to any interest on
the Security Deposit. If Landlord transfers the Premises during the Lease Term,
Landlord may pay the Security Deposit to any transferee of Landlord's interest
in conformity with the provisions of California Civil Code Section 1950.7 and/or
any successor statute, in which event the transferring Landlord will be released
from all liability for the return of the Security Deposit.

      3.6   Electronic Payment. If Tenant has failed to pay Base Monthly Rent or
Additional Rent three or more times as and when due, then Landlord shall have
the right, on not less than thirty (30) days prior written notice to Tenant (the
"Electronic Payment Notice"), to require Tenant to make subsequent payments of
Monthly Base Rent and Additional Rent due pursuant to the terms of this Lease by
means of a federal funds wire transfer or such other method of electronic funds
transfer as may be required by Landlord in its sole and absolute discretion (the
"Electronic Payment"). The Electronic Payment Notice shall set forth the proper
bank ABA number, account number and designation of the account to which such
Electronic Payment shall be made. Tenant shall promptly notify Landlord in
writing of any additional information that will be required to establish and
maintain Electronic Payment from Tenant's bank or financial institution.
Landlord shall have the right, after at least ten (10) days prior written notice
to Tenant, to change the name of the depository for receipt of any Electronic
Payment and to discontinue payment of any sum by Electronic Payment.

                            ARTICLE 4 USE OF PREMISES

      4.1   Limitation on Use: Tenant shall use the Premises solely for the
Permitted Use specified in Section N of the Summary. There shall not be any
change in use without the prior written consent of Landlord which will not be
unreasonably withheld. Tenant shall not do anything in or about the Premises
which will (i) cause structural



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injury to the Building, or (ii) cause damage to any part of the Building except
to the extent reasonably necessary for the installation of Tenant's Trade
Fixtures and Tenant's Alterations, and then only in a manner which has been
first approved by Landlord in writing. Tenant shall not operate any equipment
within the Premises which will (i) materially damage the Building or the Common
Area, (ii) overload existing electrical systems or other mechanical equipment
servicing the Building, (iii) impair the efficient operation of the sprinkler
system or the heating, ventilating or air conditioning ("HVAC") equipment within
or servicing the Building, or (iv) damage, overload or corrode the sanitary
sewer system. Tenant shall not attach, hang or suspend anything from the
ceiling, roof, walls or columns of the Building or set any load on the floor in
excess of the load limits for which such items are designed nor operate hard
wheel forklifts within the Premises. Any dust, fumes, or waste products
generated by Tenant's use of the Premises shall be contained and disposed so
that they do not (i) create an unreasonable fire or health hazard, (ii) damage
the Premises, or (iii) result in the violation of any Law. Except as approved by
Landlord, Tenant shall not change the exterior of the Building or install any
equipment or antennas on or make any penetrations of the exterior or roof of the
Building. Tenant shall not commit any waste in or about the Premises, and Tenant
shall keep the Premises in a neat, clean, attractive and orderly condition, free
of any nuisances. If Landlord designates a standard window covering for use
throughout the Building, Tenant shall use this standard window covering to cover
all windows in the Premises, except that Tenant shall not be obligated to change
its window coverings that Landlord previously approved unless Tenant elects to
change such window coverings in the future. Tenant shall not conduct on any
portion of the Premises or the Project any sale of any kind, including any
public or private auction, fire sale, going-out-of-business sale, distress sale
or other liquidation sale.

      4.2   Compliance with Regulations: Tenant shall not use the Premises in
any manner which violates any Laws or Private Restrictions which affect the
Premises. Tenant shall abide by and promptly observe and comply with all Laws
and Private Restrictions. Tenant shall not use the Premises in any manner which
will cause a cancellation of any insurance policy covering Tenant's Alterations
or any improvements installed by Landlord at its expense or which poses an
unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or
permit to be kept, used, or sold in or about the Premises any article which may
be prohibited by the standard form of fire insurance policy. Tenant shall comply
with all reasonable requirements of any insurance company, insurance
underwriter, or Board of Fire Underwriters which are necessary to maintain the
insurance coverage carried by either Landlord or Tenant pursuant to this Lease.
Tenant shall not be deemed in breach of this section for failure to comply with
an applicable Law if such non-compliance with such Law by Tenant is due to the
failure of Landlord to perform its obligations under this Lease.

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

      4.4   Signs: Tenant shall not place on any portion of the Premises any
sign, placard, lettering in or on windows, banner, displays or other advertising
or communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord. At its expense, Tenant may have
its name placed on the existing monument sign for the Building, provided the
design and location are approved by Landlord (which shall not be unreasonably
withheld) and it complies with all Laws. All such approved signs shall strictly
conform to all Laws, Private Restrictions, and Landlord's sign criteria then in
effect and shall be installed at the expense of Tenant. Tenant shall maintain
such signs in good condition and repair.

      4.5   Parking: Tenant is allocated and shall have the non-exclusive right
to use not more than the number of Tenant's Allocated Parking Stalls contained
within the Project described in Section H of the Summary for its use and the use
of Tenant's Agents, the location of which may be designated from time to time by
Landlord, but such designation shall be done in a non-discriminatory manner.
Tenant shall not at any time use more parking spaces than the number so
allocated to Tenant or park its vehicles or the vehicles of others in any
portion of the Project not designated by Landlord as a non-exclusive parking
area. Tenant shall not have the exclusive right to use any specific parking
space. If Landlord grants to any other tenant the exclusive right to use any
particular parking space(s), Tenant shall not use such spaces. Landlord reserves
the right, after having given Tenant reasonable notice, to have any vehicles
owned by Tenant or Tenant's Agents utilizing parking spaces in excess of the
parking spaces allowed for Tenant's use to be towed away at Tenant's cost. All
trucks and delivery vehicles shall be (i) parked at the rear of



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the Building, (ii) loaded and unloaded in a manner which does not interfere with
the businesses of other occupants of the Project, and (iii) permitted to remain
on the Project only so long as is reasonably necessary to complete loading and
unloading. In the event Landlord elects or is required by any Law to limit or
control parking in the Project, whether by validation of parking tickets or any
other method, Tenant agrees to participate in such validation program under such
reasonable rules and regulations as are from time to time established by
Landlord, provided that there is no material resultant cost, expense or material
inconvenience to Tenant. So long as Tenant is in occupancy at the Premises,
Landlord agrees that it will not provide exclusive parking rights in the area
immediately adjacent to the Premises to other parties (except as required by
applicable Law) in an unreasonable discriminatory manner that will materially
and adversely affect Tenant's parking rights under this section.

        4.6 Rules and Regulations: Landlord may from time to time promulgate
reasonable and nondiscriminatory rules and regulations applicable to all
occupants of the Project for the care and orderly management of the Project and
the safety of its tenants and invitees. Such rules and regulations shall be
binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees
to abide by such rules and regulations. If there is a conflict between the rules
and regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible for the violation by any
other tenant of the Project of any such rules and regulations. Landlord agrees
to enforce such rules and regulations in a non-discriminatory manner against all
similarly situated tenants.

                    ARTICLE 5 TRADE FIXTURES AND ALTERATIONS

        5.1 Trade Fixtures: Throughout the Lease Term, Tenant may provide and
install, and shall maintain in good condition, any Trade Fixtures required in
the conduct of its business in the Premises, except to the extent any Trade
Fixture will use, generate, store or dispose of any Hazardous Material in which
case the prior written consent of Landlord shall be required before such Trade
Fixture may be installed. All Trade Fixtures shall remain Tenant's property.

        5.2 Tenant's Alterations: Construction by Tenant of Tenant's Alterations
shall be governed by the following:

                A. Tenant shall not construct any Tenant's Alterations or
otherwise alter the Premises without Landlord's prior written approval. Tenant
shall be entitled, without Landlord's prior approval, to make Tenant's
Alterations (i) which do not affect the structural or exterior parts or water
tight character of the Building, and (ii) the reasonably estimated cost of
which, plus the original cost of any part of the Premises removed or materially
altered in connection with such Tenant's Alterations, together do not exceed the
Permitted Tenant Alterations Limit specified in Section O of the Summary per
work of improvement. In the event Landlord's approval for any Tenant's
Alterations is required, Tenant shall not construct the Leasehold Improvement
until Landlord has approved in writing the plans and specifications therefor,
and such Tenant's Alterations shall be constructed substantially in compliance
with such approved plans and specifications by a licensed contractor first
approved by Landlord. All Tenant's Alterations constructed by Tenant shall be
constructed by a licensed contractor in accordance with all Laws using new
materials of good quality. If Landlord has not responded to Tenant's request for
approval of any Tenant's Alterations within twenty (20) days after Landlord's
receipt of such written request together with all other information required
under this Lease, Tenant may provide a second written request and the failure of
Landlord to respond to such second request within ten (10) days after receipt of
same shall be deemed an approval of such proposed Tenant's Alteration.

                B. Tenant shall not commence construction of any Tenant's
Alterations until (i) all required governmental approvals and permits have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant has given Landlord at least five days' prior
written notice of its intention to commence such construction, and (iv) if
reasonably requested by Landlord, Tenant has obtained contingent liability and
broad form builders' risk insurance in an amount reasonably satisfactory to
Landlord if there are any perils relating to the proposed construction not
covered by insurance carried pursuant to Article 9.

                C. All Tenant's Alterations shall remain the property of Tenant
during the Lease Term but shall not be altered or removed from the Premises,
except as provided herein. At the expiration or sooner

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<PAGE>   12



termination of the Lease Term, all Tenant's Alterations shall be surrendered to
Landlord as part of the realty and shall then become Landlord's property, and
Landlord shall have no obligation to reimburse Tenant for all or any portion of
the value or cost thereof; provided, however, that if Landlord requires Tenant
to remove any Tenant's Alterations, Tenant shall so remove such Tenant's
Alterations prior to the expiration or sooner termination of the Lease Term.
Notwithstanding the foregoing, Tenant shall not be obligated to remove any
Tenant's Alterations with respect to which the following is true: (i) Tenant was
required, or elected, to obtain the approval of Landlord to the installation of
the Leasehold Improvement in question; (ii) at the time Tenant requested
Landlord's approval, Tenant requested of Landlord in writing that Landlord
inform Tenant of whether or not Landlord would require Tenant to remove such
Leasehold Improvement at the expiration of the Lease Term; and (iii) at the time
Landlord granted its approval, it did not inform Tenant that it would require
Tenant to remove such Leasehold Improvement at the expiration of the Lease Term.

        5.3 Alterations Required by Law: Tenant shall make any alteration,
addition or change of any sort to the Premises that is required by any Law
because of (i) Tenant's particular use or change of use of the Premises; (ii)
Tenant's application for any permit or governmental approval; or (iii) Tenant's
construction or installation of any Tenant's Alterations or Trade Fixtures. Any
other alteration, addition, or change required by Law which is not the
responsibility of Tenant pursuant to the foregoing shall be made by Landlord
(subject to Landlord's right to reimbursement from Tenant specified in
paragraph5.4).

        5.4 Amortization of Certain Capital Improvements: Tenant shall pay
Additional Rent in the event Landlord reasonably elects or is required to make
any of the following kinds of capital improvements to the Project: (i) capital
improvements required to be constructed in order to comply with any Law
(excluding any Hazardous Materials Law) not in effect or applicable to the
Project as of the Effective Date; (ii) modification of existing or construction
of additional capital improvements or building service equipment for the purpose
of reducing the consumption of utility services or Common Operating Expenses of
the Project, but only to the extent of the amount of any savings in Common
Operating Expenses; (iii) replacement of capital improvements or building
service equipment existing as of the Effective Date when required because of
normal wear and tear; and (iv) restoration of any part of the Building or Common
Areas of the Project that has been damaged by any peril to the extent the cost
thereof is not of a type covered by insurance proceeds actually recovered by
Landlord up to a maximum amount per occurrence of 10% of the then replacement
cost of the Project. The amount of Additional Rent Tenant is to pay with respect
to each such capital improvement shall be determined as follows:

                A. All costs paid by Landlord to construct such improvements
(including financing costs) shall be amortized over the useful life of such
improvement (as reasonably determined by Landlord in accordance with generally
accepted accounting principles) with interest on the unamortized balance at the
then prevailing market rate Landlord would pay if it borrowed funds to construct
such improvements from an institutional lender, and Landlord shall inform Tenant
of the monthly amortization payment required to so amortize such costs, and
shall also provide Tenant with the information upon which such determination is
made.

                B. As Additional Rent, Tenant shall pay at the same time the
Base Monthly Rent is due an amount equal to Tenant's Share of that portion of
such monthly amortization payment fairly allocable to the Building (as
reasonably determined by Landlord) for each month after such improvements are
completed until the first to occur of (i) the expiration of the Lease Term (as
it may be extended), or (ii) the end of the term over which such costs were
amortized.

        5.5 Mechanic's Liens: Tenant shall keep the Project free from any liens
and shall pay when due all bills arising out of any work performed, materials
furnished, or obligations incurred by Tenant or Tenant's Agents relating to the
Project. If any claim of lien is recorded (except those caused by Landlord or
Landlord's Agents), Tenant shall bond against or discharge the same within 10
days after the same has been recorded against the Project. Should any lien be
filed against the Project or any action be commenced affecting title to the
Project, the party receiving notice of such lien or action shall immediately
give the other party written notice thereof.

        5.6 Taxes on Tenant's Property: Tenant shall pay before delinquency any
and all taxes, assessments, license fees and public charges levied, assessed or
imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term. If
any tax or other charge

                                        8



<PAGE>   13



is assessed by any governmental agency because of the execution of this Lease,
such tax shall be paid by Tenant. On demand by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of these payments.

                        ARTICLE 6 REPAIR AND MAINTENANCE

        6.1 Tenant's Obligation to Maintain: Except as otherwise provided in
paragraph6.2, paragraph11.1, and paragraph12.3, Tenant shall be responsible for
the following during the Lease Term:

                A. Tenant shall clean and maintain in good order, condition, and
repair and replace when necessary the Premises and every part thereof, through
regular inspections and servicing, including, but not limited to: (i) all
plumbing and sewage facilities (including all sinks, toilets, faucets and
drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing
system; (ii) all fixtures, interior walls, floors, carpets and ceilings; (iii)
all windows, doors, entrances, plate glass, showcases and skylights (including
cleaning both interior and exterior surfaces); (iv) all electrical facilities
and all equipment (including all lighting fixtures, lamps, bulbs, tubes, fans,
vents, exhaust equipment and systems); and (v) any automatic fire extinguisher
equipment in the Premises.

                B. With respect to utility facilities serving the Premises
(including electrical wiring and conduits, gas lines, water pipes, and plumbing
and sewage fixtures and pipes), Tenant shall be responsible for the maintenance
and repair of any such facilities which serve only the Premises, including all
such facilities that are within the walls or floor, or on the roof of the
Premises, and any part of such facility that is not within the Premises, but
only up to the point where such facilities join a main or other junction (e.g.,
sewer main or electrical transformer) from which such utility services are
distributed to other parts of the Project as well as to the Premises. Tenant
shall replace any damaged or broken glass in the Premises (including all
interior and exterior doors and windows) with glass of the same kind, size and
quality. Tenant shall repair any damage to the Premises (including exterior
doors and windows) caused by vandalism or any unauthorized entry.

                C. Tenant shall (i) maintain, repair and replace when necessary
all HVAC equipment which services only the Premises, and shall keep the same in
good condition through regular inspection and servicing, and (ii) maintain
continuously throughout the Lease Term a service contract for the maintenance of
all such HVAC equipment with a licensed HVAC repair and maintenance contractor
approved by Landlord, which contract provides for the periodic inspection and
servicing of the HVAC equipment at least once every 60 days during the Lease
Term. Notwithstanding the foregoing, Landlord may elect at any time to assume
responsibility for the maintenance, repair and replacement of such HVAC
equipment which serves only the Premises. Tenant shall maintain continuously
throughout the Lease Term a service contract for the washing of all windows
(both interior and exterior surfaces) in the Premises with a contractor approved
by Landlord, which contract provides for the periodic washing of all such
windows at least once every 90 days during the Lease Term. Tenant shall furnish
Landlord with copies of all such service contracts, which shall provide that
they may not be canceled or changed without at least 30 days' prior written
notice to Landlord.

                D. All repairs and replacements required of Tenant shall be
promptly made with new materials of like kind and quality. If the work affects
the structural parts of the Building or if the estimated cost of any item of
repair or replacement is in excess of the Permitted Tenant's Alterations Limit,
then Tenant shall first obtain Landlord's written approval of the scope of the
work, plans therefor, materials to be used, and the contractor.

        6.2 Landlord's Obligation to Maintain: Landlord shall repair, maintain
and operate the Common Area and repair and maintain the roof, exterior and
structural parts of the building(s) located on the Project so that the same are
kept in good order and repair. If there is central HVAC or other building
service equipment and/or utility facilities serving portions of the Common Area
and/or both the Premises and other parts of the Building, Landlord shall
maintain and operate (and replace when necessary) such equipment. Landlord shall
not be responsible for repairs required by an accident, fire or other peril or
for damage caused to any part of the Project by any act or omission of Tenant or
Tenant's Agents except as otherwise required by Article 11. Landlord may engage
contractors of its choice to perform the obligations required of it by this
Article, and the necessity of any expenditure to perform such obligations shall
be at the sole discretion of Landlord.

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<PAGE>   14



        6.3 Control of Common Area: Landlord shall at all times have exclusive
control of the Common Area. Landlord shall have the right, without the same
constituting an actual or constructive eviction and without entitling Tenant to
any abatement of rent, to: (i) close any part of the Common Area to whatever
extent required in the opinion of Landlord's counsel to prevent a dedication
thereof or the accrual of any prescriptive rights therein; (ii) temporarily
close the Common Area to perform maintenance or for any other reason deemed
sufficient by Landlord; (iii) change the shape, size, location and extent of the
Common Area; (iv) eliminate from or add to the Project any land or improvement,
including multi-deck parking structures; (v) make changes to the Common Area
including, without limitation, changes in the location of driveways, entrances,
passageways, doors and doorways, elevators, stairs, restrooms, exits, parking
spaces, parking areas, sidewalks or the direction of the flow of traffic and the
site of the Common Area; (vi) remove unauthorized persons from the Project;
and/or (vii) change the name or address of the Building or Project. Tenant shall
keep the Common Area clear of all obstructions created or permitted by Tenant.
If in the opinion of Landlord unauthorized persons are using any of the Common
Area by reason of the presence of Tenant in the Building, Tenant, upon demand of
Landlord, shall restrain such unauthorized use by appropriate proceedings. In
exercising any such rights regarding the Common Area, (i) Landlord shall make a
reasonable effort to minimize any disruption to Tenant's business, and (ii)
Landlord shall not exercise its rights to control the Common Area in a manner
that would materially interfere with Tenant's use of the Premises without first
obtaining Tenant's consent. Landlord shall have no obligation to provide guard
services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for the
Project.

                     ARTICLE 7 WASTE DISPOSAL AND UTILITIES


        7.1 Waste Disposal: Tenant shall store its waste either inside the
Premises or within outside trash enclosures that are fully fenced and screened
in compliance with all Private Restrictions, and designed for such purpose. All
entrances to such outside trash enclosures shall be kept closed, and waste shall
be stored in such manner as not to be visible from the exterior of such outside
enclosures. Tenant shall cause all of its waste to be regularly removed from the
Premises at Tenant's sole cost. Tenant shall keep all fire corridors and
mechanical equipment rooms in the Premises free and clear of all obstructions at
all times.

        7.2 Hazardous Materials: Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials on the Project:

                A. Any handling, transportation, storage, treatment, disposal or
use of Hazardous Materials by Tenant and Tenant's Agents after the Effective
Date in or about the Project shall strictly comply with all applicable Hazardous
Materials Laws. Tenant shall indemnify, defend upon demand with counsel
reasonably acceptable to Landlord, and hold harmless Landlord from and against
any liabilities, losses, claims, damages, lost profits, consequential damages,
interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees,
court costs, remediation costs, investigation costs, and other expenses which
result from or arise in any manner whatsoever out of the use, storage,
treatment, transportation, release, or disposal of Hazardous Materials on or
about the Project by Tenant or Tenant's Agents after the Effective Date.

                B. If the presence of Hazardous Materials on the Project caused
or permitted by Tenant or Tenant's Agents after the Effective Date results in
contamination or deterioration of water or soil resulting in a level of
contamination greater than the levels established as acceptable by any
governmental agency having jurisdiction over such contamination, then Tenant
shall promptly take any and all action necessary to investigate and remediate
such contamination if required by Law or as a condition to the issuance or
continuing effectiveness of any governmental approval which relates to the use
of the Project or any part thereof. Tenant shall further be solely responsible
for, and shall defend, indemnify and hold Landlord and its agents harmless from
and against, all claims, costs and liabilities, including attorneys' fees and
costs, arising out of or in connection with any investigation and remediation
required hereunder to return the Project to its condition existing prior to the
appearance of such Hazardous Materials. Landlord acknowledges and agrees that
Tenant shall not be responsible for any contamination of the Project by
Hazardous Materials by any third party other than Tenant's Agents. Landlord
agrees that it shall not deposit, dispose, generate or use any Hazardous
Materials in the Project in violation of the applicable

                                       10


<PAGE>   15



Environmental Laws and that is shall otherwise comply with all Hazardous
Material Laws at the Project to the extent required under applicable Law.

                C. Landlord and Tenant shall each give written notice to the
other as soon as reasonably practicable of (i) any communication received from
any governmental authority concerning Hazardous Materials which relates to the
Project, and (ii) any contamination of the Project by Hazardous Materials which
constitutes a violation of any Hazardous Materials Law. Tenant may use small
quantities of household or office chemicals such as adhesives, lubricants, and
cleaning fluids in order to conduct its business at the Premises and such other
Hazardous Materials as are necessary for the operation of Tenant's business of
which Landlord receives notice prior to such Hazardous Materials being brought
onto the Premises and which Landlord consents in writing may be brought onto the
Premises. At any time during the Lease Term, Tenant shall, within five days
after written request therefor received from Landlord, disclose in writing all
Hazardous Materials that are being used by Tenant on the Project, the nature of
such use, and the manner of storage and disposal.

                D. Landlord may cause testing wells to be installed on the
Project, and may cause the ground water to be tested to detect the presence of
Hazardous Material by the use of such tests as are then customarily used for
such purposes. If Tenant so requests, Landlord shall supply Tenant with copies
of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Tenant if
such tests disclose the existence of facts which give rise to liability of
Tenant pursuant to its indemnity given in paragraph7.2A and/or paragraph7.2B.

                E. As used herein, the term "Hazardous Material," means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material," includes, without limitation,
petroleum products, asbestos, PCB's, and any material or substance which is (i)
listed under Article 9 or defined as hazardous or extremely hazardous pursuant
to Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (ii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42
U.S.C. 6903), or (iii) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response; Compensation and Liability Act,
42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term "Hazardous
Material Law" shall mean any statute, law, ordinance, or regulation of any
governmental body or agency (including the U.S. Environmental Protection Agency,
the California Regional Water Quality Control Board, and the California
Department of Health Services) which regulates the use, storage, release or
disposal of any Hazardous Material.

                F. The obligations of Landlord and Tenant under this
paragraph7.2 shall survive the expiration or earlier termination of the Lease
Term. The rights and obligations of Landlord and Tenant with respect to issues
relating to Hazardous Materials are exclusively established by this
paragraph7.2. In the event of any inconsistency between any other part of this
Lease and this paragraph7.2, the terms of this paragraph7.2 shall control.

        7.3 Utilities: Tenant shall promptly pay, as the same become due, all
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other utilities, materials or services furnished directly to or used by
Tenant on or about the Premises during the Lease Term, including, without
limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, and water service available to the Premises as of the
Commencement Date), and (ii) penalties for discontinued or interrupted service.
If any utility service is not separately metered to the Premises, then Tenant
shall pay its pro rata share of the cost of such utility service with all others
served by the service not separately metered. However, if Landlord determines
that Tenant is using a disproportionate amount of any utility service not
separately metered, then Landlord at its election may (i) periodically charge
Tenant, as Additional Rent, a sum equal to Landlord's reasonable estimate of the
cost of Tenant's excess use of such utility service, or (ii) install a separate
meter (at Tenant's expense) to measure the utility service supplied to the
Premises.

        7.4 Compliance with Governmental Regulations: Landlord and Tenant shall
comply with all rules, regulations and requirements promulgated by national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing, limitation or other control. Tenant
shall not be entitled to terminate this Lease nor to any abatement in rent by
reason of such compliance.

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<PAGE>   16



                       ARTICLE 8 COMMON OPERATING EXPENSES

        8.1 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall
pay Tenant's Share (specified in Section G of the Summary) of all Common
Operating Expenses; provided, however, if the Project contains more than one
building, then Tenant shall pay Tenant's Share of all Common Operating Expenses
fairly allocable to the Building, including (i) all Common Operating Expenses
paid with respect to the maintenance, repair, replacement and use of the
Building, and (ii) a proportionate share (based on the Building Gross Leasable
Area as a percentage of the Project Gross Leasable Area) of all Common Operating
Expenses which relate to the Project in general are not fairly allocable to any
one building that is part of the Project. Tenant shall pay such share of the
actual Common Operating Expenses incurred or paid by Landlord but not
theretofore billed to Tenant within 10 days after receipt of a written bill
therefor from Landlord, on such periodic basis as Landlord shall designate, but
in no event more frequently than once a month. Alternatively, Landlord may from
time to time require that Tenant pay Tenant's Share of Common Operating Expenses
in advance in estimated monthly installments, in accordance with the following:
(I) Landlord shall deliver to Tenant Landlord's reasonable estimate of the
Common Operating expenses it anticipates will be paid or incurred for the
Landlord's fiscal year in question; (ii) during such Landlord's fiscal year
Tenant shall pay such share of the estimated Common Operating Expenses in
advance in monthly installments as required by Landlord due with the
installments of Base Monthly Rent; and (iii) within 90 days after the end of
each Landlord's fiscal year, Landlord shall furnish to Tenant a statement in
reasonable detail of the actual Common Operating Expenses paid or incurred by
Landlord during the just ended Landlord's fiscal year and thereupon there shall
be an adjustment between Landlord and Tenant, with payment to Landlord or credit
by Landlord against the next installment of Base Monthly Rent, as the case may
require, within 10 days after delivery by Landlord to Tenant of said statement,
so that Landlord shall receive the entire amount of Tenant's Share of all Common
Operating Expenses for such Landlord's fiscal year and no more. Tenant shall
have the right at its expense, exercisable upon reasonable prior written notice
to Landlord, to inspect at Landlord's office during normal business hours
Landlord's books and records as they relate to Common Operating Expenses. Such
inspection must be within 30 days of Tenant's receipt of Landlord's annual
statement for the same, and shall be limited to verification of the charges
contained in such statement. Tenant may not withhold payment of such bill
pending completion of such inspection.

                Since the Project consists of multiple buildings, certain Common
Operating Expenses may pertain to a particular building and other Common
Operating Expenses to the Project as a whole (such as Common Operating Expenses
for the Common Areas of the Project). Common Operating Expenses applicable to
any particular building within the Project shall be allocated to the building in
question whose tenants shall be responsible for payment of their respective
proportionate shares in the pertinent building and other Common Operating
Expenses applicable to the Project (such as the Common Areas of the Project)
shall be charged to each building in the Project (including the Building) with
the tenants in each such building being responsible for paying their respective
proportionate shares in such building of such costs to the extent required under
the applicable leases. Landlord shall in good faith attempt to allocate such
Common Operating Expenses to the buildings (including the Building) and such
allocation shall be binding on Tenant.

        8.2 Common Operating Expenses Defined: The term "Common Operating
Expenses" shall mean the following:

                A. All costs and expenses paid or incurred by Landlord in doing
the following (including payments to independent contractors providing services
related to the performance of the following): (i) maintaining, cleaning and
repairing the roof (including repair of leaks) and the exterior surfaces
(including painting) of all buildings located on the Project; (ii) maintenance
of the liability, fire, property damage, earthquake and other insurance covering
the Project carried by Landlord pursuant to paragraph9.2 (including the
prepayment of premiums for coverage of up to one year); (iii) maintaining,
repairing and operating the HVAC equipment, utility facilities and other
building service equipment; (iv) providing utilities to the Common Area
(including lighting, trash removal and water for landscaping irrigation); (v)
complying with all applicable Laws and Private Restrictions; (vi) operating,
maintaining, repairing, cleaning, painting and restriping the Common Area; (vii)
replacement or installation of lighting fixtures, directional or other signs and
signals, irrigation systems, trees, shrubs, ground cover and other plant
materials, and all landscaping in the Common Area; and (viii) providing security
(provided, however, that Landlord shall not be obligated to provide security and
if it does, Landlord may discontinue such service at any time and in

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<PAGE>   17



any event Landlord shall not be responsible for any act or omission of any
security personnel); and (ix) replacing the roof, replacing the HVAC system, and
resurfacing of the parking and sidewalk areas in the Common Area (as opposed to
re-sealing which shall be treated as an expense and included in Common Operating
Expenses), the cost of which shall be amortized over the useful life of the
improvement together with interest as provided in 5.4 hereof; and (x) other
capital improvements as provided in paragraph5.4 hereof;

                B. The following costs: (i) Real Property Taxes as defined in
paragraph8.3; (ii) the amount of any commercially reasonable "deductible" paid
by Landlord with respect to damage caused by any Insured Peril; (iii) the cost
to repair damage caused by an Uninsured Peril up to a maximum amount in any 12
month period equal to 2% of the replacement cost of the buildings or other
improvements damaged; and (iv) that portion of all compensation (including
benefits and premiums for workers' compensation and other insurance) paid to or
on behalf of employees of Landlord or its property manager at or below the grade
of general or property manager but only to the extent they are involved in the
performance of the work described by paragraph8.2A that is fairly allocable to
the Project;

                C. Fees for management services rendered by either Landlord or a
third party manager engaged by Landlord (which may be a party affiliated with
Landlord), except that the total amount charged for management services and
included in Tenant's Share of Common Operating Expenses shall not exceed the
monthly rate of 5% of the Base Monthly Rent.

                D. All additional costs and expenses incurred by Landlord with
respect to the operation, protection, maintenance, repair and replacement of the
Project which would be considered a current expense (and not a capital
expenditure) pursuant to generally accepted accounting principles.

                E. Common Operating Expenses shall not include any of the
following:

                        (1) payments on any loans or ground leases affecting the
Project;

                        (2) depreciation of any buildings within the Project;

                        (3) the cost of tenant improvements installed for the
exclusive use of other tenants of the Project;

                        (4) Repairs or other work occasioned by any casualty of
the type to the extent for which insurance is maintained by Landlord (or
required under this Lease to be maintained by Landlord), and for which insurance
recovery is obtained by Landlord, to the extent of the amount of the insurance
recovery with Landlord agreeing to use its commercially reasonable efforts to
obtain such recovery;

                        (5) Repairs or other work occasioned by the exercise of
the right of eminent domain;

                        (6) Marketing costs, leasing commissions, finder's fees,
attorney fees, costs and disbursements and other expenses incurred in connection
with negotiations with prospective tenants or for the sale or refinancing of the
Building or the Project, or legal fees incurred in connection with this Lease;

                        (7) Costs incurred due to violation by Landlord of this
Lease;

                        (8) 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 Building, 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;

                        (10) Any costs, fines or penalties incurred due to
violation by Landlord of any governmental rule or authority;

                        (11) Charitable or political contributions;

                                       13



<PAGE>   18



                        (12) Costs associated with the operation of the business
of the entity which constitutes Landlord, as the same are distinguished from the
costs of operation of the Building or the Project, including, without
limitation, accounting (other than for an audit) and legal matters, costs of
defending any lawsuits with any mortgage, costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest in the
Building or the Project and costs of any disputes between Landlord and its
employees;

                        (13) Costs for special services provide to other tenants
of the Project and not provided, available or offered to Tenant; and

                        (14) Costs to remediate any Hazardous Materials at the
Project.

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

                               ARTICLE 9 INSURANCE

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

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

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

                        (2) Fire and property damage insurance in so-called "all
risk" form insuring Tenant's Trade Fixtures and Tenant's Alterations for the
full actual replacement cost thereof;

                        (3) Business interruption insurance with limits of
liability representing at least approximately six months of income, business
auto liability covering owned, non-owned and hired vehicles with a limit of not
less than $1,000,000 per accident, insurance protecting against liability under
workers' compensation laws with limits at least as required by statute,
insurance for all plate glass in the Premises, and such other insurance

                                       14
<PAGE>   19



that is either (i) required by any Lender, or (ii) reasonably required by
Landlord and customarily carried by tenants of similar property in similar
businesses.

                B. Where applicable and required by Landlord, each policy of
insurance required to be carried by Tenant pursuant to this paragraph9.1: (i)
shall name Landlord and such other parties in interest as Landlord reasonably
designates as additional insured; (ii) shall be primary insurance which provides
that the insurer shall be liable for the full amount of the loss up to and
including the total amount of liability set forth in the declarations without
the right of contribution from any other insurance coverage of Landlord; (iii)
shall be in a form satisfactory to Landlord; (iv) shall be carried with
companies reasonably acceptable to Landlord; (v) shall provide that such policy
shall not be subject to cancellation, lapse or change except after at least 30
days prior written notice to Landlord so long as such provision of 30 days
notice is reasonably obtainable, but in any event not less than 10 days prior
written notice; (vi) shall not have a "deductible" in excess of such amount as
is approved by Landlord; (vii) shall contain a cross liability endorsement; and
(viii) shall contain a "severability" clause. If Tenant has in full force and
effect a blanket policy of liability insurance with the same coverage for the
Premises as described above, as well as other coverage of other premises and
properties of Tenant, or in which Tenant has some interest, such blanket
insurance shall satisfy the requirements of this paragraph9.1.

                C. A copy of each paid-up policy evidencing the insurance
required to be carried by Tenant pursuant to this paragraph9.1 (appropriately
authenticated by the insurer) or a certificate of the insurer, certifying that
such policy has been issued, providing the coverage required by this
paragraph9.1, and containing the provisions specified herein, shall be delivered
to Landlord prior to the time Tenant or any of its Agents enters the Premises
and upon renewal of such policies, but not less than 5 days prior to the
expiration of the term of such coverage. Landlord may, at any time, and from
time to time, inspect and/or copy any and all insurance policies required to be
procured by Tenant pursuant to this paragraph9.1. If any Lender or insurance
advisor reasonably determines at any time that the amount of coverage required
for any policy of insurance Tenant is to obtain pursuant to this paragraph9.1 is
not adequate, then Tenant shall increase such coverage for such insurance to
such amount as such Lender or insurance advisor reasonably deems adequate, not
to exceed the level of coverage for such insurance commonly carried by
comparable businesses similarly situated.

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

                A. Landlord shall maintain a policy or policies of fire and
property damage insurance in so-called "all risk" form insuring Landlord (and
such others as Landlord may designate) against loss of rents for a period of not
less than 12 months and from physical damage to the Project with coverage of not
less than the full replacement cost thereof. Landlord may so insure the Project
separately, or may insure the Project with other property owned by Landlord
which Landlord elects to insure together under the same policy or policies.
Landlord shall have the right, but not the obligation, in its sole and absolute
discretion, to obtain insurance for such additional perils as Landlord deems
appropriate, including, without limitation, coverage for damage by earthquake
and/or flood. All such coverage shall contain "deductibles" which Landlord deems
appropriate, which in the case of earthquake and flood insurance, may be up to
10% of the replacement value of the property insured or such higher amount as is
then commercially reasonable. Landlord shall not be required to cause such
insurance to cover any Trade Fixtures or Tenant's Alterations of Tenant.

                B. Landlord may maintain a policy or policies of commercial
general liability insurance insuring Landlord (and such others as are designated
by Landlord) against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from an occurrence in, on or about the
Project, with combined single limit coverage in such amount as Landlord from
time to time determines is reasonably necessary for its protection.

                C. Tenant's Obligation to Reimburse: If Landlord's insurance
rates for the Building are increased at any time during the Lease Term as a
result of the nature of Tenant's use of the Premises, Tenant shall reimburse
Landlord for the full amount of such increase immediately upon receipt of a bill
from Landlord therefor.

                                       15


<PAGE>   20

        9.3 Release and Waiver of Subrogation: The parties hereto release each
other, and their respective agents and employees, from any liability for injury
to any person or damage to property that is caused by or results from any risk
insured against under any valid and collectible insurance policy carried or
required to be carried by either of the parties which contains or could have
contained if requested by the party that obtained such insurance a waiver of
subrogation by the insurer and is in force at the time of such injury or damage;
subject to the following limitations: (i) the foregoing provision shall not
apply to the commercial general liability insurance described by subparagraphs
paragraph9.1A and paragraph9.2B; (ii) such release shall apply to liability
resulting from any risk insured against or covered by self-insurance maintained
or provided by Tenant to satisfy the requirements of paragraph9.1 to the extent
permitted by this Lease; and (iii) Tenant shall not be released from any such
liability to the extent any damages resulting from such injury or damage are not
covered by the recovery obtained by Landlord from such insurance, but only if
the insurance in question permits such partial release in connection with
obtaining a waiver of subrogation from the insurer. This release shall be in
effect only so long as the applicable insurance policy contains a clause to the
effect that this release shall not affect the right of the insured to recover
under such policy. Each party shall use reasonable efforts to cause each
insurance policy obtained by it to provide that the insurer waives all right of
recovery by way of subrogation against the other party and its agents and
employees in connection with any injury or damage covered by such policy.
However, if any insurance policy cannot be obtained with such a waiver of
subrogation, or if such waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is to be obtained does not pay
such additional cost, then the party obtaining such insurance shall notify the
other party of that fact and thereupon shall be relieved of the obligation to
obtain such waiver of subrogation rights from the insurer with respect to the
particular insurance involved.

           ARTICLE 10 LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY


        10.1 Limitation on Landlord's Liability: Landlord shall not be liable to
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent (except as expressly provided otherwise herein), for any injury to
Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents,
or loss to Tenant's business resulting from any: (i) failure, interruption or
installation of any HVAC or other utility system or service; (ii) failure to
furnish or delay in furnishing any utilities or services when such failure or
delay is caused by fire or other peril, the elements, labor disturbances of any
character, or any other accidents or other conditions beyond the reasonable
control of Landlord; (iii) limitation, curtailment, rationing or restriction on
the use of water or electricity, gas or any other form of energy or any services
or utility serving the Project; (iv) vandalism or forcible entry by unauthorized
persons or the criminal act of any person; or (v) penetration of water into or
onto any portion of the Premises or the Building through roof leaks or
otherwise.

        10.2 Limitation on Tenant's Recourse: If Landlord is a corporation,
trust, partnership, joint venture, unincorporated association or other form of
business entity: (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives of such
business entity; and (ii) Tenant shall not have recourse to the assets of such
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, principals or representatives except to the extent of their
interest in the Project. Tenant shall have recourse only to the interest of
Landlord in the Project for the satisfaction of the obligations of Landlord and
shall not have recourse to any other assets of Landlord for the satisfaction of
such obligations.

        10.3 Indemnification of Landlord: Tenant shall hold harmless, indemnify
and defend Landlord, and its employees, agents and contractors, with competent
counsel reasonably satisfactory to Landlord (and Landlord agrees to accept
counsel that any insurer requires be used), from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage resulting from (i) any cause or causes whatsoever (other than the willful
misconduct or gross negligence of Landlord of which Landlord has had notice and
a reasonable time to cure, but which Landlord has failed to cure) occurring in
or about or resulting from an occurrence in or about the Premises during the
Lease Term, (ii) the negligence or willful misconduct of Tenant or its agents,
employees and contractors, wherever the same may occur, or (iii) an Event of
Tenant's Default. Landlord shall hold harmless, indemnify and defend Tenant from
all liability, penalties, losses, damages, costs, expenses, causes of action,
claims and/or judgments arising by reason of any death, bodily injury, personal
injury or property damage resulting from the active negligence or willful
misconduct of

                                       16



<PAGE>   21



Landlord in the Common Areas. The provisions of this paragraph10.3 shall survive
the expiration or sooner termination of this Lease.

                          ARTICLE 11 DAMAGE TO PREMISES


        11.1 Landlord's Duty to Restore: If the Premises are damaged by any
peril after the Effective Date, Landlord shall restore the Premises unless the
Lease is terminated by Landlord pursuant to paragraph11.2 or by Tenant pursuant
to paragraph11.3. All insurance proceeds available from the fire and property
damage insurance carried by Landlord pursuant to paragraph9.2 shall be paid to
and become the property of Landlord. If this Lease is terminated pursuant to
either paragraph11.2 or paragraph11.3, then all insurance proceeds available
from insurance carried by Tenant which covers loss to property that is
Landlord's property or would become Landlord's property on termination of this
Lease shall be paid to and become the property of Landlord. If this Lease is not
so terminated, then upon receipt of the insurance proceeds (if the loss is
covered by insurance) and the issuance of all necessary governmental permits,
Landlord shall commence and diligently prosecute to completion the restoration
of the Premises, to the extent then allowed by Law, to substantially the same
condition in which the Premises were immediately prior to such damage; provided,
however, that Landlord's restoration obligation is limited to the extent of the
applicable insurance proceeds it receives. Landlord's obligation to restore
shall be limited to the Premises and interior improvements constructed by
Landlord as they existed as of the Commencement Date, excluding any Tenant's
Alterations, Trade Fixtures and/or personal property constructed or installed by
Tenant in the Premises. Tenant shall forthwith replace or fully repair all
Tenant's Alterations and Trade Fixtures installed by Tenant and existing at the
time of such damage or destruction.

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

                A. The Premises are damaged by any peril and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration of
the Premises cannot be substantially completed within 270 days after the date of
such damage; or

                B. The Building is damaged by an Uninsured Peril to such an
extent that the estimated cost to restore exceeds 2% of the then actual
replacement cost thereof; provided, however, that Landlord may not terminate
this Lease pursuant to this paragraph11.2B if one or more tenants of the Project
agree in writing to pay the amount by which the cost to restore the damage
exceeds such amount and subsequently deposit such amount with Landlord within 30
days after Landlord has notified Tenant of its election to terminate this Lease;

                C. The Premises are damaged by any peril within 12 months of the
last day of the Lease Term to such an extent that the estimated cost to restore
equals or exceeds an amount equal to six times the Base Monthly Rent then due;
provided, however, that Landlord may not terminate this Lease pursuant to this
paragraph11.2C if Tenant, at the time of such damage, has a then valid express
written option to extend the Lease Term and Tenant exercises such option to
extend the Lease Term within 15 days following the date of such damage; or

                D. Either the Project or the Building is damaged by any peril
and, because of the Laws then in force, (i) cannot be restored at reasonable
cost to substantially the same condition in which it was prior to such damage,
or (ii) cannot be used for the same use being made thereof before such damage if
restored as required by this Article.

                E. As used herein, the following terms shall have the following
meanings: (i) the term "Insured Peril" shall mean a peril actually insured
against (or required to be insured by Landlord under this Lease) for which the
insurance proceeds actually received by Landlord are sufficient (except for any
"deductible" amount specified by such insurance) to restore the Project under
then existing building codes to the condition existing immediately prior to the
damage and Landlord agrees to use its commercially reasonable efforts to collect
such insurance proceeds (which efforts shall not be deemed to include the
commencement of any litigation or arbitration or other action or proceeding
against the insurance carrier or any lender); and (ii) the term "Uninsured
Peril" shall mean any peril which is not an Insured Peril. Notwithstanding the
foregoing, if the "deductible" for earthquake or

                                       17



<PAGE>   22



flood insurance exceeds 2% of the replacement cost of the improvements insured,
such peril shall be deemed an "Uninsured Peril".

        11.3 Tenant's Right to Terminate: If the Premises are damaged by any
peril andLandlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to paragraph11.2, then as soon as reasonably
practicable, but in no event later than 45 days after the date of the damage,
Landlord shall furnish Tenant with the written opinion of Landlord's architect
or construction consultant as to when the restoration work required of Landlord
may be completed. Tenant shall have the right to terminate this Lease in the
event any of the following occurs, which right may be exercised only by delivery
to Landlord of a written notice of election to terminate within 10 business days
after Tenant receives from Landlord the estimate of the time needed to complete
such restoration.

                A. The Premises are damaged by any peril and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration of
the Premises cannot be substantially completed within 270 days after the date of
such damage; or

                B. The Premises are damaged by any peril within 12 months of the
last day of the Lease Term and, in the reasonable opinion of Landlord's
architect or construction consultant, the restoration of the Premises cannot be
substantially completed within 90 days after the date of such damage and such
damage renders unusable more than 30% of the Premises.

        11.4 Abatement of Rent: In the event of damage to the Premises which
does not result in the termination of this Lease, the Base Monthly Rent and the
Additional Rent shall be temporarily abated during the period of restoration in
proportion to the degree to which Tenant's use of the Premises is impaired by
such damage. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of Tenant's business or property or for any inconvenience or
annoyance caused by such damage or restoration. Tenant hereby waives the
provisions of California Civil Code Sections 1932(2) and 1933(4) and the
provisions of any similar law hereinafter enacted.

                             ARTICLE 12 CONDEMNATION


        12.1 Landlord's Termination Right: Landlord shall have the right to
terminate thisLease if, as a result of a taking by means of the exercise of the
power of eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) all or any part of the Premises is
so taken, (ii) more than 10% of the Building Leasable Area is so taken, or (iii)
more than 50% of the Common Area is so taken. Any such right to terminate by
Landlord must be exercised within a reasonable period of time, to be effective
as of the date possession is taken by the condemnor.

        12.2 Tenant's Termination Right: Tenant shall have the right to
terminate this Lease if, as a result of any taking by means of the exercise of
the power of eminent domain (including any voluntary sale or transfer by
Landlord to any condemnor under threat of condemnation), (i) 10% or more of the
Premises is so taken and that part of the Premises that remains cannot be
restored within a reasonable period of time and thereby made reasonably suitable
for the continued operation of the Tenant's business, or (ii) there is a taking
affecting the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within reasonable walking distance of the Premises equal
in number to at least 80% of the number of spaces allocated to Tenant by
paragraph2.1, whether by rearrangement of the remaining parking areas in the
Common Area (including construction of multi-deck parking structures or
restriping for compact cars where permitted by Law) or by alternative parking
facilities on other land. Tenant must exercise such right within a reasonable
period of time, to be effective on the date that possession of that portion of
the Premises or Common Area that is condemned is taken by the condemnor.

        12.3 Restoration and Abatement of Rent: If any part of the Premises or
the CommonArea is taken by condemnation and this Lease is not terminated, then
Landlord shall restore the remaining portion of the Premises and Common Area and
interior improvements constructed by Landlord as they existed as of the
Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or
personal property constructed or installed by Tenant. Thereafter, except in the
case of a temporary taking, as of the date possession is taken the Base Monthly
Rent shall be reduced in the same proportion that the floor area of that part of
the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises.

                                       18



<PAGE>   23



        12.4 Temporary Taking: If any portion of the Premises is temporarily
taken for oneyear or less, this Lease shall remain in effect. If any portion of
the Premises is temporarily taken by condemnation for a period which exceeds one
year or which extends beyond the natural expiration of the Lease Term, and such
taking materially and adversely affects Tenant's ability to use the Premises for
the Permitted Use, then Tenant shall have the right to terminate this Lease,
effective on the date possession is taken by the condemnor.

        12.5 Division of Condemnation Award: Any award made as a result of
anycondemnation of the Premises or the Common Area shall belong to and be paid
to Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant for the following
so long as the award made to Landlord is not thereby reduced: (i) for the taking
of personal property or Trade Fixtures belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, (iii) for loss of
Tenant's goodwill; or (iv) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of California Code of Civil Procedure
Section 1265.130 and the provisions of any similar law hereinafter enacted
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.

                         ARTICLE 13 DEFAULT AND REMEDIES

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

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

                B. Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Base Monthly Rent
or Additional Rent, and Tenant shall have failed to cure such breach within 30
days after written notice from Landlord specifying the nature of such breach
where such breach could reasonably be cured within said 30 day period, or if
such breach could not be reasonably cured within said 30 day period, Tenant
shall have failed to commence such cure within said 30 day period and thereafter
continue with due diligence to prosecute such cure to completion within such
time period as is reasonably needed; or

                C. Tenant shall have sublet the Premises or assigned its
interest in the Lease in violation of the provisions contained in Article 14; or

                D. Tenant shall have abandoned the Premises; or

                E. The occurrence of the following: (i) the making by Tenant of
any general arrangements or assignments for the benefit of creditors; (ii)
Tenant becomes a "debtor" as defined in 11 USC section101 or any successor
statute thereto (unless, in the case of a petition filed against Tenant, the
same is dismissed within 60 days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within 30 days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within 30 days; provided, however, in the event that any provision of this
Section 13.1E is contrary to any applicable Law, such provision shall be of no
force or effect; or

                F. Tenant shall have failed to deliver documents required of it
pursuant to paragraph15.4 or paragraph15.6 within the time periods specified
therein; or

                G. Any two (2) failures by Tenant to observe and perform any
provision of this Lease during any twelve (12) month period of the term, as such
may be extended, shall constitute, at the option of Landlord, a separate and
noncurable default.

                                       19



<PAGE>   24



        Any written notice of default sent by Landlord to Tenant may be in a
form required under applicable statutory or regulatory provisions (and no
further notice shall be required should Landlord elect to terminate this Lease
as set forth below).

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

                A. Landlord may keep this Lease in effect and enforce by an
action at law or in equity all of its rights and remedies under this Lease,
including (i) the right to recover the rent and other sums as they become due by
appropriate legal action, (ii) the right to make payments required of Tenant or
perform Tenant's obligations and be reimbursed by Tenant for the cost thereof
with interest at the Agreed Interest Rate from the date the sum is paid by
Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of
injunctive relief and specific performance to compel Tenant to perform its
obligations under this Lease. Notwithstanding anything contained in this Lease,
in the event of a breach of an obligation by Tenant which results in a condition
which poses an imminent danger to safety of persons or damage to property, or a
threat to insurance coverage, then if Tenant does not cure such breach within 3
days after delivery to it of written notice from Landlord identifying the
breach, Landlord may cure the breach of Tenant and be reimbursed by Tenant for
the cost thereof with interest at the Agreed Interest Rate from the date the sum
is paid by Landlord until Landlord is reimbursed by Tenant.

                B. Landlord may terminate this Lease by giving Tenant written
notice of termination, in which event this Lease shall terminate on the date set
forth for termination in such notice. Any termination under this paragraph13.2C
shall not relieve Tenant from its obligation to pay sums then due Landlord or
from any claim against Tenant for damages or rent previously accrued or then
accruing. In no event shall any one or more of the following actions by
Landlord, in the absence of a written election by Landlord to terminate this
Lease, constitute a termination of this Lease: (i) appointment of a receiver or
keeper in order to protect Landlord's interest hereunder; (ii) consent to any
subletting of the Premises or assignment of this Lease by Tenant, whether
pursuant to the provisions hereof or otherwise; or (iii) any other action by
Landlord or Landlord's Agents intended to mitigate the adverse effects of any
breach of this Lease by Tenant, including without limitation any action taken to
maintain and preserve the Premises or any action taken to relet the Premises or
any portions thereof to the extent such actions do not affect a termination of
Tenant's right to possession of the Premises.

                C. In the event Tenant breaches this Lease and abandons the
Premises, this Lease shall not terminate unless Landlord gives Tenant written
notice of its election to so terminate this Lease. No act by or on behalf of
Landlord intended to mitigate the adverse effect of such breach, including any
efforts to lease the Premises, shall constitute a termination of Tenant's right
to possession unless Landlord gives Tenant written notice of termination. Should
Landlord not terminate this Lease by giving Tenant written notice, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the rent as it becomes due under the Lease as provided in California
Civil Code Section 1951.4.

                D. In the event Landlord terminates this Lease, Landlord shall
be entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date. For
purposes of computing damages pursuant to California Civil Code Section 1951.2,
(i) an interest rate equal to the Agreed Interest Rate shall be used where
permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional
Rent. Such damages shall include:

                        (1) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided, computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%); and

                        (2) Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would be
likely to result therefrom, including the following: (i) expenses for cleaning,
repairing or

                                       20



<PAGE>   25



restoring the Premises; (ii) expenses for altering, remodeling or otherwise
improving the Premises for the purpose of reletting, including installation of
leasehold improvements (whether such installation be funded by a reduction of
rent, direct payment or allowance to a new tenant, or otherwise); (iii) broker's
fees, advertising costs and other expenses of reletting the Premises; (iv) costs
of carrying the Premises, such as taxes, insurance premiums, utilities and
security precautions; (v) expenses in retaking possession of the Premises; and
(vi) attorney's fees and court costs incurred by Landlord in retaking possession
of the Premises and in releasing the Premises or otherwise incurred as a result
of Tenant's default.

                E. Nothing in this 13.2 shall limit Landlord's right to
indemnification from Tenant as provided in paragraph7.2 and paragraph10.3. Any
notice given by Landlord in order to satisfy the requirements of paragraph13.1A
or paragraph13.1B above shall also satisfy the notice requirements of California
Code of Civil Procedure Section 1161 regarding unlawful detainer proceedings.

        13.3 Waiver: One party's consent to or approval of any act by the other
party requiring the first party's consent or approval shall not be deemed to
waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.

        13.4 Limitation On Exercise of Rights: At any time that an Event of
Tenant's Default has occurred and remains uncured, (i) it shall not be
unreasonable for Landlord to deny or withhold any consent or approval requested
of it by Tenant which Landlord would otherwise be obligated to give, and (ii)
Tenant may not exercise any option to extend, right to terminate this Lease, or
other right granted to it by this Lease which would otherwise be available to
it.

        13.5 Waiver by Tenant of Certain Remedies: Tenant waives the provisions
ofSections 1932(1), 1941 and 1942 of the California Civil Code and any similar
or successor law regarding Tenant's right to terminate this Lease or to make
repairs and deduct the expenses of such repairs from the rent due under this
Lease. Tenant hereby waives any right of redemption or relief from forfeiture
under the laws of the State of California, or under any other present or future
law, including the provisions of Sections 1174 and 1179 of the California Code
of Civil Procedure.

                      ARTICLE 14 ASSIGNMENT AND SUBLETTING


        14.1 Transfer By Tenant: The following provisions shall apply to any
assignment,subletting or other transfer by Tenant or any subtenant or assignee
or other successor in interest of the original Tenant (collectively referred to
in this paragraph14.1 as "Tenant"):

                A. Tenant shall not do any of the following (collectively
referred to herein as a "Transfer"), whether voluntarily, involuntarily or by
operation of law, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld: (i) sublet all or any part of the Premises
or allow it to be sublet, occupied or used by any person or entity other than
Tenant; (ii) assign its interest in this Lease; (iii) mortgage or encumber the
Lease (or otherwise use the Lease as a security device) in any manner; or (iv)
materially amend or modify an assignment, sublease or other transfer that has
been previously approved by Landlord. Tenant shall reimburse Landlord for all
reasonable costs and attorney's fees incurred by Landlord in connection with the
evaluation, processing, and/or documentation of any requested Transfer, whether
or not Landlord's consent is granted. Landlord's reasonable costs shall include
the cost of any review or investigation performed by Landlord or consultant
acting on Landlord's behalf of Hazardous Materials (as defined in Section 7.2E
of this Lease) used, stored, released, or disposed of by the potential Subtenant
or Assignee. Any Transfer so approved by Landlord shall not be effective until
Tenant has delivered to Landlord an executed counterpart of the document
evidencing the Transfer which (i) is in a form reasonably approved by Landlord,
(ii) contains the same terms and conditions as stated in Tenant's notice given
to Landlord pursuant to paragraph14.1B, and (iii) in the case of an assignment
of the Lease, contains the agreement of

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<PAGE>   26



the proposed transferee to assume all obligations of Tenant under this Lease
arising after the effective date of such Transfer and to remain jointly and
severally liable therefor with Tenant. Any attempted Transfer without Landlord's
consent shall constitute an Event of Tenant's Default and shall be voidable at
Landlord's option. Landlord's consent to any one Transfer shall not constitute a
waiver of the provisions of this paragraph14.1 as to any subsequent Transfer or
a consent to any subsequent Transfer. No Transfer, even with the consent of
Landlord, shall relieve Tenant of its personal and primary obligation to pay the
rent and to perform all of the other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any person shall not be
deemed to be a waiver by Landlord of any provision of this Lease nor to be a
consent to any Transfer.

                B. At least 30 days before a proposed Transfer is to become
effective, Tenant shall give Landlord written notice of the proposed terms of
such Transfer and request Landlord's approval, which notice shall include the
following: (i) the name and legal composition of the proposed transferee; (ii) a
current financial statement of the transferee, financial statements of the
transferee covering the preceding three years if the same exist, and (if
available) an audited financial statement of the transferee for a period ending
not more than one year prior to the proposed effective date of the Transfer, all
of which statements are prepared in accordance with generally accepted
accounting principles; (iii) the nature of the proposed transferee's business to
be carried on in the Premises; (iv) all consideration to be given on account of
the Transfer; (v) a current financial statement of Tenant; and (vi) an
accurately filled out response to Landlord's standard hazardous materials
questionnaire. Tenant shall provide to Landlord such other information as may be
reasonably requested by Landlord within seven days after Landlord's receipt of
such notice from Tenant. Landlord shall respond in writing to Tenant's request
for Landlord's consent to a Transfer within the later of (i) 20 days of receipt
of such request together with the required accompanying documentation, or (ii)
10 days after Landlord's receipt of all information which Landlord reasonably
requests within seven days after it receives Tenant's first notice regarding the
Transfer in question. If Landlord fails to respond in writing within said
period, then Tenant shall provide a second written notice to Landlord requesting
such consent and if Landlord fails to respond within 7 days after receipt of
such second notice, then Landlord will be deemed to have consented to such
Transfer. Tenant shall immediately notify Landlord of any modification to the
proposed terms of such Transfer, which shall also be subject Landlord's consent
in accordance with the same process for obtaining Landlord's initial consent to
such Transfer.

                C. In the event that Tenant seeks to make any Transfer, Landlord
shall have the right to terminate this Lease or, in the case of a sublease of
less than all of the Premises, terminate this Lease as to that part of the
Premises proposed to be so sublet, either (i) on the condition that the proposed
transferee immediately enter into a direct lease of the Premises with Landlord
(or, in the case of a partial sublease, a lease for the portion proposed to be
so sublet) on the same terms and conditions contained in Tenant's notice, or
(ii) so that Landlord is thereafter free to lease the Premises (or, in the case
of a partial sublease, the portion proposed to be so sublet) to whomever it
pleases on whatever terms are acceptable to Landlord. If Landlord elects to so
terminate this Lease, Tenant shall have the right to rescind its request for
consent to the Transfer and not enter into or consummate the Transfer upon
written notice to Landlord within five (5) days after receipt of notice from
Landlord to recapture and terminate, in which case Landlord recapture and
termination notice shall not be effective as to such initially proposed
Transfer. In the event Landlord elects to so terminate this Lease, then (i) if
such termination is conditioned upon the execution of a lease between Landlord
and the proposed transferee, Tenant's obligations under this Lease shall not be
terminated until such transferee executes a new lease with Landlord, enters into
possession and commences the payment of rent, and (ii) if Landlord elects simply
to terminate this Lease (or, in the case of a partial sublease, terminate this
Lease as to the portion to be so sublet), the Lease shall so terminate in its
entirety (or as to the space to be so sublet) fifteen (15) days after Landlord
has notified Tenant in writing of such election. Upon such termination, Tenant
shall be released from any further obligation under this Lease if it is
terminated in its entirety, or shall be released from any further obligation
under the Lease with respect to the space proposed to be sublet in the case of a
proposed partial sublease. In the case of a partial termination of the Lease,
the Base Monthly Rent and Tenant's Share shall be reduced to an amount which
bears the same relationship to the original amount thereof as the area of that
part of the Premises which remains subject to the Lease bears to the original
area of the Premises. Landlord and Tenant shall execute a cancellation and
release with respect to the Lease to effect such termination.

                        Notwithstanding the foregoing, Landlord shall not have
the right to recapture the portion of the Premises covered by any sublease that
individually or in the aggregate of all subleases is for less than 20% of the
square footage of the Premises if (i) such subleases are executed prior to the
second annual anniversary of the

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<PAGE>   27



Commencement Date of this Lease, and (ii) Tenant is occupying and actively
conducting its business in the balance of the Premises. While such subleases
shall not be subject to Landlord's right to recapture, they shall be subject to
all of the other provisions of Article 14 of this Lease (any such sublease under
this paragraph shall be referred to herein as a "Special Sublease").

                D. If Landlord consents to a Transfer proposed by Tenant, Tenant
may enter into such Transfer, and if Tenant does so, the following shall apply:

                        (1) Tenant shall not be released of its liability for
the performance of all of its obligations under the Lease.

                        (2) If Tenant assigns its interest in this Lease, then
Tenant shall pay to Landlord 80% of all Subrent (as defined in
paragraph14.1D(5)) received by Tenant over and above (i) the assignee's
agreement to assume the obligations of Tenant under this Lease, and (ii) all
Permitted Transfer Costs related to such assignment. In the case of assignment,
the amount of Subrent owed to Landlord shall be paid to Landlord on the same
basis, whether periodic or in lump sum, that such Subrent is paid to Tenant by
the assignee. All Permitted Transfer Costs shall be amortized on a straight line
basis over the term of such sublease (including any extension options) for
purposes of calculating the amount due Landlord hereunder.

                        (3) If Tenant sublets any part of the Premises, then
with respect to the space so subleased, Tenant shall pay to Landlord 80% of the
positive difference, if any, between (i) all Subrent paid by the subtenant to
Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable
to the space sublet and all Permitted Transfer Costs related to such sublease.
Such amount shall be paid to Landlord on the same basis, whether periodic or in
lump sum, that such Subrent is paid to Tenant by its subtenant. All Permitted
Transfer Costs shall be amortized on a straight line basis over the term of such
sublease (including any extension options) for purposes of calculating the
amount due Landlord hereunder.

                        (4) Tenant's obligations under this paragraph14.1D shall
survive any Transfer, and Tenant's failure to perform its obligations hereunder
shall be an Event of Tenant's Default. At the time Tenant makes any payment to
Landlord required by this paragraph14.1D, Tenant shall deliver an itemized
statement of the method by which the amount to which Landlord is entitled was
calculated, certified by Tenant as true and correct. Landlord shall have the
right at reasonable intervals to inspect Tenant's books and records relating to
the payments due hereunder. Upon request therefor, Tenant shall deliver to
Landlord copies of all bills, invoices or other documents upon which its
calculations are based. Landlord may condition its approval of any Transfer upon
obtaining a certification from both Tenant and the proposed transferee of all
Subrent and other amounts that are to be paid to Tenant in connection with such
Transfer.

                        (5) As used in this paragraph14.1D, the term "Subrent"
shall mean any consideration of any kind received, or to be received, by Tenant
as a result of the Transfer, if such sums are related to Tenant's interest in
this Lease or in the Premises, including payments from or on behalf of the
transferee (in excess of the then fair market value thereof) for Tenant's
assets, fixtures, leasehold improvements, inventory, accounts, goodwill,
equipment, furniture, and general intangibles. As used in this paragraph14.1D,
the term "Permitted Transfer Costs" shall mean (i) all reasonable leasing
commissions paid to third parties not affiliated with Tenant in order to obtain
the Transfer in question, and (ii) all reasonable attorney's fees incurred by
Tenant with respect to the Transfer in question.

                E. If Tenant is a corporation, the following shall be deemed a
voluntary assignment of Tenant's interest in this Lease: (i) any dissolution,
merger, consolidation, or other reorganization of or affecting Tenant, whether
or not Tenant is the surviving corporation; and (ii) if the capital stock of
Tenant is not publicly traded, the sale or transfer to one person or entity (or
to any group of related persons or entities) stock possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors. If Tenant is a
partnership, limited liability company or other entity any withdrawal or
substitution (whether voluntary, involuntary or by operation of law, and whether
occurring at one time or over a period of time) of any partner, member or other
party owning 25% or more (cumulatively) of any interest in

                                       23



<PAGE>   28



the capital or profits of the partnership, limited liability company or other
entity or the dissolution of the partnership, limited liability company or other
entity, shall be deemed a voluntary assignment of Tenant's interest in this
Lease.

                F. Notwithstanding anything contained in paragraph14.1, so long
as Tenant otherwise complies with the provisions of paragraph14.1 Tenant may
sublease all or part of the Premises or assign its interest in this Lease to any
corporation which controls, is controlled by, or is under common control with
the original Tenant to this Lease by means of an ownership interest of more than
50% (a "Permitted Transfer") without Landlord's prior written consent, and
Landlord shall not be entitled to terminate the Lease pursuant to paragraph14.1C
or to receive any part of any Subrent resulting therefrom that would otherwise
be due it pursuant to paragraph14.1D.

                G. The consent of Landlord to a Transfer may not be unreasonably
withheld, provided that it is agreed to be reasonable for Landlord to consider
any of the following reasons, which list is not exclusive, in electing to deny
consent:

                        (1) The financial strength, credit, character and
business or professional standing of the proposed transferee at the time of the
proposed Transfer is not at least equal to that of Tenant at the time of
execution of this Lease, provided, however that this requirement shall not be
applicable for any subtenant in a Special Sublease (as defined in
paragraph14.1C);

                        (2) A proposed transferee who would significantly and
adversely impact or affect the common facilities or the utility, efficiency or
effectiveness of any utility or telecommunication system serving the Building or
the Project;

                        (3) A proposed transferee whose occupancy will require a
variation in the terms of this Lease (including, without limitation, a variation
in the use clause);

                        (4) The existence of any default by Tenant under any
provision of this Lease;

                        (5) A proposed transferee who is or is likely to be, or
whose business is or is likely to be, subject to compliance with additional laws
or other governmental requirements beyond those to which Tenant or Tenant's
business is subject and which would require Landlord to construct or make
improvements or changes to the Building or areas outside of the Premises;

                        (6) Either the proposed transferee, or any person or
entity which directly or indirectly, controls, is controlled by, or is under
common control with, the proposed transferee or an affiliate of the proposed
transferee, (i) occupies space in the Building at the time of the request for
consent, or (ii) is negotiating with Landlord to lease space in the Building or
in the Project at such time;

                        (7) the proposed Transferee is a governmental agency or
until or an existing tenant in the Project;

                        (8) The proposed transferee's use would materially
increase the expenses associated with operating, maintaining and repairing the
Building or the Project;

                        (9) The rent proposed to be charged by Tenant to the
proposed transferee during the term of such Transfer, calculated using a present
value analysis, is less than ninety-five percent (95%) of the rent then being
quoted by Landlord, at the proposed time of such Transfer, for comparable space
in the Building or any other building in the Project for a comparable term,
calculated using a present value system, or

                        (10) the proposed Transferee will use, store or handle
Hazardous Materials (defined below) in or about the Premises of a type, nature
or quantity not then acceptable to Landlord

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<PAGE>   29



                H. Reasonable Restriction. The restrictions on Transfer
described in this Lease are acknowledged by Tenant to be reasonable for all
purposes, including, without limitation, the provisions of California Civil Code
(the "Code") Section 1951.4(b)(2).

        14.2 Transfer By Landlord: Landlord and its successors in interest shall
have the right to transfer their interest in this Lease and the Project at any
time and to any person or entity. In the event of any such transfer, the
Landlord originally named herein (and, in the case of any subsequent transfer,
the transferor) from the date of such transfer, shall be automatically relieved,
without any further act by any person or entity, of all liability for the
performance of the obligations of the Landlord hereunder which may accrue after
the date of such transfer. After the date of any such transfer, the term
"Landlord" as used herein shall mean the transferee of such interest in the
Premises.

                          ARTICLE 15 GENERAL PROVISIONS

        15.1 Landlord's Right to Enter: Landlord and its agents may enter the
Premises at any reasonable time after giving at least 24 hours' prior notice to
Tenant (and immediately in the case of emergency) for the purpose of: (i)
inspecting the same; (ii) posting notices of non-responsibility; (iii) supplying
any service to be provided by Landlord to Tenant; (iv) showing the Premises to
prospective purchasers, mortgagees or tenants; (v) making necessary alterations,
additions or repairs; (vi) performing Tenant's obligations when Tenant has
failed to do so after written notice from Landlord; (vii) placing upon the
Premises ordinary "for lease" signs or "for sale" signs; and (viii) responding
to an emergency. Landlord shall have the right to use any and all means Landlord
may deem necessary and proper to enter the Premises in an emergency. Any entry
into the Premises obtained by Landlord in accordance with this paragraph15.1
shall not be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction, actual or constructive, of Tenant from the Premises, provided
that Landlord exercises its rights of entry in a commercially reasonable manner
so as to not unreasonably interfere with Tenant's use and occupancy of the
Premises; however, Landlord shall not be obligated to perform work outside of
normal business hours or incur any additional costs in connection therewith.

        15.2 Surrender of the Premises: Upon the expiration or sooner
termination of this Lease, Tenant shall vacate and surrender the Premises to
Landlord in the same condition as existed at the Commencement Date, except for
(i) reasonable wear and tear, (ii) damage caused by any peril or condemnation,
and (iii) contamination by Hazardous Materials for which Tenant is not
responsible pursuant to paragraph7.2A or paragraph7.2B. In this regard, normal
wear and tear shall be construed to mean wear and tear caused to the Premises by
the natural aging process which occurs in spite of prudent application of the
reasonable standards for maintenance, repair and janitorial practices, and does
not include items of neglected or deferred maintenance. In any event, Tenant
shall cause the following to be done prior to the expiration or the sooner
termination of this Lease: (i) all interior walls shall be painted or cleaned so
that they appear freshly painted; (ii) all tiled floors shall be cleaned and
waxed; (iii) all carpets shall be cleaned and shampooed; (iv) all broken,
marred, stained or nonconforming acoustical ceiling tiles shall be replaced; (v)
all interior and exterior windows shall be washed; (vi) the HVAC system shall be
serviced by a reputable and licensed service firm and left in good operating
condition and repair as so certified by such firm; and (vii) the plumbing and
electrical systems and lighting shall be placed in good order and repair
(including replacement of any burned out, discolored or broken light bulbs,
ballasts, or lenses). Tenant shall, prior to the expiration or sooner
termination of this Lease, (i) remove any Tenant's Alterations which Tenant is
required to remove pursuant to paragraph5.2C and repair all damage caused by
such removal, and (ii) return the Premises or any part thereof to its original
configuration existing as of the time the Premises were delivered to Tenant. If
the Premises are not so surrendered at the termination of this Lease, Tenant
shall be liable to Landlord for all reasonable costs incurred by Landlord in
returning the Premises to the required condition, plus interest on all costs
incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord against
loss or liability resulting from delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lost opportunities to lease to succeeding
tenants.

        15.3 Holding Over: This Lease shall terminate without further notice at
theexpiration of the Lease Term. Any holding over by Tenant after expiration of
the Lease Term shall not constitute a renewal or extension of the Lease or give
Tenant any rights in or to the Premises except as expressly provided in this
Lease. Any holding over after such expiration with the written consent of
Landlord shall be construed to be a tenancy from month to

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<PAGE>   30



month on the same terms and conditions herein specified insofar as applicable
except that Base Monthly Rent shall be increased to an amount equal to 150% of
the greater of (a) the Base Monthly Rent payable during the last full calendar
month of the Lease Term, or (b) the then prevailing fair market rent.

        15.4 Subordination: The following provisions shall govern the
relationship of thisLease to any Security Instrument:

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

                B. At Landlord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in default and performs
all of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.

                C. Tenant shall upon request execute any document or instrument
required by any Lender to make this Lease either prior or subordinate to a
Security Instrument, which may include such other matters as the Lender
customarily and reasonably requires in connection with such agreements,
including provisions that the Lender not be liable for (i) the return of any
security deposit unless the Lender receives it from Landlord, and (ii) any
defaults on the part of Landlord occurring prior to the time the Lender takes
possession of the Project in connection with the enforcement of its Security
Instrument, except for defaults in the performance of repair and maintenance
obligations by Landlord under this Lease which continue to exist after the date
the Lender so takes possession of the Project and has received notice of such
defaults (which shall be subject to the applicable cure periods for such
Lender). Tenant's failure to execute any such document or instrument within 10
days after written demand therefor shall constitute an Event of Tenant's
Default.

                D. SNDA. Landlord has informed Tenant that the Project is
currently encumbered by a Security Instrument. At Tenant's sole cost and
expense, Landlord shall request the beneficiary (or its servicer) of the
existing Security Instrument that encumbers the Premises as of the date hereof
issue its subordination, non-disturbance and attornment agreement ("SNDA"),
pursuant to which such beneficiary agrees to recognize this Lease in the event
of default under such Security Instrument or sale under such Security
Instrument, so long as Tenant is not in default hereunder. Landlord's sole
obligation under this section is to request such SNDA. Tenant is responsible for
paying all costs and expenses for such SNDA, including, without limitation, the
lender attorneys' fees and disbursements. Obtaining the SNDA is not a condition
precedent or subsequent to the Lease, nor a breach of Landlord's obligation. The
failure of such lender to issue its SNDA shall not relieve Tenant of any of its
obligations under the Lease.

        15.5 Mortgagee Protection and Attornment: In the event of any default on
the part of the Landlord, Tenant will use reasonable efforts to give notice by
certified mail to any Lender whose name has been provided to Tenant and, so long
as Tenant's use and occupancy is no being materially affected by such default,
shall offer such Lender a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings, if such should prove
necessary to effect a cure. Tenant shall attorn to any purchaser of the Premises
at any foreclosure sale or private sale conducted pursuant to any Security
Instrument encumbering the Premises, or to any grantee or transferee designated
in any deed given in lieu of foreclosure, who agrees with Tenant to be bound as
Landlord under this Lease.

        15.6 Estoppel Certificates and Financial Statements: At all times during
the LeaseTerm, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party within 15 days following
delivery of such request an estoppel certificate: (i) certifying that this Lease
is unmodified and in full force and effect or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect, (ii) stating the date to which the rent and other charges are
paid in advance, if any, (iii) acknowledging that there are not, to the
certifying party's knowledge, any uncured defaults on the part of any party
hereunder or, if there are uncured defaults, specifying the nature of such
defaults, and (iv) certifying such other information about the Lease as may be
reasonably required by the requesting party. A failure to deliver an estoppel

                                       26



<PAGE>   31



certificate within 15 days after delivery of a request therefor shall be a
conclusive admission that, as of the date of the request for such statement: (i)
this Lease is unmodified except as may be represented by the requesting party in
said request and is in full force and effect, (ii) there are no uncured defaults
in the requesting party's performance, and (iii) no rent has been paid more than
30 days in advance. At any time during the Lease Term Tenant shall, upon 15
days' prior written notice from Landlord, provide Tenant's most recent financial
statement and financial statements covering the 24 month period prior to the
date of such most recent financial statement to any existing Lender or to any
potential Lender or buyer of the Premises. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant.

        15.7 Intentionally Deleted.

        15.8 Notices: Any notice required or desired to be given regarding this
Lease shall be in writing and may be given by personal delivery, by courier
service, or by mail. A notice shall be deemed to have been given (i) on the
third business day after mailing if such notice was deposited in the United
States mail, certified or registered, postage prepaid, addressed to the party to
be served at its Address for Notices specified in Section Q or Section R of the
Summary (as applicable), (ii) when delivered if given by personaldelivery, and
(iii) in all other cases when actually received at the party's Address for
Notices. Either party may change its address by giving notice of the same in
accordance with this 15.8, provided, however, that any address to which notices
may be sent must be a California address.

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

        15.10 Corporate Authority: Each entity executing this Lease on behalf of
such entity represents and warrants to the other that the person signing on
behalf of such entity is duly authorized to execute and deliver this Lease on
behalf of such entity in accordance with organizational documents for such
entity and that this Lease is binding upon such entity in accordance with its
terms, and that the entity has full right and authority to enter into this
Lease.

        15.11 Miscellaneous: Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. The captions used in this Lease are for convenience only and shall not
be considered in the construction or interpretation of any provision hereof. Any
executed copy of this Lease shall be deemed an original for all purposes. This
Lease shall, subject to the provisions regarding assignment, apply to and bind
the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context
implies. This Lease shall be construed and enforced in accordance with the laws
of the State of California. The language in all parts of this Lease shall in all
cases be construed as a whole according to its fair meaning, and not strictly
for or against either Landlord or Tenant. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural. The terms
"shall", "will" and "agree" are mandatory. The term "may" is permissive. When a
party is required to do something by this Lease, it shall do so at its sole cost
and expense without right of reimbursement from the other party unless a
provision of this Lease expressly requires reimbursement. Landlord and Tenant
agree that (i) the gross leasable area of the Premises includes any enclosed
atriums, depressed loading docks, covered entrances or egresses, and covered
loading areas, (ii) each has had an opportunity to determine to its satisfaction
the actual area of the Project and the Premises, (iii) all measurements of area
contained in this Lease are conclusively agreed to be correct and binding upon
the parties, even if a subsequent measurement of any one of these areas
determines that it is more or less than the amount of area reflected in this
Lease, and (iv) any such subsequent determination that the area is more or less
than shown in this Lease shall not result in a change in any of the computations
of rent, improvement allowances, or other matters described in this Lease where
area is a factor. Where a party hereto is obligated not to perform any act, such
party is also obligated to

                                       27



<PAGE>   32
restrain any others within its control from performing said act, including the
Agents of such party. Landlord shall not become or be deemed a partner or a
joint venturer with Tenant by reason of the provisions of this Lease.

        15.12 Termination by Exercise of Right: If this Lease is terminated
pursuant to its terms by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate 30 days after the date the right to terminate is properly exercised
(unless another date is specified in that part of the Lease creating the right,
in which event the date so specified for termination shall prevail), the rent
and all other charges due hereunder shall be prorated as of the date of
termination, and neither Landlord nor Tenant shall have any further rights or
obligations under this Lease except for those that have accrued prior to the
date of termination or those obligations which this Lease specifically provides
are to survive termination. This paragraph15.12 does not apply to a termination
of this Lease by either party as a result of a default by the other party.

        15.13 Brokerage Commissions: Each party hereto (i) represents and
warrants to the other that it has not had any dealings with any real estate
brokers, leasing agents or salesman, or incurred any obligations for the payment
of real estate brokerage commissions or finder's fees which would be earned or
due and payable by reason of the execution of this Lease, other than to the
Retained Real Estate Brokers described in Section S of the Summary, and (ii)
agrees to indemnify, defend, and hold harmless the other party from any claim
for any such commission or fees which result from the actions of the
indemnifying party. Landlord shall be responsible for the payment of any
commission owed to the Retained Real Estate Brokers if there is a separate
written commission agreement between Landlord and the Retained Real Estate
Brokers for the payment of a commission as a result of the execution of this
Lease.

        15.14 Force Majeure: Any prevention, delay or stoppage due to strikes,
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of either party (except
financial inability) shall excuse the performance by such party, for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder.

        15.15 Entire Agreement: This Lease constitutes the entire agreement
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that neither
Landlord nor Landlord's Agents has made any legally binding representation or
warranty as to any matter except those expressly set forth herein, including any
warranty as to (i) whether the Premises may be used for Tenant's intended use
under existing Law, (ii) the suitability of the Premises or the Project for the
conduct of Tenant's business, or (iii) the condition of any improvements. There
are no oral agreements between Landlord and Tenant affecting this Lease, and
this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between Landlord
and Tenant or displayed by Landlord to Tenant with respect to the subject matter
of this Lease. This instrument shall not be legally binding until it is executed
by both Landlord and Tenant. No subsequent change or addition to this Lease
shall be binding unless in writing and signed by Landlord and Tenant.

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

LANDLORD:                                    TENANT:

By: SILICON VALLEY PROPERTIES, LLC,          By: NEW FOCUS, INC.
    a Delaware limited liability company         a California corporation

    By: Divco West Group, LLC,                   By:
                                                    --------------------------
        a Delaware limited liability company     Name:
                                                      ------------------------
        Its Agent                                Title:
                                                       -----------------------

        By:                                      Dated: December __, 1999
           ----------------------------
        Name:  Scott Smithers
        Its:   President

        Dated: December __, 1999



                                       28


<PAGE>   33



                                      [EXHIBIT OMITTED]



<PAGE>   34



                                    EXHIBIT B

                       WORK LETTER FOR TENANT IMPROVEMENTS


        1. Defined Terms. All defined terms referred to in this Exhibit shall
have the same meaning as defined in that certain Lease by and between Silicon
Valley Properties, LLC, a Delaware limited liability company, as Landlord, and
New Focus, Inc., a California corporation, as Tenant (the "Lease") to which this
Exhibit is a part, except where expressly defined to the contrary.

        2. Construction of the Tenant Improvements. Landlord shall construct the
Tenant Improvements in accordance with this exhibit and the construction
contract to be executed by Landlord and its contractor(s). The construction
contract for constructing the Tenant Improvements and the contractor(s) to
perform the work shall be approved and/or selected, as the case may be, by
Landlord at its sole and absolute discretion without the consent of Tenant.

        3. Additional Definitions. Each of the following terms shall have the
following meaning: "Construction Budget" - A estimate of the Construction Costs
for the Tenant Improvements prepared by Landlord after or in connection with the
preparation of the Construction Plans.

        "Construction Costs" - All costs and expenses approved by Landlord to
construct the Tenant Improvements, including all fees and expenses for:

                (a) architectural/space planning services utilized by Landlord
in the preparation of any space plan;

                (b) architects, engineers and consultants in the preparation of
the Preliminary Plans, Construction Plans, including mechanical, electrical,
plumbing and structural drawings and of all other aspects of the Construction
Plans, and for processing governmental applications and applications for
payment, observing construction of the work, and other customary engineering,
architectural, interior design and space planning services;

                (c) surveys, reports, environmental and other tests and
investigations of the site and any improvements thereon;

                (d) labor, materials, equipment and fixtures supplied by the
general contractor, its subcontractors and/or materialmen;

                (e) the furnishing and installation of all heating, ventilation
and air conditioning duct work, terminal boxes, distributing defusers and
accessories required for completing the heating, ventilation and
air-conditioning system in the Premises, including costs of meter and key
control for after-hour usage, if required by Landlord;

                (f) all electrical circuits, wiring, lighting fixtures, and tube
outlets furnished and installed throughout the Premises, including costs of
meter and key control for after-hour electrical power usage;

                (g) all window and floor coverings in the Premises;

                                        1



<PAGE>   35



                (h) all fire and life safety control systems, such as fire
walls, sprinklers and fire alarms, including piping, wiring and accessories
installed within the Premises;

                (i) all plumbing, fixtures, pipes and accessories installed
within the Premises;

                (j) fees charged by the city and/or county where the Building is
located (including, without limitation, fees for building permits and plan
checks) required for the Tenant improvement work in the Premises;

                (k) supervision and administration expense, including the
construction supervision fee payable to Landlord's agent and property manager
and/or representative equal to seven (7%) of the Construction Costs;

                (l) all taxes, fees, charges and levies by governmental and
quasi-governmental agencies for authorization, approvals, licenses and permits;
and all sales, use and excise taxes for the materials supplied and services
rendered in connection with the installation and construction of the Tenant
Improvements; and

                (m) all costs and expenses incurred to comply with all laws,
rules, regulations or ordinances of any governmental authority for any work at
the Building or Project in order to construct the Tenant Improvements.

                The term Construction Costs shall not include any fees, costs,
expenses, compensation or other consideration payable to Tenant, or any of its
officers, directors, employees or affiliates, or the cost of any of Tenant's
furniture, artifacts, trade fixtures, telephone and computer systems and related
facilities, or equipment.

                "Construction Plans" - The complete plans and specifications for
the construction of the Tenant Improvements consisting of all architectural,
engineering, mechanical and electrical drawings and specifications which are
required to obtain all building permits, licenses and certificates from the
applicable governmental authority(ies) for the construction of the Tenant
Improvements. The Construction Plans shall be prepared by duly licensed and/or
registered architectural and/or engineering professionals selected by Landlord
in its sole and absolute discretion, and in all respects shall be in substantial
compliance with all applicable laws, rules, regulations, building codes for the
city and county where the Building is located.

                "Force Majeure Delays" - Any delay, other than a Tenant Delay,
by Landlord in completing the Tenant Improvements by reason of (i) any strike,
lockout or other labor trouble or industrial disturbance (whether or not on the
part of the employees of either party hereto), (ii) governmental preemption of
priorities or other controls in connection with a national or other public
emergency, civil disturbance, riot, war, sabotage, blockade, embargo, inability
to secure customary materials, supplies or labor through ordinary sources by
reason of regulation or order of any government or regulatory body, or (iii)
shortages of fuel, materials, supplies or labor, (iv) lightning, earthquake,
fire, storm, tornado, flood, washout explosion, inclement weather or any other
similar industry-wide or Building-wide cause beyond the reasonable control of
Landlord, or (v) any other cause, whether similar or dissimilar to the above,
beyond Landlord's reasonable control. The time for performance of any obligation
of Landlord to construct Landlord's work under this Work Letter or the Lease
shall be extended at Landlord's election by the period of any delay caused by
any of the foregoing events.

                                        2



<PAGE>   36



                "Landlord's Allowance" - The amount of $519,850.00 to be paid by
Landlord for the Construction Costs for the Tenant Improvements, which sum shall
be paid directly to the contracting parties entitled to payment. Any unused
portion of Landlord's Allowance for the Tenant Improvements shall remain the
property of Landlord, and Tenant shall have no interest in said funds.

                "Substantial Completion," "Substantially Complete,"
"Substantially Completed"- The terms Substantial Completion, Substantially
Completed and Substantially Complete shall mean when the following have occurred
or would have occurred but for Tenant Delays:

                        (a) Landlord has delivered to Tenant a written notice
stating that the Tenant Improvements have been Substantially Completed
substantially in accordance with the Construction Plans, except "punch list"
items which may be completed without materially impairing Tenant's use of the
Premises or a material portion thereof; and

                        (b) Landlord has obtained from the appropriate
governmental authority a temporary, conditional or final certificate of
occupancy or signed building permit (or equivalent), if one is required, for the
Tenant Improvements permitting occupancy of the Premises by Tenant.

                "Tenant Delay" - Any delay incurred by Landlord in the
completion of the Tenant Improvements due to (i) a delay by Tenant, or by any
person employed or engaged by Tenant, in approving or delivering to Landlord any
plans, schedules or information, including, without limitation, the Preliminary
Plans and the Construction Plans beyond the applicable time period set forth in
this Exhibit, if any; (ii) a delay in the performance of work in the Premises by
Tenant or any person employed by Tenant; (iii) any changes requested by Tenant
in or to previously approved work or in the Construction Plans; (iv) requests
for materials and finishes which are not readily available, and/or delays in
delivery of any materials specified by Tenant through change orders; (v) the
failure of Tenant to pay as and when due under this Work Letter all Construction
Costs and other costs and expenses to construct the Tenant Improvements in
excess of Landlord's Allowance; (vi) interference with the construction of the
Tenant Improvements; (vii) any delay attributable to the failure of Tenant to
pay, when due, any amounts required to be paid by Tenant pursuant to this
Exhibit or otherwise provided in the Lease.

                "Tenant Improvements" - The improvements to be installed by
Landlord in the Premises substantially in accordance with the Construction
Plans.

        4. Preparation of Preliminary Plans and Construction Plans.

                4.1 Preliminary Plans. Concurrent with its execution of the
Lease, Tenant shall submit to Landlord or its architect or designer all
additional information, including occupancy requirements for the Tenant
Improvements in the Premises ("Information"), necessary to enable the architect,
designer or contractor to prepare a preliminary plans for the Tenant
Improvements containing all demising walls, corridors, entrances, exits, doors,
interior partitions, and the locations of all offices, conference rooms,
computer rooms, and other rooms and layout. Landlord shall be entitled to rely
upon all plans, drawings and information supplied by or for Tenant in preparing
the preliminary plans. Landlord shall cause the architect to prepare the
preliminary plans as soon as is commercially reasonable after the architect's
receipt of the Information. Within five (5) days after receipt of the
preliminary plans, Tenant shall notify Landlord in writing that (i) Tenant
approved such preliminary plans; or (ii) Tenant disapproves such preliminary
plans in the particular instances specified by Tenant in such notice (including,
without limitation, the specific changes requested by Tenant), but such
disapproval shall constitute a Tenant Delay. Tenant shall not unreasonably
withhold its approval to the preliminary plans. The failure of Tenant to provide
such written notice within said five (5) day period shall be deemed as

                                        3



<PAGE>   37



approval by Tenant of such preliminary plans. The preliminary plans approved by
the parties as provided above shall be referred to as the "Preliminary Plans."

                4.2 Construction Plans. After approval of the Preliminary Plans,
Landlord shall cause the architect to prepare as soon as is commercially
reasonable the Construction Plans for the construction of the Tenant
Improvements and deliver the same to Tenant as soon as reasonably possible.
Within five (5) days after receipt of the Construction Plans, Tenant shall
notify Landlord in writing that (i) Tenant approved the Construction Plans; or
(ii) Tenant disapproves the Construction Plans because they vary in design from
the Preliminary Plans approved by Landlord and Tenant in the particular
instances specified by Tenant in such notice (including, without limitation, the
specific changes requested by Tenant), but such disapproval shall constitute a
Tenant Delay.. The failure of Tenant to provide such written notice within said
five (5) day period shall be deemed as approval by Tenant of such plans.

        5. Approval of the Construction Budget. After approval of the
Construction Plans by Landlord and Tenant as provided above, Landlord shall
prepare the Construction Budget for the Construction Costs as soon as is
commercially reasonable. The Construction Budget shall not be subject to the
prior written approval of Tenant, unless the estimated Construction Costs exceed
the amount of Landlord's Allowance. If the Construction Budget reflects
Construction Costs in excess of Landlord's Allowance, Landlord shall deliver a
copy of such Construction Budget to Tenant for its review and approval, which
shall not be unreasonably withheld. Tenant shall notify Landlord in writing
within five (5) days after receipt of the Construction Budget that (a) Tenant
approves the Construction Budget, or (b) that Tenant disapproves of the
Construction Budget because it varies from the Construction Plans or contains
specific costs not contained within the meaning of Construction Costs. Such
disapproval shall constitute a Tenant Delay. The failure of Tenant to provide
such written notice within said five (5) day period shall be deemed an approval
by Tenant.

        6. Building Permits. After approval by Landlord and Tenant of the
Construction Plans and Construction Budget as provided above, Landlord or its
contractor shall submit as soon as is commercially reasonable the Construction
Plans to the appropriate governmental body for plan checking and a building
permit. Landlord, with Tenant's cooperation, shall cause to be made any change
in the Construction Plans necessary to obtain the building permit and to the
extent the aggregate amount of the Construction Costs exceeds the amount of
Landlord's Allowance, Tenant shall be responsible for such additional costs,
notwithstanding the amount previously specified in the Construction Budget
approved by Landlord and Tenant.

        7. Payment. Landlord shall pay for the Construction Costs for the Tenant
Improvements, not to exceed the amount of Landlord's Allowance. Tenant
acknowledges and agrees that it shall be responsible for payment of all
Construction Costs in excess of Landlord's Allowance and shall pay to Landlord
within ten (10) days after request from Landlord the amount of such excess
Construction Costs.

        8. Changes. Any changes in the Construction Plans or Construction
Budget, including, without limitation, any changes required by any applicable
law, rule, regulation or ordinance, shall require the prior written consent of
Landlord in its sole and absolute discretion. Any changes requested by Tenant
and approved by Landlord shall be prepared by Landlord's architect, engineer or
contractor. The cost of such changes, including the cost to revise the
Construction Plans, obtain any additional permits and construct any additional
improvements required as a result thereof, and the cost for materials and labor,
and all other additional costs incurred by Landlord from resulting delays in
completing the Tenant Improvements, shall be paid out of Landlord's Allowance
(only to the extent funds are available and not committed for payment of other
Construction Costs). If such costs for changes exceed the

                                        4



<PAGE>   38



Landlord's Allowance, such excess costs shall be paid by Tenant, at its sole
cost and expense, to Landlord within ten (10) days after Tenant's receipt of
notice from Landlord. If Landlord does not receive such payment within said ten
(10) day period, Landlord shall have the right, in addition to any other rights
or remedies available under the Lease, at law or in equity, to (i) discontinue
all or any portion of the work until it receives said payment; (ii) proceed with
the other work not affected by such change until such payment is received; (iii)
proceed with the work contemplated with such change; or (iv) proceed with the
work without making such change; in which case the commencement or completion of
such work shall not be deemed a waiver of Tenant's obligation to pay for same or
any additional costs or expenses incurred as a result thereof. Any delay caused
as a result of such a change or request for a change shall constitute a Tenant
Delay. The cost of a change order and any resulting delay in connection and
additional cost incurred as a result thereof shall be determined by Landlord's
architect, which determination shall be binding upon the parties.

                                        5



<PAGE>   39



        Deposit to amount required under the Lease and this Addendum. The use,
application or retention of the Letter of Credit, or any portion thereof, by
Landlord shall not prevent Landlord from exercising any other right or remedy
provided by this Lease or by law, it being intended that Landlord shall not
first be required to use all or any part of the Letter of Credit or cash portion
of the Security Deposit, and such use shall not operate as a limitation on any
recovery to which Landlord may otherwise be entitled. Tenant shall not be
entitled to any interest on the cash portion of the Security Deposit. The
exercise of any rights of Landlord to the Security Deposit shall not constitute
a waiver of nor relieve Tenant from any liability or obligation for any default
by Tenant. If Landlord draws upon the entire amount of the Letter of Credit,
Tenant may deliver a replacement Letter of Credit to Landlord, instead of
depositing cash with Landlord, equal to the original amount of the Letter of
Credit.

                2.2 Reduction after Time. The amount of the Security Deposit may
be reduced to (a) $710,876.64 after the first annual anniversary of the
Commencement, (b) $473,917.76 after the second annual anniversary of the
Commencement Date, (c) $236,958.88 after the third anniversary of the
Commencement Date, and (b) $118,479.44 after the fourth annual anniversary of
the Commencement Date; provided that a default or breach by Tenant of any
provision of the Lease does not exist and no such default or breach occurred
during the year immediately prior to the effective date of the reduction under
this section. If Tenant is entitled to reduce the amount of the Security Deposit
pursuant to this paragraph and Tenant delivers to Landlord written notice of its
request to so reduce the amount of the Security Deposit, then Tenant may, not
less than (10) days after Landlord's receipt of such notice, either obtain and
deliver a new or amended Letter of Credit to replaced or amend, as the case may
be, the then existing Letter of Credit, in an amount equal to requirement amount
of the Security Deposit.

                                        2



<PAGE>   40



restrain any others within its control from performing said act, including the
Agents of such party. Landlord shall not become or be deemed a partner or a
joint venturer with Tenant by reason of the provisions of this Lease.

        15.12 Termination by Exercise of Right: If this Lease is terminated
pursuant to its terms by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate 30 days after the date the right to terminate is properly exercised
(unless another date is specified in that part of the Lease creating the right,
in which event the date so specified for termination shall prevail), the rent
and all other charges due hereunder shall be prorated as of the date of
termination, and neither Landlord nor Tenant shall have any further rights or
obligations under this Lease except for those that have accrued prior to the
date of termination or those obligations which this Lease specifically provides
are to survive termination. This paragraph 15.12 does not apply to a termination
of this Lease by either party as a result of a default by the other party.

        15.13 Brokerage Commissions: Each party hereto (i) represents and
warrants to the other that it has not had any dealings with any real estate
brokers, leasing agents or salesmen, or incurred any obligations for the payment
of real estate brokerage commissions or finder's fees which would be earned or
due and payable by reason of the execution of this Lease, other than to the
Retained Real Estate Brokers described in Section S of the Summary, and (ii)
agrees to indemnify, defend, and hold harmless the other party from any claim
for any such commission or fees which result from the actions of the
indemnifying party. Landlord shall be responsible for the payment of any
commission owed to the Retained Real Estate Brokers if there is a separate
written commission agreement between Landlord and the Retained Real Estate
Brokers for the payment of a commission as a result of the execution of this
Lease.

        15.14 Force Majeure: Any prevention, delay or stoppage due to strikes,
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of either party (except
financial inability) shall excuse the performance by such party, for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder.

        15.15 Entire Agreement: This Lease constitutes the entire agreement
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that neither
Landlord nor Landlord's Agents has made any legally binding representation or
warranty as to any matter except those expressly set forth herein, including any
warranty as to (i) whether the Premises may be used for Tenant's intended use
under existing Law, (ii) the suitability of the Premises or the Project for the
conduct of Tenant's business, or (iii) the condition of any improvements. There
are no oral agreements between Landlord and Tenant affecting this Lease, and
this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between Landlord
and Tenant or displayed by Landlord to Tenant with respect to the subject matter
of this Lease. This instrument shall not be legally binding until it is executed
by both Landlord and Tenant. No subsequent change or addition to this Lease
shall be binding unless in writing and signed by Landlord and Tenant.

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


LANDLORD:                                     TENANT:

By: SILICON VALLEY PROPERTIES, LLC,           By: NEW FOCUS, INC.
    a Delaware limited liability company      a California corporation

    By: Divco West Group, LLC,                By: /s/ Signature Illegible
        a Delaware limited liability company  Name: [??Text Illegible??]
        Its Agent                             Title: V.OP. Operations

        By: ___________________               Dated: December ___, 1999
        Name: Scott Smithers
        Its: President
                                       28