<PAGE>   1
                                                                   EXHIBIT 10.18


                           NEW FOCUS PACIFIC CO., LTD.


                                       AND


                        FUZHOU CONET COMMUNICATION, INC.


                 -----------------------------------------------


                                 SUPPLY CONTRACT


                 -----------------------------------------------


                *       Certain information on this page has been omitted and
                        filed separately with the Commission. Confidential
                        treatment has been requested with respect to the omitted
                        portions.



<PAGE>   2
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
ARTICLE                                                                                      PAGE
                                                                                             ----
<S>                                                                                          <C>
PRELIMINARY STATEMENT...................................................................       1

ARTICLE 1 -       DEFINITIONS AND INTERPRETATION........................................       1
ARTICLE 2 -       TERM..................................................................       2
ARTICLE 3 -       SUPPLY OF PRODUCTS....................................................       3
ARTICLE 4 -       PRICING AND PAYMENTS..................................................       4
ARTICLE 5 -       DELIVERY AND TITLE....................................................       6
ARTICLE 6 -       SUPERVISION AND QUALITY CONTROL.......................................       7
ARTICLE 7 -       REPRESENTATIONS, WARRANTIES AND BREACH................................       7
ARTICLE 8 -       INVESTIGATION RIGHT AND RIGHT OF SET-OFF..............................       8
ARTICLE 9 -       NF COMMITMENTS........................................................       9
ARTICLE 10 -      TERMINATION...........................................................       9
ARTICLE 11 -      FORCE MAJEURE.........................................................      10
ARTICLE 12 -      SETTLEMENT OF DISPUTES................................................      10
ARTICLE 13 -      BREACH OF CONTRACT....................................................      11
ARTICLE 14 -      GENERAL PROVISIONS....................................................      12

SIGNATURES        ......................................................................
</TABLE>


ANNEX

1       PRODUCTS TO BE SUPPLIED


<PAGE>   3
                                 SUPPLY CONTRACT


THIS CONTRACT is made in Fuzhou Municipality, People's Republic of China, on
this 11th day of May, 2000 by and between:

(1)     NEW FOCUS PACIFIC CO., LTD., a wholly foreign-owned enterprise
        registered in the People's Republic of China ("PRC") with its registered
        address at Building R3-B, Unit A, 1st Floor, Shenzhen High-Tech
        Industrial Park, Nanshan District, Shenzhen, PRC (hereinafter referred
        to as the "NF"); and

(2)     FUZHOU CONET COMMUNICATION, INC., a Chinese-foreign joint venture
        company duly organized and existing under the laws of the People's
        Republic of China, with its legal address at No. 39 Fuxing Avenue,
        Gushan Fuxing Investment Zone, Jingan District, Fuzhou Municipality,
        People's Republic of China (hereinafter referred to as the "SUPPLIER").

Supplier and NF are hereinafter also individually referred to as a "PARTY" and
collectively as the "PARTIES".


                              PRELIMINARY STATEMENT

WHEREAS, Supplier, New Focus, Inc. ("NFUS"), among others, entered into a Letter
of Intent dated 14 January 2000 ("LOI"), under which US$1 million ("SUCH
PAYMENT") has been paid by NF to Supplier.

WHEREAS, Supplier and NF wish to enter into a supply contract for Supplier to
supply certain products to NF and NF Affiliates (as defined later).

NOW, THEREFORE, the Parties agree as follows:


                   ARTICLE 1 - DEFINITIONS AND INTERPRETATION

1.1     Definitions

        Unless the terms or context of this Contract otherwise provide, the
        terms used herein shall have the meanings set forth below:

        "ACCEPTED THIRD PARTY PURCHASES" means the Third Party purchases as
        accepted by Supplier in accordance with Article 3.4 hereof.

        "ADVANCED PAYMENT" means RMB29 million to be paid by NF to Supplier
        pursuant to Article 4.3 hereof.

        "CHINA" or "PRC" means the People's Republic of China.

        "COMMENCEMENT DATE" means 1 June 2000.


                                       1


<PAGE>   4
        "EFFECTIVE DATE" means the date of execution of this Contract by the
        Parties.

        "MINIMUM PURCHASE AMOUNTS" means the amounts / quantities of Products
        that NF commits to purchase from Supplier pursuant to Article 9 hereof.

        "NF AFFILIATE" means any company which, directly or indirectly, is
        controlled by, under common control with, or in control of, NF, the term
        "control" meaning ownership of more than fifty percent of the voting
        stock or registered capital, or the power to appoint or elect a majority
        of the directors, or the power to direct the management, of a company.

        "NF DELAWARE" means New Focus Inc., a company duly incorporated and
        existing under the laws of the State of Delaware, U.S.A. with its
        registered address at 1209 Orange Street, City of Wilmington, Delaware
        19801, County of New Castle, U.S.A.

        "SAFE" means the State Administration of Foreign Exchange, Fuzhou
        branch.

        "TERM" means the period for the supply of the Products under this
        Contract which shall begin on the Commencement Date and shall have a
        duration of three (3) years therefrom.

        "THIRD PARTY" means any other party or entity other than the Parties, NF
        Affiliates and NF Delaware.

        "USA" means the United States of America.

1.2     Interpretation

        Articles and headings in this Contract are inserted for the purposes of
        convenience and reference only and shall not affect the interpretation
        or construction of this Contract.


                                ARTICLE 2 - TERM

2.1     Term

        This Contract shall become effective upon the Effective Date. The period
        of the supply of the Products shall commence on the Commencement Date
        and shall continue in force for three (3) years from the Commencement
        Date (i.e. the Term), unless otherwise agreed to in writing by the
        Parties. The Term may be extended upon agreement in writing by the
        Parties.


                                       2


<PAGE>   5
                         ARTICLE 3 - SUPPLY OF PRODUCTS

3.1     Supply

        During the Term, Supplier shall supply to NF and NF Affiliates the
        products which are listed in Annex 1 hereto (the "PRODUCTS") in
        accordance with the terms of this Contract.

3.2     Annual Budget

        Prior to 1 November preceding each calendar year during the Term, NF
        shall provide Supplier with an annual budget ("ANNUAL BUDGET") of its
        requirements of Products for that calendar year in the form to be agreed
        by the Parties. This Annual Budget shall represent a reasonable estimate
        on NF's part as to NF's and NF Affiliates' requirements for the Products
        for that calendar year. NF shall make certain commitments to Supplier
        with respect to the Annual Budget in accordance with Article 9 hereof.
        Notwithstanding this Article 3.2, the Parties acknowledge that NF shall
        provide Supplier a half year budget for the last half of Year 2000 and
        the Quarterly Budget for the third quarter of Year 2000 one month prior
        to the commencement of the Term.

3.3     Quarterly Budget

        NF shall provide Supplier four weeks before each quarter of a calendar
        year a budget for NF and NF Affiliates' requirements for the Products
        for such quarter ("QUARTERLY BUDGET") and a projected forecast for NF's
        (and NF Affiliates') requirements for the Products for the quarter
        immediately following such quarter (for the avoidance of doubt, such
        projected forecast when given shall not alter or amend each Party's
        obligations under this Contract with respect to the Annual Budget and
        the Quarterly Budgets). NF undertakes to Supplier that it and NF
        Affiliates shall place orders with Supplier for the full amount of
        Products as stated in such Quarterly Budgets. Supplier undertakes with
        NF that it shall supply NF (or NF Affiliates, as the case may be) the
        Products based on orders placed by NF or (NF Affiliates) at least for
        the amount of products that Supplier can reasonably be expected to
        produce with:

        [ *** ] DJL-400 or equivalent furnaces on or before 31 December 2000;

        [ *** ] DJL-400 or equivalent furnaces on or before 31 March 2001;

        [ *** ] DJL-400 or equivalent furnaces on or before 30 June 2001;

        [ *** ] DJL-400 or equivalent furnaces after 30 June 2001.

       Provided that:

        (i)     the amount of Products stated in the Quarterly Budget for the
                first (1st) quarter of each calendar year during the Term shall
                not be in excess of 120% of that amount stated in the Quarterly
                Budget for the fourth (4th) quarter of the preceding Calendar
                year, unless otherwise agreed by the Parties; and


*       Certain information on this page has been omitted and filed separately
        with the Commission. Confidential treatment has been requested with
        respect to the omitted portions.


                                       3


<PAGE>   6
        (ii)    the total amounts of the Products stated in the Quarterly Budget
                shall not exceed that stated in the relevant quarter of the
                applicable Annual Budget, unless otherwise agreed by the
                Parties.

3.4     Third Party Purchases

        Supplier further undertakes to NF that Supplier shall not sell any
        products to a Third Party or otherwise enter into any contract /
        agreement that would commit any of Supplier's production capacity unless
        the following conditions are met in full:

        (a)     Supplier's sale of the relevant products shall be concluded
                within six (6) months from the date the purchase order of such
                products is placed with Supplier;

        (b)     The provision to, the acceptance of purchase orders from, or the
                manufacture on behalf of a Third Party by Supplier of any
                products, or the entering into of any contract or agreement by
                Supplier committing any of Supplier's production capacity would
                not cause any problem or delay in respect of Supplier's
                undertaking with NF to supply NF (or NF Affiliates, as the case
                may be) the amount of Products as specified in Article 3.3
                hereof.

        Sales made by Supplier to a Third Party in accordance with Article 3.4
        shall be referred to in this Contract as an "ACCEPTED THIRD PARTY
        PURCHASE".

3.5     Purchase Order

        Purchase of the Products by NF and NF Affiliates shall be based on
        binding purchase orders made by NF and NF Affiliates to Supplier. The
        terms of the purchase orders shall incorporate the terms of sale as
        stated in this Contract (where appropriate) and shall not be
        inconsistent therewith.

3.6     No Resale

        Products purchased by NF and NF Affiliates from Conet cannot be resold
        to Third Parties in its original form.


                        ARTICLE 4 - PRICING AND PAYMENTS

4.1     Prices

        The prices of the Products that are sold by Supplier to NF shall be
        quoted on an FOB basis and shall be negotiated by the Parties for each
        Quarterly Budget based on the then prevailing market price and on a
        most-preferred customer basis, provided however that the prices for the
        Products shall be lower than those quoted / offered by NF's current
        supplier(s) for the same Products under similar terms. Supplier
        undertakes with NF that the prices of the Products supplied to NF (and
        NF Affiliates) shall be the most favorable among all its sales
        (including sales to Third Parties) of the Products for the relevant
        period of supply.


                                       4


<PAGE>   7
4.2     Payments

        (a)     NF (or NF Affiliates, as the case may be) shall pay Supplier the
                purchase sum for the Products in relation to a particular
                purchase order within thirty (30) days after the invoice date
                for the relevant Products, provided that the invoice date shall
                not be earlier than the date of shipping of the Products by
                Supplier.

        (b)     All payments to Supplier for export of the Products by Supplier
                or sales to a bonded zone company in accordance with this
                Contract shall be made in United States Dollars or in another
                foreign currency (e.g. Hong Kong dollars). All payments to
                Supplier for domestic sales in PRC shall be in Renminbi.

4.3     Advanced Payment

        (a)     NF shall make an advance payment in the amount of RMB29 million
                (i.e. the Advanced Payment) to Supplier and Supplier shall repay
                Such Payment to NFUS in accordance with the following:

                (i)     NF shall remit RMB12.4 million within twenty-one (21)
                        days after the signing of this Contract to Supplier's
                        following account:

                        Account Name:
                        Account Number:
                        Name and address of Bank:

                (ii)    Supplier undertakes with NF to repay the full amount of
                        Such Payment in US Dollars to NFUS within thirty (30)
                        days after Supplier's receipt of the money referred to
                        in Article 4.3(a)(i) hereof.

                (iii)   NF shall remit RMB8.3 million to Supplier's bank account
                        as set out in Article 4.3(a)(i) within seven (7) days
                        after NFUS receives the full payment of Such Payment by
                        Supplier.

                (iv)    NF shall remit RMB8.3 million within ninety (90) days
                        after NFUS receives the full payment of Such Payment by
                        Supplier to Supplier's bank account as set out in
                        Article 4.3(a)(i) hereof.

                Supplier shall repay NF the Advanced Payment in instalments in
                accordance with the following schedules:


<TABLE>
<CAPTION>
                                                     Monthly
                                                     Repayment                    Total
                              Date                 (in Renminbi)   Duration   (in Renminbi)
                              ----                 -------------   --------   -------------
<S>                                                <C>             <C>        <C>
               30 November 2000 to 31 May 2001        500,000      6 months     3,000,000

               1 June 2001 to 30 November 2001        700,000      6 months     4,200,000
</TABLE>


                                       5


<PAGE>   8
<TABLE>
<S>            <C>                                  <C>           <C>         <C>
               1 December 2001 to 31 May 2002         900,000      6 months     5,400,000

               1 June 2002 to 30 November 2002       1,200,000     6 months     7,200,000

               1 December 2002 to 30 April 2003      1,500,000     5 months     7,500,000

               1 May 2003 to 31 May 2003             1,700,000      1 month     1,700,000

               Total:                                                          29,000,000
                                                                               ==========
</TABLE>


        (b)     If Supplier fails to repay NF any or all of the Advanced Payment
                in accordance with the Schedule set out in 4.3(a) above, NF
                shall have the right to credit any part or all of such due and
                outstanding portion of the Advanced Payment against NF or NF
                Affiliates' payments due in relation to purchase orders placed
                by NF or NF Affiliates during the Term in accordance with the
                provisions of this Contract. If Supplier is not able to meet its
                supply obligations under this Contract (particularly Articles 3,
                4 and 5 hereof), such failure by Supplier shall constitute a
                breach of this Contract and NF shall have the right to the
                repayment by Supplier of the Advanced Payment on 1 December
                2001, in addition to other remedies which NF may have under law
                in relation to such breach.

        If Supplier fails to meet any of its repayment obligations hereunder,
        interest on the default amount due from Supplier to NF shall accrue from
        the date of default at the rate of 2% above the Renminbi lending rate
        for working capital loan to companies as announced by Bank of China
        Fuzhou Branch from time to time until such time the default amount and
        the accrued interest are repaid in full.


                         ARTICLE 5 - DELIVERY AND TITLE

5.1     Delivery

        Delivery of the Products shall be made by Supplier to NF's (or NF
        Affiliate's, as the case may be) premises or such other location as may
        be specified by NF (or NF Affiliates, as the case may be) from time to
        time. NF shall bear the reasonable costs associated with such delivery
        after the Products leave Supplier's factory premises.

5.2     Title

        Title and the risk of loss or damage to the Products shall pass from
        Supplier to NF (or NF Affiliates, as the case may be) when the Products
        leave Supplier's factory.


                                       6


<PAGE>   9
                   ARTICLE 6 - SUPERVISION AND QUALITY CONTROL

6.1     Standards and Specifications

        Supplier shall manufacture the Products in accordance with NF's (or NF
        Affiliate's) specifications quality standards as maybe provided to
        Supplier from time to time. NF (or NF Affiliates) shall have the right
        to review and approve the quality level of such Products which are
        produced by Supplier. Supplier shall not distribute, market or sell any
        Products to NF and NF Affiliates to having quality, appearance or weight
        that do not meet the technical specifications required by NF (or NF
        Affiliates).

6.2     Inspection

        NF (or NF Affiliates) shall have the right to inspect Supplier's
        manufacturing facility and warehouse in relation to the Products, at any
        reasonable time during working hours upon prior written notice to
        Supplier.

6.3     Sampling

        During the term of this Contract, at NF's (or NF Affiliate's) request,
        Supplier agrees to obtain and submit, free of any charge to NF (or NF
        Affiliates), an agreed upon number of randomly selected, then current
        production samples of the Products, so that NF (or NF Affiliates) may
        assure itself of the quality thereof. If, at any time, any such sample
        is disapproved by NF (or NF Affiliates) for good cause, NF (or NF
        Affiliates) shall so advise Supplier and, upon receipt of such written
        advice, Supplier shall have a reasonable opportunity (no longer than
        ninety (90) days) to correct the problem and restore the quality of the
        Products to the satisfaction of NF (or NF Affiliates). If Supplier fails
        to correct the quality of the said Products, NF (or NF Affiliates) shall
        have the right to terminate this Contract upon the second written notice
        to Supplier.

6.4     Product Responsibility

        Notwithstanding NF's right to enforce compliance with NF's quality
        standards with respect to the Products, Supplier shall be solely
        responsible for the manufacturing quality of all Products. Specifically,
        Supplier shall comply with all relevant laws and regulations of the
        People's Republic of China in connection with, and shall obtain all
        necessary approvals, licenses and permits for the manufacture, supply,
        sale and export (where applicable) of the Products.


               ARTICLE 7 - REPRESENTATIONS, WARRANTIES AND BREACH

7.1     Representations

        Supplier represents, warrants and undertakes with NF that, at the time
        of delivery of the Products to NF (or NF Affiliates, as the case may
        be), all Products shall comply with the specifications provided by NF
        (or NF Affiliates, as the case may be) to Supplier (and accepted by
        Supplier) from time to time, fit for the purpose as may be specified by
        NF (or NF Affiliates, as the case may be) in its purchase orders.


                                       7


<PAGE>   10
7.2     Breach of Article 7.1

        In the event of any Supplier's breach of its representations, warranties
        and undertakings made under Article 7.1 of this Contract, Supplier shall
        be liable to, at NF's (or NF Affiliate's, as the case may be) option:

        (a)     promptly replace the Products in question; or

        (b)     promptly repay the price of the Products.

        in addition to other remedies which NF (or NF Affiliates) may have
        hereunder or under law.


              ARTICLE 8 - INVESTIGATION RIGHT AND RIGHT OF SET-OFF

8.1     Right to Audit

        Within three (3) months after the end of each calendar year during the
        Term at, at NF's (or NF Affiliates') request and agreed by Supplier, the
        Parties shall jointly appoint an internationally based, reputable and
        sizable accounting firm ("ACCOUNTANT") (which also shall have a presence
        in the PRC, for example, Ernst and Young) at NF's expense to investigate
        the books and accounts of Supplier for the sole purpose of determining
        whether the Products supplied to NF and NF Affiliates are supplied with
        the most favorable prices when compared to other sales of the Products
        made by Supplier (including those made to Third Parties). Supplier
        undertakes with NF that Supplier shall cooperate with and provide the
        Accountant reasonable access to Supplier's financial and sales records,
        provided that the following scope and instructions have been provided to
        the Accountant:

        (a)     the Accountant shall keep confidential all documents and
                information of Supplier examined while conducting its
                investigation, other than those permitted to be disclosed
                hereunder;

        (b)     the Accountant only shall review Accepted Third Party Purchases
                that involve Products that have the similar specifications in
                one or more of the purchase orders placed by NF or an NF
                Affiliates;

        (c)     when the Accountant makes comparison of prices, it also shall
                take into account other terms of these Accepted Third Party
                Purchases. The Accountant shall report its findings in writing
                (the "REPORT") to the Parties within one (1) month after
                concluding the above investigation.

8.2     Right of Refund or Set-off

        Following the issuance of the Report by the Accountant in accordance
        with Article 8.1 hereof, if the price(s) of the Products supplied to NF
        (or NF Affiliates, as the case may be) in any given period are not the
        most favorable as stipulated in Article 4.1, NF


                                       8


<PAGE>   11
        (or NF Affiliates, as the case may be) shall be entitled to a refund by
        Supplier of the overpaid amount(s) . Alternatively, NF may elect to
        set-off this overpaid amount against the invoiced amount in respect of a
        subsequent purchase of Products by NF (or NF Affiliates) made pursuant
        to this Contract.


                           ARTICLE 9 - NF COMMITMENTS

9.1     Subject to Article 9.3 hereof, NF represents, warrants and undertakes
        with Supplier that, with respect to each calendar year during the Term
        (or part of the calendar year for the first and last years during the
        Term), NF and NF Affiliates together shall purchase from Supplier 70% of
        the United States Dollar amount of the Products stated the applicable
        Annual Budget for that year ("MINIMUM PURCHASE AMOUNTS"). The failure by
        NF and NF Affiliates to meet the Minimum Purchase Amounts in accordance
        with this Article 9.1 shall constitute a breach under this Contract. In
        the event that NF and NF Affiliates fail to meet the Minimum Purchase
        Amounts, Supplier shall use its best efforts to find other purchaser(s)
        for the shortfall, notwithstanding Supplier's other rights under this
        Contract.

9.2     Subject to Article 9.3 hereof, with respect to the purchase of Products,
        NF shall first purchase the Products from Supplier during the Term.

9.3     NF's obligations under Article 9.1 and Article 9.2 hereof shall be
        subject to (i) Supplier having capacity and being able to manufacture
        and supply the Products to NF that meet NF's specifications and
        standards; and (ii) the sale of Products to NF being made in accordance
        with the terms of this Contract (including Articles 3, 4, 5, 6 and 7
        hereof).


                            ARTICLE 10 - TERMINATION

10.1    Termination

        (a)     One Party shall have the right to terminate this Contract by
                providing the other Party thirty (30) days prior notice in
                writing under any of the following circumstances:

                (i)     if the other Party materially breaches this Contract and
                        such a breach is not remedied within thirty (30) days of
                        notification of such breach;

                (ii)    if the other Party has become bankrupt or is the subject
                        of proceedings for liquidation or dissolution or ceases
                        to carry on business or becomes unable to pay its debts
                        as they become due; or

                (iii)   if both Parties agree in writing to terminate this
                        Contract.

10.2    Expiration or termination of this Contract shall not affect any supply
        obligations of Supplier to NF (and NF Affiliates) based on purchase
        orders already placed with Supplier prior to such expiration or
        termination.


                                       9


<PAGE>   12
                           ARTICLE 11 - FORCE MAJEURE

11.1    Definition of Force Majeure

        "FORCE MAJEURE" shall mean all events which are beyond the control of
        the Parties to this Contract, and which are unforeseen, unavoidable or
        insurmountable, and which prevent total or partial performance by either
        Party. Such events shall include earthquakes, typhoons, flood, fire,
        war, failures of international or domestic transportation, acts of
        government or public agencies, epidemics, civil disturbances, strikes
        and any other event which cannot be foreseen, prevented or controlled,
        including events which are recognized as Force Majeure in general
        international commercial practice.

11.2    Consequences of Force Majeure

        (a)     If an event of Force Majeure occurs, a Party's contractual
                obligations affected by such an event shall be suspended during
                the period of delay caused by the Force Majeure and the period
                for performing such obligations shall be extended, without
                penalty, for a period equal to such suspension.

        (b)     The Party claiming Force Majeure shall promptly inform the other
                Party in writing and shall furnish within fifteen (15) days
                thereafter sufficient proof of the occurrence and expected
                duration of such Force Majeure. The Party claiming Force Majeure
                shall also use all reasonable endeavours to terminate the Force
                Majeure.

        (c)     In the event of Force Majeure, the Parties shall immediately
                consult with each other in order to find an equitable solution
                and shall use all reasonable endeavours to minimize the
                consequences of such Force Majeure.


                       ARTICLE 12 - SETTLEMENT OF DISPUTES

12.1    Consultations

        In the event any dispute arises in connection with the interpretation or
        implementation of this Contract, the Parties shall attempt in the first
        instance to resolve such dispute through friendly consultations. If the
        dispute is not resolved in this manner within sixty (60) days after the
        date on which one Party has served written notice on the other Parties
        for the commencement of consultations, then any of the Parties may refer
        the dispute to arbitration in accordance with the provisions of Article
        12.2 hereof.

12.2    Arbitration

        With respect to any disputes which have not been resolved through
        consultations, they shall be submitted for arbitration to China
        International Economic And Trade Arbitration Commission in Beijing
        ("ARBITRATION INSTITUTE") in accordance with the


                                       10


<PAGE>   13
        applicable arbitration rules ("ARBITRATION RULES"), for final decision
        pursuant to the provisions of its Arbitration Rules.

        The arbitration shall also be conducted in accordance with the following
        provisions:

        (a)     the arbitrators shall refer to the Chinese and English texts of
                this Contract;

        (b)     all proceedings in any arbitration shall be conducted in
                Chinese; and

        (c)     there shall be three (3) arbitrators all of whom shall be fluent
                in English. NF shall select one (1) arbitrator and Supplier
                shall select one (1) arbitrator. The third arbitrator shall be
                appointed by the Arbitration Institute and shall serve as
                chairman of the arbitration tribunal.

12.3    Effect of Arbitration Award

        The arbitration award shall be final and binding on the Parties, and the
        Parties agree to be bound thereby and to act accordingly.

12.4    Costs

        The costs of arbitration shall be borne by the Party as designated in
        the arbitration award.

12.5    Continuing Rights and Obligations

        When any dispute occurs and when any dispute is under arbitration,
        except for the matters under dispute, the Parties shall continue to
        exercise their remaining respective rights, and fulfil their remaining
        respective obligations under this Contract.


                         ARTICLE 13 - BREACH OF CONTRACT

13.1    General Breach and Indemnity

        If one Party breaches any of its representations, warranties or
        undertakings made under this Contract, such Party shall be liable to the
        other Party (including NF Affiliates in the case of NF) for the direct
        and indirect losses suffered by the other Party (including NF Affiliates
        in the case of NF) as a result of such breach.

        Each Party (the "INDEMNIFYING PARTY") further indemnifies and holds
        harmless the other Party (including NF Affiliates in the case of NF) for
        any claim, loss or damage sustained or incurred by the other Party
        (including NF Affiliates in the case of NF) or arising as a result of a
        breach by the Indemnifying Party of its representations, warranties,
        undertakings and obligations hereunder, in addition to other remedies
        which the other Party (including NF Affiliates in the case of NF) may
        have under law.


                                       11


<PAGE>   14
13.2    Liability for Breach of Contract

        In the event that a breach of contract committed by a Party to this
        Contract results in the non-performance of or inability to fully perform
        this Contract, the liabilities arising from the breach of contract,
        including reasonable attorneys fees, shall be borne by the Party in
        breach as provided in this Contract. In the event that a breach of
        contract is committed by both Parties, each Party shall bear its
        individual share of the liabilities arising from the breach of contract.


                         ARTICLE 14 - GENERAL PROVISIONS

14.1    Governing Law

        The validity, interpretation, implementation and resolution of disputes
        of this Contract shall be governed by the laws of the People's Republic
        of China.

14.2    Assignability

        Neither Party may at any time assign this Contract or any of its rights
        and obligations hereunder without the prior written consent of the other
        Party, except that NF shall have the right to assign its rights,
        obligations and interests under this Contract to NF Delaware or an NF
        Affiliate and Supplier shall be deemed hereby to have given its consent
        to such assignment.

14.3    Entire Agreement

        This Contract, including the attachments appended hereto, constitutes
        the entire agreement between the Parties hereto relating to the subject
        matter hereof. This Contract may be amended only by a written document
        signed by both Parties.

14.4    Severability of Terms

        If any one or more of the provisions contained in this Contract shall be
        invalid, illegal or unenforceable in any respect under any applicable
        law, the validity, legality and enforceability of the remaining
        provisions contained herein shall not in any way be affected or
        impaired.

14.5    No Waiver

        The failure of one party to enforce any of the provisions of this
        Contract or to exercise any right herein provided shall not be deemed a
        waiver of such or any other provision or in any way affect the validity
        of this Contract.

14.6    Language

        This Contract and the attachments appended hereto are executed in both
        English and Chinese. Both language versions shall be equally authentic.
        If a provision of this Contract in the two versions are inconsistent,
        the Chinese version shall prevail.


                                       12


<PAGE>   15
14.7    Notices

        Any notice or written communication provided for in this Contract by
        either Party to the other, including but not limited to any and all
        offers, writings, or notices to be given hereunder, shall be made in
        English and Chinese by facsimile or by courier service delivered letter,
        promptly transmitted or addressed to the appropriate Party. The date of
        receipt of a notice or communication hereunder shall be deemed to be
        seven (7) days after the letter is given to a reputable courier service
        in the case of a courier service delivered letter and two (2) working
        days after dispatch of a facsimile if evidenced by a transmission
        confirmation report. All notices and communications shall be sent to the
        appropriate address set forth below, until the same is changed by notice
        given in writing to the other Party.

        NF:

        NEW FOCUS PACIFIC CO., LTD.
        Building R3-B, Unit A, 1st Floor,
        Shenzhen High-Tech Industrial Park,
        Nanshan District, Shenzhen, PRC

        Telephone No:        755-6525100
        Facsimile No:        755-6525150
        Attention:           General Manager

        Supplier:

        FUZHOU CONET COMMUNICATION, INC.
        No. 39 Fuxing Avenue
        Gushan Fuxing Investment Zone
        Jingan District, Fuzhou
        People's Republic of China

        Telephone No:        0591-3620100
        Facsimile No:        0591-3627300
        Attention:           General Manager


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IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be executed
by their duly authorized representatives on the date first written above.


NEW FOCUS PACIFIC CO., LTD.              FUZHOU CONET COMMUNICATION, INC.




By:     /s/ BAO-TONG MA                  By:     /s/ ZHI-XIN CAO
        ----------------------------             ------------------------------
Name:   Bao-Tong Ma                      Name:   Zhi-Xin Cao
        ----------------------------             ------------------------------
Title:  General Manager                  Title:    Chairman of the Board
        ----------------------------             ------------------------------


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<PAGE>   17
                                     ANNEX 1

                             PRODUCTS TO BE SUPPLIED


Optical Crystals and Optical Fibre Components as specified by NF in its purchase
orders, Quarterly Budgets and Annual Budget from time to time.


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