Document:

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                                                                   Exhibit 10.14

                                      LEASE

        This Lease, dated as of January 12, 2001 (the "Commencement Date"), is
entered into by and between DITTY PROPERTIES LIMITED PARTNERSHIP, a Washington
limited partnership ("Landlord"), and EDEN BIOSCIENCE CORPORATION, a Washington
corporation ("Tenant").

        1.     Basic Lease Terms. This Section sets forth certain basic terms of
this Lease for reference purposes. This Section is to be read in conjunction
with the other provisions of this Lease; provided, however, to the extent of any
inconsistency between this Section and the other provisions of this Lease, this
Section shall control.

<TABLE>
<S>                                         <C>
A.      LEASED PREMISES (See Section 2)

        Business Park:                      Quadrant Monte Villa Center
        Building Name:                      Eden Bioscience Building
        Address:                            3830 Monte Villa Parkway,
                                            Bothell, WA 98021
        Rentable Square Feet ("RSF"):       Approximately 63,200

B.      TERM (See Section 3)

        Rent Commencement Date:             Thirty (30) days after the Commencement Date
        Expiration Date:                    January 11, 2011
        Length of Term:                     Ten (10) years
        Extension Options:                  Two options for five (5) years each

C.      RENT; PREPAID RENT; SECURITY DEPOSIT (See Sections 5 and 6)

        Base Monthly Rent Schedule:

        Applicable Time Period         Annual Rent per RSF
        ----------------------         -------------------

        Month 1                             $ 0.00

        Months 2-30                         $19.50

        Months 31-60                        $21.00

        Months 61-90                        $22.65

        Months 91-120                       $24.50

        Security Deposit      $1,250,000 (subject to adjustment pursuant to Section 6.1
                              below)
        Prepaid Rent          $102,700 (to be applied to rent for February 2001)

D.      PERMITTED USE (See Section 7)

        Tenant may use the Premises only for general office use, laboratories,
        plant growth chambers and growing areas, a water-based fermentation and
        processing plant, packaging equipment, and warehouse uses.
</TABLE>

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<TABLE>
<S>                                        <C>
E.      OPERATING EXPENSES (See Section 8)

        Tenant's Share        100%

F.      CC&R'S (See Section 22)

        Declaration of Protective Covenants, Conditions, Restrictions ,
        Easements and Agreements for Quadrant Monte Villa Center recorded in
        King County under Recording Number 9212220800 and any amendments,
        modifications or revisions thereto and any rules or regulations
        promulgated thereunder (the "CC&Rs").

G.      PARKING (See Section 24)

        To the extent permitted by the CC&Rs and other documents presently
        recorded against the Property (as defined in Section 2.1), Tenant shall
        have exclusive use of all parking spaces located on the Property during
        the Term hereof.

H.      ADDRESSES (See Section 29)

        Landlord's Notice Address:                    Rent Payment Address:

        Ditty Properties                              Ditty Properties
        13343 Bel-Red Road                            c/o Quadrant/KMS Management Services
        Bellevue, WA 98005-2333                       P.O. Box 34860
                                                      Seattle, WA 98124-1860
        with a copy to:

        Ditty Properties c/o Quadrant/KMS Management Services
        728 134th Street SW, Suite 209
        Everett, WA 98204

        Tenant's Notice Address:

        Prior to commencing business in the           with a copy to:
        Premises:

        11816 North Creek Parkway North               Richard D. Thaler
        Bothell, WA 98011-8205                        Williams, Kastner & Gibbs PLLC
        Attn: Brad Powell                             Two Union Square
                                                      601 Union St., Suite 4100
                                                      Seattle, WA  98101-2380
        After commencing business in the
        Premises:

        3830 Monte Villa Parkway
        Bothell, WA 98021
        Attn:  Brad Powell
</TABLE>
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I.      BROKERS (See Section 37)

        For Tenant:   Broderick Group

        For Landlord: CenturyPacific, L.P.

        2.      Premises.

                2.1     Agreement to Lease. Landlord agrees to lease to Tenant
and Tenant agrees to lease from Landlord the Premises consisting of the building
depicted on Exhibit A-1 (the "Building") and the real property on which the
Building is located as legally described on Exhibit A-2, including all parking
areas, accessways, driveways, and other improvements on such real property
(collectively, the "Property"). Unless required to do so by law or in order to
comply with the CC&Rs Landlord shall not alter or change the present
configuration and capacity of the parking areas, accessways and driveways on the
Property in any manner that would reduce the number of parking spaces or
materially impact Tenant's use of the Property without Tenant's prior written
consent which shall not be unreasonably withheld, conditioned or delayed.
Landlord and Tenant acknowledge and agree that the Premises contain
approximately the RSF designated in Section 1. Subject to Landlord's reserved
rights herein, the Premises constitute the entirety of the Building. The
Premises, Building, and Property are part of a business park ("Business Park")
described in Section 1 above.

                2.2     Contingency. This Lease is contingent on the
simultaneous execution and delivery of a written agreement between Landlord and
Catapult, Inc., in which the parties agree to terminate Catapult's rights to
possession and occupancy of the Premises.

                2.3     Measurement. The Premises are deemed to contain the
number of RSF set forth above and such number shall be final and binding on the
parties for all purposes under this Lease. Landlord and Tenant accept the
foregoing calculation and no remeasurement shall be required or permitted
hereunder. Any actual measurement of the square footage or rentable square
footage of the Premises and Building shall not be relevant to or control the
calculation of Base Monthly Rent.

        3.      Term.

                3.1     Initial Term. The initial term of this Lease ("Initial
Term") shall commence on the later of (a) the Commencement Date set forth in
Section 1, or (b) the date Landlord tenders possession of the Premises to
Tenant. The covenants and conditions of this Lease shall be effective as of the
mutual execution of this Lease notwithstanding the Commencement Date set forth
herein.

                3.2     Expiration. The Initial Term shall expire on the
Expiration Date set forth in Section 1, unless sooner terminated or extended as
provided in this Lease. As used herein, "Term" shall mean the Initial Term and,
if Tenant validly exercises its Extension Option(s), any Extended Term.

                3.3     Options to Extend Term. Tenant shall have two successive
options (each an "Extension Option") to extend the Term of this Lease for an
additional five (5) years each. Each such option may be exercised by Tenant only
by irrevocable written notice of exercise delivered to Landlord no later than
twelve (12) months prior to the expiration of the Initial Term or the first
Extended Term, as applicable. If Tenant does not deliver a notice of exercise by
the

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appropriate date then the Extension Option(s) shall immediately terminate and be
of no further force or effect and this Lease shall terminate on the scheduled
Expiration Date. If Tenant does not exercise the first Extension Option then the
second Extension Option shall terminate and be of no further force or effect.
Tenant's Extension Options shall be personal to Tenant and may not be exercised
by any assignee (other than a Permitted Transferee as defined in Section 17.3
which may exercise Tenant's Extension Options) or subtenant. Tenant may not
exercise either Extension Option if on the date of such notice Tenant is in
default (after any required notice and expiration of any applicable cure period)
under this Lease. If Tenant becomes in default (after any required notice and
expiration of any applicable cure period) under this Lease after exercise of an
Extension Option but before the commencement of the Extended Term, Landlord may,
in addition to its other remedies under this Lease, elect to terminate such
extension by notice in writing to Tenant, whereupon the Term shall expire
without any such extension.

                3.3.1   Upon such exercise, the parties shall be obligated under
all the terms and conditions of this Lease through the Extended Term, except
that (i) Base Monthly Rent shall be adjusted as provided in Section 3.3.2, (ii)
Landlord shall have no obligation to alter the Premises or pay any tenant
improvement or refurbishment allowance for the Extended Terms, and (iii) Tenant
shall not have any additional rights to extend the Term, except to the extent an
Extension Option remains to be exercised hereunder.

                3.3.2   Base Monthly Rent during the applicable Extended Term
shall be equal to the then fair market rent (including periodic rent increases)
for the Premises determined in accordance with this Section; provided, however,
that in no event shall Base Monthly Rent during the Extended Term be less than
the Base Monthly Rent for the last month of the Initial Term or the first
Extended Term, as applicable. "Fair Market Rent" as of any date shall mean the
per-square-foot rental rate for a direct lease, including fair market expansions
or renewals, for space comparable to the Premises in their condition on the
Commencement Date, leased for a comparable term, with comparable uses, with
comparable quality shell and core construction, in comparable Class A office
projects in the Bothell Market Area, taking into consideration: location in the
Building or other building, extent of service provided or to be provided, the
ownership of the comparable space, the time the particular rate under
consideration became or is to become effective and any other relevant terms or
conditions. The parties intend that Fair Market Rent shall be determined as if
the Premises were then in the same condition as the Premises were in on the
Commencement Date of the Initial Term and Fair Market Rent shall not be
determined based on, or increased by or because of, any improvements or
alterations constructed or installed in the Premises by Tenant at Tenant's sole
cost and expense nor shall it be determined based on or reduced by any tenant
improvement or refurbishment allowance.

                3.3.3   At least six (6) months prior to the commencement of the
Extended Term, Landlord shall propose a Base Monthly Rent schedule for the
Extended Term. Failure on the part of Landlord to give such notice in a timely
manner shall not vitiate the right to require adjustment of Base Monthly Rent,
but such delay shall result in deferral of the adjustment to the date that is
ninety (90) days after the date of such notice. The parties shall negotiate in
good faith, but if they are unable to agree upon such Base Monthly Rent schedule
within thirty (30) days after the delivery of Landlord's proposal, Tenant may by
written notice demand arbitration within thirty (30) days after receipt of
notice from Landlord of Landlord's determination of Fair Market Rent. If no
arbitration demand is delivered, Tenant shall be deemed to have accepted the
Fair Market Rent as determined by Landlord. If Tenant elects to arbitrate, then
unless otherwise agreed in writing by the parties, the matter shall be submitted
to arbitration in accordance with the terms of the following paragraphs. The
date on which Tenant

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gives its demand for arbitration is referred to in this Lease as the
"Arbitration Commencement Date".

                3.3.4   Within fifteen (15) days after the Arbitration
Commencement Date, each party shall provide the other party with written notice
(a "Rent Notice") of its determination of Fair Market Rent. The matter shall
then be submitted for decision to a single arbitrator or a panel of three (3)
arbitrators selected in accordance with this Section 3.3.4. Each arbitrator
appointed under this provision shall be an MAI certified appraiser with at least
ten (10) years professional appraising experience (including recent experience
in the Bothell market) who would qualify as an expert witness over objection to
give testimony addressed to the issue in a court of competent jurisdiction and
shall not have worked for or on behalf of either party during the three (3) year
period ending on the Arbitration Commencement Date. If Landlord and Tenant are
unable to agree on a single arbitrator within thirty (30) days after the
Arbitration Commencement Date, then each party shall select an arbitrator who
shall be qualified under the same criteria set forth above, and so notify the
other party in writing within fifteen (15) days after the end of such thirty
(30) day period. The two arbitrators so chosen by the parties shall then appoint
a third arbitrator within fifteen (15) days after the date of the appointment of
the last appointed arbitrator. If the two arbitrators so chosen by the parties
are unable to agree on the third arbitrator within such fifteen (15) day period,
the third arbitrator will be appointed by the director (or the equivalent) of
the Seattle office of the American Arbitration Association upon the application
of either party. If either party fails to timely select its arbitrator and so
notify the other party in writing within the foregoing fifteen (15) day period,
and the other party timely selects its arbitrator, then the arbitrator selected
by the other party shall be the sole arbitrator for determining Fair Market
Rent. If a third arbitrator is selected, then the decision by a majority of the
panel of three arbitrators shall determine Fair Market Rent pursuant to this
Section 3.3.

                3.3.5   Within thirty (30) days after the selection of the
arbitrator pursuant to Section 3.3.4 above, the arbitrator or arbitrators shall
determine Fair Market Rent by selecting either the Fair Market Rent stated in
Landlord's Rent Notice or the Fair Market Rent stated in Tenant's Rent Notice.
The determination of the arbitrator or arbitrators shall be limited to the sole
issue of whether the Fair Market Rent specified in Landlord's Rent Notice or
Tenant's Rent Notice is closest to the actual Fair Market Rent as determined by
the arbitrator or arbitrators. The arbitrator or arbitrators shall have no power
to average such amounts, modify the proposed rent schedules or to designate a
Fair Market Rent other than that specified in either Landlord's Rent Notice or
Tenant's Rent Notice.

                3.3.6   Both parties may submit any information to the
arbitrator or arbitrators for consideration, with copies to the other party. The
arbitrator or arbitrators shall have the right to consult experts and competent
authorities for factual information or evidence pertaining to the determination
of Fair Market Rent or to conduct a hearing. The arbitrator or arbitrators shall
render his, her or their decision by written notice to each party. The
determination of the arbitrator or a majority of the panel of three (3)
arbitrators shall be final and binding upon Landlord and Tenant. If there is
only one arbitrator then each party shall pay fifty percent (50%) of the cost of
the arbitration. If there are three arbitrators then each party shall pay the
cost of its own arbitrator and fifty percent (50%) of the cost of the third
arbitrator.

                3.3.7   The award rendered in any such arbitration may be
entered in any court having jurisdiction and shall be final and binding between
the parties. The arbitration shall be conducted and determined in the City of
Seattle, Washington, in accord with the then-prevailing commercial arbitration
rules of the American Arbitration Association or its successor

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for arbitration of commercial disputes except that the procedures mandated by
said rules shall be modified as set forth in this Section.

                3.3.8   If Tenant elects to arbitrate and the arbitration is not
concluded prior to the first day of the Extended Term, then Tenant shall pay
Base Monthly Rent to Landlord commencing on the first day of the applicable
Extended Term in an amount equal to the Fair Market Rent specified in Landlord's
Rent Notice. If the amount of Fair Market Rent as determined by arbitration is
greater than or less than the Fair Market Rent specified in Landlord's Rent
Notice, then any adjustment required to correct the amount previously paid shall
be made by payment by the appropriate party within ten (10) days after such
determination of Fair Market Rent.

        4.      Construction of Premises: Early Possession: Delayed Delivery of
Possession.

                4.1     As-Is. Landlord shall deliver the Premises to Tenant in
their current "as-is" condition with all faults. Landlord shall not be required
to make any alterations or improvements to the Premises. Tenant shall be
responsible for installing its Tenant Improvements in the Premises in accordance
with Exhibit C and shall not begin construction until the terms and conditions
of Exhibit C have been fully satisfied.

                4.2     Early Possession. If Landlord permits Tenant to occupy
the Premises prior to the Commencement Date set forth in Section 1, the
Commencement Date shall be such date of occupancy. Tenant's occupancy prior to
the originally scheduled Commencement Date shall be subject to all the
provisions of this Lease and shall not advance the Expiration Date.

                4.3     Delayed Delivery. Tenant acknowledges that the Premises
are currently leased to Catapult, Inc. and that the lease between Catapult and
Landlord must be terminated before Landlord can deliver possession to Tenant.
Tenant understands and agrees that delays in terminating Catapult's rights may
result in extension of the scheduled Commencement Date. If Landlord for any
reason cannot deliver possession of the Premises to Tenant at the Commencement
Date, (i) the Commencement Date shall be the date on which possession of the
Premises is delivered to Tenant, (ii) this Lease shall not be void or voidable,
nor shall Landlord be liable to Tenant for any loss or damage resulting
therefrom, (iii) the Rent Commencement Date shall be delayed to the same extent
as the delay in the Commencement Date, (iv) the Expiration Date shall be
adjusted so that the length of the Lease Term remains as provided in Section 1,
and (v) Landlord and Tenant shall execute a written acknowledgement setting
forth the adjusted Commencement Date and Expiration Date, provided, however,
that if the Commencement Date has not occurred by January 1, 2002, then either
Landlord or Tenant may terminate this Lease by giving notice to such effect to
the other party.

        5.      Rent.

                5.1     Base Monthly Rent. Tenant shall pay to Landlord the Base
Monthly Rent specified in Section 1 and the Additional Rent as set forth in
Section 8 and elsewhere in this Lease (the Base Monthly Rent and the Additional
Rent are collectively referred to as "Rent"). Rent shall be paid in advance, on
or before the first day of each calendar month of the Lease Term. Except as
expressly permitted herein, Rent shall be paid without prior notice, demand, set
off, counterclaim, deduction or defense and, except as otherwise expressly
provided in this Lease, without abatement or suspension. As used herein,
"Additional Rent" shall mean all sums payable by Tenant hereunder other than
Base Monthly Rent.

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                5.2     Rent Commencement. Payment of Rent shall begin on the
Rent Commencement Date set forth in Section 1 (except as provided in Section 4).
Rent for any period during the Term that is less than one month shall be
prorated for the actual number of days in such period and Rent for the first
partial month shall be paid on the Rent Commencement Date.

                5.3     Address for Payments. All Rent shall be paid to Landlord
at the address for rent set forth in Section 1, in lawful money of the United
States of America, or to such other person or at such other place as Landlord
may from time to time designate in writing.

        6.      Prepaid Rent and Security Deposit. Upon execution of this Lease,
Tenant shall pay to Landlord the Prepaid Rent set forth in Section 1 which shall
be applied to the first full month's Base Monthly Rent falling due hereunder.
Within two (2) business days after Tenant's execution of this Lease, Tenant
shall provide an irrevocable, fully assignable, and unconditional standby letter
of credit, issued by Imperial Bank (including any successor by merger or
consolidation that acquires substantially all of Imperial Bank's assets) or
another financial institution reasonably acceptable to Landlord (and otherwise
meeting the criteria set forth herein) and with a term of at least one (1) year
with automatic renewal provisions, drawable by Landlord upon demand, and
substantially in the form attached hereto as Exhibit B (the "Letter of Credit")
in an amount equal to One Million Two Hundred Fifty Thousand Dollars
($1,250,000), as security for the full and faithful performance of Tenant's
obligations under this Lease (the "Security Deposit"). Landlord may draw upon
the Letter of Credit in whole or in part under the same terms and conditions as
Landlord may apply a cash security deposit as provided in Section 6.3 below. The
financial institution issuing the Letter of Credit (and any renewal or
substitute Letter of Credit) must have and maintain at all times total assets of
at least One Billion Dollars ($1,000,000,000) and, in the event the financial
institution's total asset level falls below such amount, Tenant shall, within
thirty (30) days after written notice from Landlord, provide a substitute letter
of credit from another financial institution with total assets at or above such
amount and otherwise reasonably acceptable to Landlord. Landlord acknowledges
that Imperial Bank does not meet such financial threshold but is involved in a
merger with Comerica Incorporated that will satisfy such threshold. If the
merger is not consummated, Landlord may request Tenant to provide a substitute
letter of credit from a qualified financial institution. In addition, Landlord
may draw upon the Letter of Credit after two (2) Business Days notice to Tenant
if Tenant fails to increase the Letter of Credit as required hereunder or if
Tenant fails to deliver to Landlord a renewal or extension of the Letter of
Credit, in substantially the same form or another form acceptable to Landlord in
its sole discretion, for a term of not less than one (1) year at least thirty
(30) days prior to the expiration date of the existing Letter of Credit.
Notwithstanding the foregoing, Landlord shall not be required to provide prior
notice to Tenant before drawing on the Letter of Credit if the Letter of Credit
would expire during such notice period. It shall be deemed reasonable for
Landlord to reject a financial institution hereunder if such financial
institution is not acceptable to Landlord's lender; provided that Landlord's
current lender has indicated orally that it will not object to Imperial Bank.

                6.1     Changes in Security Deposit Amount. Provided that (a) no
default (after any required notice and expiration of any applicable cure period)
has occurred under this Lease at any time prior to such date, (b) Tenant is
generally paying its creditors as and when its debts mature and there are no
uninsured final or unbonded judgments against Tenant in excess of $500,000, and
(c) Tenant has achieved the financial milestones (the "Financial Milestones")
described in subsections 6.2.1 and 6.2.2 for a period of no less than four (4)
consecutive fiscal quarters and in subsection 6.2.3 for the preceding fiscal
year then, at the beginning of each of the fourth (4th) through eighth (8th)
Lease Years, the Letter of Credit may be reduced according

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to the schedule set forth below, provided that Tenant shall, at its expense,
provide a substitute Letter of Credit, in substantially the same form or another
form acceptable to Landlord in its sole discretion, for the adjusted amount. In
no event shall the Security Deposit be reduced below One Hundred Twenty-five
Thousand Dollars ($125,000).

        Period                                      Amount of Security Deposit
        ------                                      --------------------------
        Commencement Date through 12/31/03                  $1,250,000
        1/1/04 through 12/31/04                             $1,000,000
        1/1/05 through 12/31/05                            $   750,000
        1/1/06 through 12/31/06                            $   500,000
        1/1/07 through 12/31/07                            $   250,000
        Balance of Term                                    $   125,000

        Notwithstanding the foregoing, in the event Tenant achieves the
Financial Milestones and reduces the Security Deposit, but later falls below the
Financial Milestones at any time then Tenant shall immediately increase the
Letter of Credit to the full One Million Two Hundred Fifty Thousand Dollars
($1,250,000) and the Security Deposit shall remain at such level until Tenant
has again achieved the Financial Milestones described in subsections 6.2.1 and
6.2.2 for a period of no less than four (4) consecutive fiscal quarters and in
subsection 6.2.3 for the preceding fiscal year. If Tenant subsequently achieves
the Financial Milestones for the required periods, Tenant may decrease the
Security Deposit to the sum otherwise permitted under the schedule set forth
above. Such increases and decreases in the Security Deposit shall continue
throughout the Term if Tenant thereafter meets or fails to meet the Financial
Milestones for the required periods. Tenant shall provide its unaudited
financial statements to Landlord on a quarterly basis and its audited financial
statements to Landlord on an annual basis as and when required under Section 36,
together with any explanation or supporting data necessary to substantiate
whether Tenant has achieved the Financial Milestones for such quarter or year.
Failure to provide such statements shall be a default hereunder.

                6.2     Financial Milestones. Tenant's attainment of Financial
Milestones shall be measured using generally accepted accounting principles
consistently applied as shown on Tenant's audited financial statements submitted
to the Securities and Exchange Commission. If Tenant changes its accounting
methodology then the Financial Milestones shall be renegotiated in good faith to
provide Landlord with comparable protections. The Financial Milestones are as
follows:

                        6.2.1   Tenant's Current Ratio of assets to liabilities
as reflected on Tenant's Balance Sheet shall be at least 2:1.

                        6.2.2   Tenant's net worth as reflected on Tenant's
Balance Sheet shall be equal to or greater than Ten Million Dollars
($10,000,000). As used herein, "Net Worth" shall mean as of any date, (i)
Tenant's aggregate tangible assets (tangible assets shall not include assets
such as goodwill, patents, trademarks, copyrights, or other intellectual
property rights, franchises or research and development), minus (ii) Tenant's
aggregate liabilities.

                        6.2.3   Tenant's Net Operating Income as reflected on
Tenant's Income Statement shall be not less than Two Million Five Hundred
Thousand Dollars ($2,500,000) for the preceding fiscal year. Net Operating
Income shall mean Net Operating Income as shown on the audited financial
statements plus interest income and depreciation expense less interest expense.

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                6.3     Use of Security Deposit. Tenant shall not assign or
encumber, or attempt to assign or encumber, any part of the Security Deposit and
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment, or attempted encumbrance.
Landlord shall not be required to exhaust its remedies against Tenant before
having recourse to the Letter of Credit or any cash security held by Landlord.
Recourse by Landlord to the Letter of Credit or other security shall not affect
any remedies of Landlord which are provided in this Lease or which are available
to Landlord in law or equity. In the event of a default by Tenant hereunder
(after any required notice and expiration of any applicable cure period),
Landlord may draw on the Letter of Credit in accordance with its terms. Landlord
may (but shall not be required to) use the Security Deposit or any portion
thereof to cure any defaults on the part of Tenant or to compensate Landlord for
any damage or costs Landlord incurs by reason of a default hereunder. In such
event, and upon written notice from Landlord to Tenant specifying the amount of
the Security Deposit so utilized by Landlord and the purpose for which such
amount was applied, Tenant shall immediately deposit with Landlord cash (or
shall provide an amendment to the Letter of Credit) in an amount sufficient to
return the Security Deposit to the full amount required under Section 6.1.
Within forty-five days after expiration of the Term or earlier termination of
this Lease (or such longer period of time as is needed to confirm the existence
of or cost to remedy any default), provided no default is then outstanding, the
Security Deposit shall be returned to Tenant, reduced by those amounts that may
be required by Landlord to remedy defaults on the part of Tenant in the payment
of Rent or otherwise, to repair damages to the Premises caused by Tenant and to
restore the Premises to the condition required by this Lease. Landlord shall
have no obligation to segregate the Security Deposit from its general funds or
to pay interest thereon. If Landlord conveys or transfers its interest in the
Premises, and as a part of such conveyance or transfer, assigns its interest in
this Lease and the assignee assumes Landlord's obligations hereunder, then
Landlord shall be released and discharged from any further liability to Tenant
with respect to the Security Deposit. Landlord shall provide a copy of the
assignment and assumption agreement upon Tenant's request.

                6.4     Prepaid Rent. In the event this Lease is terminated
before the end of the Term for any reason except casualty or condemnation, any
Rent paid for any period after the date of such termination shall be treated as
an addition to the Security Deposit.

                6.5     Landlord's Duty. Landlord's obligations with respect to
the Security Deposit are those of a debtor and not a trustee. Landlord may
maintain the security deposit separate from Landlord's general funds or may
commingle the Security Deposit with other funds of Landlord. No interest shall
accrue for Tenant on the Deposit.

        7.      Use of Premises.

                7.1     Permitted Use. Tenant shall use the Premises only for
the purpose set forth in Section 1 and for no other purpose without Landlord's
written consent. Tenant acknowledges that it has determined to its satisfaction
that the Premises can be used for those purposes. Tenant waives any right to
terminate this Lease in the event the Premises cannot be used for such purposes
during the Term.

                7.2     Compliance With Insurance. Tenant shall not do or permit
anything to be done in or about the Premises or bring or keep anything therein
which will cause cancellation of any insurance policy covering the Building or
any part thereof or any of its contents.

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                7.3     No Nuisance; Garbage Removal. Tenant shall not do or
permit anything to be done in or about the Premises that will obstruct or
interfere with the rights of other tenants or occupants of the Business Park or
injure them or their property, or use or allow the Premises to be used for any
unlawful purpose or in any way constituting a nuisance. Tenant, at its sole
cost, shall remove any garbage on a regular basis. Tenant may store garbage in
the Premises or in exterior dumpsters approved by Landlord until it its removed.

                7.4     Tenant's Repairs. Subject to Sections 10.1, 10.2, 15 and
16, Tenant agrees, at its sole cost, to maintain the Premises, all parts
thereof, all loading docks contiguous thereto and all Tenant's signs in good
order, condition and repair, ordinary wear and tear excepted, including keeping
the inside of all glass in doors and windows of the Premises clean, promptly
replacing any broken door or door closers and any cracked or broken glass with
glass of like kind and quality. Tenant shall maintain, repair, and replace as
and when necessary the mechanical systems (including HVAC) and all utility lines
within the Premises, including those beneath the slab and within the exterior or
demising walls, except to the extent such items are to be maintained, repaired
or replaced by Landlord pursuant to Section 10.1. Tenant shall not permit any
vibration and noise which may be transmitted beyond the Premises. When used in
this Lease, the term "repair" shall include making all necessary replacements,
renewals, alterations and additions. All repairs shall be at least equal in
quality to the original work and shall be made by Tenant in accordance with all
applicable laws, ordinances and regulations. Tenant shall enter into annual
service and testing/inspection contracts on the HVAC, elevator, fire and life
safety systems (the "Maintenance Contracts"). If Tenant fails to perform any of
its obligations under this Section 7.4, Landlord may, in addition to exercising
any other remedies provided herein, perform such repairs or maintenance. Any
sums expended by Landlord in performing such repairs or maintenance shall be due
and payable as Additional Rent, within ten (10) days after Tenant's receipt of
Landlord's written request for reimbursement, which request shall be accompanied
by reasonable evidence of such costs.

        8.      Additional Rent for Operation Expenses.

                8.1     Tenant Payment. Tenant shall pay, as Additional Rent,
all Operating Expenses. Operating Expenses shall be payable on or before the
first day of the first full calendar month of the Term or upon the Commencement
Date, whichever first occurs, and on the first day of each successive calendar
month thereafter during the Term in the same manner as Base Monthly Rent.

                8.2     Accounting Period. An accounting period is a calendar
year, except the first accounting period shall commence on the Commencement Date
and end on December 31 of the same calendar year. The last accounting period
shall end on the Expiration Date of the Lease Term. Annualized Operating
Expenses shall be prorated on a per diem basis for any accounting period that is
less than a full calendar year.

                8.3     Adjustment. Landlord can adjust the Operating Expenses
at the commencement of each new accounting period throughout the Lease term,
whereupon Tenant's Additional Rent shall be adjusted accordingly. Prior to each
January 1 of the Term, Landlord shall furnish Tenant a written statement of the
estimated monthly Operating Expenses for the coming calendar year. The estimated
monthly Operating Expenses for the period before the first January 1 after the
Commencement Date will be provided by Landlord to Tenant no later than 90 days
prior to the Commencement Date. Landlord may, by written notice to Tenant,
revise its estimate of Operating Expenses from time to time.

                                       10
<PAGE>   11
                8.4     Reconciliation. Within 90 days after each January 1
during the Term, or as soon thereafter as practicable, Landlord shall deliver to
Tenant a written statement setting forth the actual Operating Expenses during
the preceding calendar year (or portion of such calendar year after the
Commencement Date). To the extent actual Operating Expenses exceeded the
estimated Operating Expenses paid by Tenant, Tenant shall pay Additional Rent to
Landlord within 30 days after receipt of such statement by Tenant and to the
extent actual Operating Expenses were less than the estimated Operating Expenses
paid by Tenant, Tenant shall receive a credit against its next payable Rent or
such amount shall otherwise be refunded to Tenant as Landlord determines in its
sole discretion; provided, however, that as to the last accounting period Tenant
shall receive a refund at the time Landlord delivers such statement to Tenant.

                8.5     Definitions. "Operating Expenses" means all expenses and
charges incurred by Landlord in the operation, maintenance, repair and
replacement of the Building, Property and Common Areas (as defined in the
CC&R's), as a first-class facility, including without limitation the following
costs by way of illustration: (i) all real property taxes, assessments and other
general or special charges levied during the Term by any public, governmental or
quasi-governmental authority against the real or personal property included in
the Building or the Property, including without limitation Landlord's personal
property used in the maintenance, repair or operation of the Building or the
Property, or any other tax on the leasing of the Building or on the rents from
the Building (other than any federal, state or local income or franchise tax);
(ii) any and all assessments, fees, charges and impositions Landlord must pay
for the Building, Property or Common Areas pursuant to the CC&R's,
transportation or any other improvement monitoring or management plans, or any
other covenant, condition or reciprocal easement agreements; (iii) electricity,
gas and similar energy sources, refuse collection, water, sewer and other
utilities services for the Building and the Property; (iv) all licenses, permits
and inspection fees; (v) all costs and expenses relating to the Premises
Maintenance Obligations (as defined in Section 9.1); (vi) all costs and expenses
relating to the Premises Services Obligations (as defined in Section 9.2); (vii)
all costs of improvements or alterations to the Building and Property which are
required by Laws, or which are intended to save labor or to reduce Operating
Expenses (provided that all capital improvements shall be amortized over the
useful life of such capital improvements as reasonably determined by Landlord
together with interest on the unamortized balance from time to time at a per
annum interest rate equal to the Prime Rate in effect on the date such costs are
incurred plus one percent (1%)); (viii) all premiums and deductibles (subject to
the agreed limits set forth in Section 14.6) for liability, property damage,
casualty, automobile, rental loss, compensation or other insurance maintained by
Landlord for the Building or Property; (ix) the cost (amortized over its useful
life as reasonably determined by Landlord together with interest at a per annum
interest rate equal to the Prime Rate in effect on the date such costs are
incurred plus one percent (1%) on the unamortized balance) of any capital
improvements made to the Property or Building by Landlord for the replacement of
any Building equipment needed to operate the Building at the same quality levels
as prior to the replacement;(x) costs incurred in the management or operation of
the Building and Property (including supplies), wages and salaries of employees
engaged in the management, operation and maintenance thereof and payroll taxes
and similar governmental charges with respect thereto which costs shall be
appropriately prorated if such persons work on projects or properties other than
the Building and Property and only the costs attributable to the Building and
Property shall be included in Operating Expenses; (xi) property management fees
paid to independent or affiliated contractors or to Landlord (subject to
competitive bidding as provided in Section 9.3 below) and legal, accounting and
other professional expenses; (xii) any other expense or charge whether or not
described above that in accordance with generally accepted accounting principles
and commercial property management practices is properly an expense of

                                       11
<PAGE>   12
maintaining, operating or repairing the Building or Property. Operating Expenses
shall not include any of the following: (A) ground rent; (B) depreciation on the
Building or equipment therein; (C) debt service, including interest and
amortization of funds borrowed by Landlord for items other than capital
improvements; (D) real estate broker's commissions or other sale or leasing
commissions; (E) advertising and promotional expenses, legal fees and other
costs incurred in connection with procuring tenants or offering the Building and
Property for sale; (F) the cost of tenant improvements, including space planning
fees, design fees and other soft costs; (G) wages, bonuses and other
compensation of employees above the grade of property manager; (H) costs of any
items for which Landlord is paid or reimbursed by insurance; (I) costs for
utilities or services which Landlord is reimbursed directly from, any tenant,
including Tenant; (J) costs relating to compliance with laws or regulations
related to any noncompliance in existence as of the date of this Lease with
respect to those parts of the Building and Property that Landlord is responsible
for maintaining and repairing; or (L) charitable or political contributions.
Landlord shall not collect more than 100% of Operating Expenses and shall not
recover any item of cost more than once. As used in this Section 8.5, "Prime
Rate" shall mean the highest prime rate of interest published in the "Money
Rates" column in The Wall Street Journal during such calendar month. If The Wall
Street Journal ceases publication of a prime rate, then the Prime Rate shall
mean the highest prime rate of interest publicly announced during such month by
Bank of America, N.A., or its successor (or if such bank ceases to exist then
any national banking association selected by Landlord).

                8.6     Tenant Obligation. Landlord shall have the same rights
with respect to Tenant's nonpayment of Operating Expenses as required under this
Lease as it has with respect to any other nonpayment of Rent under this Lease.

        9.      Premises Maintenance and Services Obligations.

                9.1     Premises Maintenance Obligations. Except as otherwise
provided in Sections 10.1 and 10.2, Tenant shall be responsible for maintenance
and repairs to the Premises including the exterior and structural portions of
the Building as well as all building systems inside or outside the exterior
walls of the Premises and the repairs and maintenance to the Common Areas
("Premises Maintenance Obligations"). Tenant's Premises Maintenance Obligations
shall include the repair and maintenance of the HVAC equipment provided by
Landlord, roof and roof membrane and the exterior of the Building but shall not
include replacement thereof. Tenant shall perform the Premises Maintenance
Obligations in accordance with the highest standards of property management and
in such a manner as to maintain the Building and the Property in first class
order, condition and repair. Tenant further agrees to maintain the Building and
the Property in a manner consistent with the CC&Rs.

                9.2     Premises Services Obligations. Tenant shall provide or
cause to be provided, all services to the Premises, Building and Property,
including without limitation, janitorial, landscape and irrigation system
maintenance, parking lot sweeping and maintenance, window washing, rubbish
removal, maintenance of the heating, ventilating, and air conditioning systems,
and other similar desired and necessary services (collectively "Premises
Services Obligations"). Tenant shall perform the Premises Services Obligations
in accordance with the highest standards of property management and in such a
manner as to maintain the Building and the Property in first class order,
condition and repair and in compliance with the CC&Rs.

                9.3     Compliance. By no later than January 1st of each year,
Tenant shall prepare and present to Landlord and its property manager, an annual
plan showing in reasonable detail Tenant's proposed schedule for the Premises
Maintenance Obligations and

                                       12
<PAGE>   13
the Premises Services Obligations during the forthcoming year. Tenant shall make
any revisions to the plan reasonably requested by Landlord or the property
manager and shall follow the plan during the period covered by the schedule.
Tenant shall also provide to Landlord and its property manager for review and
approval (which shall not be unreasonably withheld or delayed) all proposed
contracts with respect to the Premises Maintenance Obligations and the Premises
Services Obligations, including the Maintenance Contracts. All such contracts
(including the Maintenance Contracts) shall be assignable to Landlord in the
event Landlord takes over the Premises Maintenance Obligations and the Premises
Services Obligations and all warranties shall be for the benefit of Landlord and
Tenant. Landlord shall employ a property management company to oversee Tenant's
compliance with the foregoing provisions and all costs incurred by Landlord in
connection with such oversight shall be an Operating Expense. Upon commencement
of the Term and thereafter upon request by Tenant (but no more often that once
every two (2) years), Landlord shall request bids for property management
services from at least three (3) property management companies and Landlord and
Tenant shall work together to select a property manager considering all relevant
factors, including price, reputation and quality of service. If the property
manager selected by the parties advises Landlord that, in its reasonable
discretion it believes that Tenant is not properly performing the Premises
Maintenance and Services Obligations, Landlord may elect to perform such
obligations and all costs incurred by Landlord in connection therewith
(including increased property management fees) shall be included in Operating
Expenses in the manner and to the extent provided in Section 8.

                9.4     No Landlord Default. So long as Landlord has not elected
to perform such obligations, Landlord shall not be liable for any failure to
perform the Premises Maintenance and Services Obligations. If Landlord elects to
perform the Premises Maintenance and Services Obligations, then Landlord shall
not be liable for any failure to perform such obligations except to the extent
such failure is due to Landlord's gross negligence or intentional misconduct and
continues for an unreasonable period of time after notice from Tenant and in no
event shall Landlord be liable to Tenant for consequential damages.

                9.5     Intentionally Omitted.

                9.6     No Obligation to Alter. Except as specifically provided
elsewhere in this Lease, Landlord shall have no obligation whatsoever to after,
remodel, improve, repair, decorate, or paint the Premises or any part thereof.
Tenant affirms that Landlord has made no representations to Tenant about the
condition of the Premises or the Building, except as specifically herein set
forth.

                9.7     Tenant Waiver. Tenant waives the right to make repairs
at Landlord's expense under any law, statute, or ordinance now or hereafter in
effect.

        10.     Structural and Utility Maintenance and Repair Responsibility.

                10.1    Structural Repairs. Subject to the provisions of Section
15, Landlord shall, at Landlord's expense, maintain, repair and replace the roof
structure, all exterior and bearing walls, the floor slab and the foundation of
the Building ("Structural Repairs"). Landlord shall give reasonable advance
notice to Tenant of such repairs to the extent practical and feasible. In
addition, Landlord shall, as and when necessary, replace the roof, roof
membrane, Building exterior and the HVAC units (including related components)
and other capital items that (a) are reasonably expected to have a useful life
that extends beyond the Term, and (b) cost in excess of Ten Thousand Dollars
($10,000) (as adjusted upwards for inflation over the Term)

                                       13
<PAGE>   14
that are included within the Premises on the Commencement Date and the costs of
such replacements shall be an Operating Expense to the extent permitted under
Section 8.5. Landlord shall have no obligation with respect to any supplemental
HVAC equipment installed in the Premises by Tenant.

                10.2    Utilities Repairs. Subject to the provisions of Section
15, Landlord shall, at Landlord's expense, maintain, repair and replace the
underground electrical, water, sewer and plumbing utility systems serving the
Building insofar as such utility systems are located outside the Building
between the public right of way and the Building, and the conduits and pipes or
wiring located therein and forming a part thereof, or Landlord shall cause the
utility purveyor to maintain, repair and replace the underground electrical,
water, sewer and plumbing utility systems serving the Building insofar as such
utility systems are located outside the Building between the public right of way
and the Building, and the conduits and pipes or wiring located therein and
forming a part thereof ("Utility Systems Repairs").

                10.3    Tenant's Responsibility. To the extent that such
Structural Repairs or Utility Systems Repairs are necessitated in part or in
whole by the act, neglect, fault, or omission of any duty by the Tenant, its
agents, servants, employees, or invitees, Tenant shall pay to Landlord the
reasonable costs of such Structural Repairs or Utility Systems Repairs, within
thirty (30) days after Landlord's submission of a reasonably detailed invoice
for the same, but only to the extent such costs were necessitated by the act,
neglect, fault or omission of any duty by the Tenant. Landlord shall not be
liable for any failure to make any such Structural Repairs or Utility Systems
Repairs, unless such failure shall persist after Landlord's receipt of written
notice from Tenant and beyond the cure periods set forth in Section 18.3.

        11.     Utilities and Services.

                11.1    Tenant Responsibility. Tenant shall arrange for and
cause to be provided, at Tenant's expense, heat, light, water, sewer,
electricity, gas and any and all other utility services, including
telecommunications and data communications services, telephone service, cable
television service, satellite transmission service, if any, or computer cabling
or wiring. Tenant shall pay directly to the provider thereof or, if Landlord
pays for such services, then to Landlord as Additional Rent, prior to
delinquency, for heat, light, water, sewer, electricity, gas and any and all
other utility services supplied to the Premises and will pay any required
deposits therefor.

                11.2    Failure of Services. If any utilities to the Premises
are interrupted or discontinued due to failure in those portions of the systems
to be maintained by Landlord pursuant to Section 10.2, Landlord shall use
reasonable efforts to restore such utilities within a reasonable period of time
after learning of such interruption or discontinuance. If (i) any utilities to
the Premises are interrupted or discontinued solely due to a cause within
Landlord's reasonable control, (ii) Tenant shall have given written notice
respecting such interruption or discontinuance to Landlord, (iii) Tenant is
unable to use the Premises as a result of such interruption or discontinuance,
and (iv) Landlord fails to make reasonable efforts to cure such interruption or
discontinuance within five (5) consecutive days after receiving such notice or
such services are not restored within ten (10) days after the receiving such
notice, then Base Monthly Rent hereunder shall thereafter be abated until such
time as such utilities are restored. No eviction of Tenant shall result from any
such failure or interruption, and Tenant shall not be relieved from the
performance of any other obligation in this Lease because of such failure or
interruption.

                                       14
<PAGE>   15
        12.     Limits on Landlord's Liability. Landlord's liability in respect
of its obligations under Section 10 to repair and maintain portions of the
Premises and Building and to provide utility lines (collectively, "Repair and
Service Obligations") is subject to the following limitations:

                12.1    Circumstances Beyond Landlord's Control. Landlord shall
not be liable for any failure of Repair and Service Obligations when such
failure is caused by (i) strikes, lockouts or other labor disturbance or labor
dispute of any character, (ii) governmental regulation, moratorium or other
governmental action, (iii) inability despite the exercise of reasonable
diligence to obtain electricity, water or fuel from the providers thereof, (iv)
acts of God or (v) any other cause beyond Landlord's reasonable control.

                12.2    Landlord Liability. Except as provided in Section 11.2
and subject to Section 12.1, Landlord shall not be liable for any failure of
Repair and Service Obligations, unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance or of the interruption of services is given to Landlord by Tenant.
Landlord shall not be liable for any injury to or interference with Tenant's
business arising from the making of any repairs, alterations, or improvements in
or to any portion of the Building, the Premises, or the Property, or to
fixtures, appurtenances, and equipment therein, or the failure of Repair and
Service Obligations. Landlord shall not have any liability for any
inconvenience, annoyance, or disturbance resulting from the performance by
Landlord of its Repair and Service Obligations, except that Landlord shall be
liable for actual physical damage to Tenant's alterations, furniture, fixtures,
equipment and other property resulting from the gross negligence or intentional
misconduct of Landlord, or its agents, employees or contractors. Without
limiting the generality of this Section 12, in no event shall Landlord have any
liability for consequential damages resulting from any act or omission of
Landlord in respect of its Repair and Service Obligations, even if Landlord has
been advised of the possibility of such consequential damages. In no event shall
any third party be deemed to be a third party beneficiary of this release.
Landlord, its agents, employees or contractors, shall conduct its and their
activities on the Premises as allowed in this Section in a reasonable manner and
shall make reasonable efforts to minimize any inconvenience, annoyance or
disturbance to Tenant. At Tenant's request, Landlord shall perform its Repair
and Service Obligations after Tenant's normal business hours, provided, however,
that Tenant shall pay all overtime and other costs incurred by Landlord in
excess of the costs that would have been incurred by Landlord if Landlord had
performed its Repair and Service Obligations during Tenant's normal business
hours

                12.3    Rent Abatement. Except as specifically provided in
Sections 11.2, 15 and 16, there shall be no abatement of Rent in any
circumstance under this Lease.

        13.     Improvement and Alterations.

                13.1    Initial Tenant Improvements. Tenant, at Tenant's sole
cost and expense, shall install its initial tenant improvements in the Premises
in accordance with the provisions of Exhibit C attached hereto and incorporated
herein by this reference.

                13.2    Alterations and Additions by Tenant. Following
installation of the initial tenant improvements, Tenant shall not make any
additional improvements or alterations to the Premises without the prior written
consent of Landlord which shall not be unreasonably withheld or delayed but may
be subject to such reasonable conditions as Landlord deems necessary or
desirable. Any repairs or new construction by Tenant shall be done (a) at
Tenant's sole cost and expense in conformity with plans and specifications
approved by Landlord which approval shall not be unreasonably withheld or
delayed but may be subject to such reasonable conditions

                                       15
<PAGE>   16
as Landlord deems necessary or desirable, (b) by contractors approved by
Landlord which shall not be unreasonably withheld or delayed but may be subject
to such reasonable conditions as Landlord deems necessary or desirable, and (c)
subject to Landlord's reasonable rules and regulations regarding such
construction. All work performed shall be done lien-free in a workmanlike manner
and shall become the property of Landlord. Prior to commencing any work costing
more than Fifty Thousand Dollars ($50,000) or the supply or furnishing of any
labor, services and/or materials in connection with any such work, Landlord may
require that Tenant provide to Landlord, at Tenant's expense, a lien and
completion bond in an amount equal to 150% of the estimated cost of any
improvements, additions, or alterations in the Premises.

        14.     Insurance; Indemnity.

                14.1    Tenant Waiver. Except as provided in Section 14.3,
Landlord shall not be liable to Tenant, and Tenant hereby waives all claims
against Landlord, for injury or damage to any person or property in or about the
Premises, Building, Property or Common Areas by or from any cause whatsoever,
including without limitation any acts or omissions of any other tenants,
licensees or invitees of the Building.

                14.2    Tenant Indemnity. Tenant shall indemnify and defend
(using legal counsel reasonably acceptable to Landlord) Landlord and hold
Landlord harmless, from and against any and all loss, cost, damage, liability
and expense (including reasonable attorneys' fees) whatsoever that may arise out
of or in connection with Tenant's occupation, use or improvement of the
Premises, or that of its employees, agents or contractors, or Tenant's breach of
its obligations under this Lease. To the extent necessary to fully indemnify
Landlord from claims made by Tenant or its employees, this indemnity constitutes
a waiver of Tenant's immunity under the Washington Industrial Insurance Act, RCW
Title 51. This indemnity shall survive the expiration or termination of the
Term.

                14.3    Landlord Responsibility. The exculpation, release and
indemnity provisions of Sections 14.1 and 14.2 shall not apply to the extent the
subject claims thereunder were caused by Landlord's gross negligence or willful
misconduct. However, in no event shall Landlord be liable to Tenant for
consequential damages. Landlord shall indemnify and defend (using legal counsel
reasonably acceptable to Tenant) Tenant and hold Tenant harmless, from and
against any and all loss, cost, damage, liability and expense (including
reasonable attorneys' fees) whatsoever to the extent arising out of the gross
negligence or intentional misconduct of Landlord, its employees, agents or
contractors, or Landlord's breach of its obligations under this Lease. To the
extent necessary to fully indemnify Tenant from claims made by Landlord or its
employees, this indemnity constitutes a waiver of Landlord's immunity under the
Washington Industrial Insurance Act, RCW Title 51. This indemnity shall survive
the expiration or termination of the Term.

                14.4    Tenant Insurance. Tenant shall procure and maintain
throughout the Term at Tenant's expense, the following insurance:

                        14.4.1  Commercial general liability insurance, insuring
Tenant against liability arising out of the Lease and the use, occupancy, or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be in the amount of not less than $5,000,000 combined single limit for
injury to or death of one or more persons in an occurrence, and for damage to
tangible property (including loss of use) in an occurrence (or in such amount as
Landlord determines in its reasonable discretion). Such policy shall insure the
operations of independent contractors and contractual liability (covering the
indemnity in Section 14.2) and

                                       16
<PAGE>   17
shall: (i) name Landlord and its property manager as additional insureds, (ii)
provide a waiver of subrogation endorsement with respect to Landlord, and (iii)
provide that it is primary and noncontributing with any insurance in force or on
behalf of Landlord.

                        14.4.2  "Causes of Loss - Special Form" property
insurance insuring against the perils of fire, vandalism and malicious mischief
and including extended coverage and coverage against sprinkler leakage. This
insurance policy shall be upon all personal property for which Tenant is legally
liable or that was installed at Tenant's expense, and that is located in the
Building or Premises, including without limitation all of Tenant's furnishings,
fixtures, furniture, personal property and equipment and all tenant improvements
and alterations installed in the Premises at Tenant's expense in an amount not
less than the full replacement cost thereof on an agreed amount basis with no
coinsurance. Tenant shall purchase insurance against risk of loss by earthquake
provided that such insurance is available on commercially reasonable terms.
Tenant's property insurance policy(ies) shall name Landlord and any mortgagees
of Landlord as insured parties, as their respective interests may appear. Tenant
acknowledges that Landlord has recommended that Tenant purchase business
interruption coverage, covering direct or indirect loss of Tenant's earnings
attributable to Tenant's inability to use fully or obtain access to the Premises
or Building. Tenant may elect to purchase such insurance but in any event waives
any claim against Landlord from any cause of loss that would be covered by
insurance had Tenant purchased such coverage.

                        14.4.3  Workman's Compensation and Employees Liability
Insurance as required by state law.

                        14.4.4  Any other form or forms of insurance as Tenant
or Landlord or any mortgagees of Landlord may reasonably require from time to
time in form, in amounts and for insurance risks against which a prudent tenant
would protect itself. As used in this paragraph, insurance shall be deemed to be
reasonable if it is of the type and in such amounts as commercial landlords
require in leases in the market area in which the premises are located for
premises used for the uses similar to Tenant's.

                14.5    Policies. All policies of insurance to be obtained by
Tenant hereunder shall be in a form satisfactory to Landlord and shall be issued
by insurance companies holding a General Policyholder Rating of "A" and a
Financial Rating of "X" or better in the most current issue of Best's Insurance
Guide. Tenant shall provide Landlord with certificates of such insurance. No
such policy shall be cancelable or reducible in coverage except after thirty
(30) days prior written notice to Landlord. Tenant shall, within ten (10) days
prior to the expiration of such policies, furnish Landlord with renewals or
"binders" thereof, or Landlord may order such insurance and charge the cost
thereof to Tenant as Additional Rent.

                14.6    Landlord's Insurance. Landlord shall procure and
maintain throughout the Term commercial general liability insurance adequate in
Landlord's judgment to cover (with commercially reasonable deductibles deemed
appropriate by Landlord) the risks customarily insured against by owners of
properties similar to the Building. Landlord shall also shall procure and
maintain throughout the Term "Causes of Loss - Special Form" property insurance
insuring against the perils of fire, vandalism and malicious mischief, and
including extended coverage, covering the Building and all permanent fixtures
and improvements therein on the Commencement Date in an amount not less than the
full replacement cost thereof. Landlord shall purchase insurance against risk of
loss by earthquake provided that such insurance is available on commercially
reasonable terms. The deductible on Landlord's property insurance policy shall
be no more than One Hundred Thousand Dollars ($100,000) for perils other than

                                       17
<PAGE>   18
earthquake without Tenant's consent, which shall not be unreasonably withheld.
Landlord and Tenant, each acting reasonably, shall mutually agree on the
deductible for earthquake damage. Landlord shall also shall procure and maintain
throughout the Term rent loss insurance in an amount equal to twelve (12) months
Base Monthly Rent and Additional Rent. The cost of all insurance required
hereunder shall be an Operating Expense.

                14.7    Proceeds. The proceeds of any insurance policies
maintained by or for the benefit of Landlord shall belong to and be paid over to
Landlord. Any interest or right of Tenant in any such proceeds shall be subject
to Landlord's interest and right in such proceeds. The proceeds of any insurance
policies maintained by or for the benefit of Tenant shall belong to and be paid
over to Tenant, provided, however, that if Landlord is required to, or elects
to, restore the Premises or the Building pursuant to Section 15, then the
proceeds of any "Causes of Loss - Special Form" property insurance shall be held
in an interest-bearing trust account, shall be used by Tenant for the purpose of
restoring the tenant improvements installed by Tenant and shall be subject to
mutually acceptable disbursement procedures.

                14.8    Waiver of Subrogation. Landlord and Tenant release each
other, and their respective directors, officers, partners, employees and agents,
from, and waive their entire claim of recovery for, any claims for damage to the
Premises and the Building and to Tenant's improvements, alterations, furniture,
fixtures, equipment and personal property that are caused by or result from
fire, lightening or any other perils normally included in a "Causes of Loss -
Special Form" property insurance policy whether or not such loss or damage is
due to the negligence of Landlord, its directors, officers, partners, employees
or agents, or of Tenant, or its directors, officers, partners, employees or
agents. Landlord and Tenant shall cause each insurance policy obtained by it to
provide that the insurance company waives all right of recovery by way of
subrogation against either party in connection with any damage covered by any
and all insurance policies maintained by either Landlord or Tenant under this
Lease.

                14.9    Notice of Accidents. Tenant shall promptly notify
Landlord of any casualty or accident occurring in or about the Premises.

        15.     Destruction.

                15.1    Obligation to Restore. If the Premises or the Building
is destroyed or damaged by fire, earthquake, or other casualty during the Term
to the extent that they are untenantable in whole or in part, and if (i) the
insurance proceeds available to Landlord equal or exceed the cost of such
restoration, (ii) in the opinion of a registered architect or engineer appointed
by Landlord such restoration can be completed within one hundred eighty (180)
days after the date on which Landlord obtains all permits necessary for such
restoration, and (iii) such restoration is permitted under then existing laws
and the CC&Rs to be done in such a manner as to return the Premises (including
only those fixtures and equipment insured under Landlord's property insurance
policy) and the Building to substantially the same condition as they were in
immediately before such destruction then such destruction shall not terminate
this Lease and Landlord shall act with reasonable diligence to restore the
Premises and the Building to substantially the same condition as they were in
immediately before such destruction. To the extent that the insurance proceeds
must be paid to a mortgagee under, or must be applied to reduce any debt secured
by, a mortgage covering the Property, the insurance proceeds shall be deemed not
to be available to Landlord unless such mortgagee permits Landlord to use the
insurance proceeds for such restoration. In all other instances, Landlord shall
have the right but not the obligation to rebuild and restore the Premises or the
Building or the damaged part thereof.

                                       18
<PAGE>   19
                15.2    Right to Terminate. If the Premises or the Building is
destroyed or damaged by fire, earthquake, or other casualty during the Term to
the extent that they are untenantable in whole or in part, and Landlord is not
obligated under Section 15.1 to restore the Premises and the Building then
Landlord may, at its election, either (i) restore the Premises (including only
those fixtures and equipment insured under Landlord's property insurance policy)
and the Building to substantially the same condition as they were in immediately
before such destruction, or (ii) terminate this Lease effective as of the date
of such destruction. Landlord shall within ninety (90) days after the date of
any destruction or injury notify Tenant whether Landlord intends to restore the
Premises. If Landlord does not give Tenant notice within ninety (90) days after
the date of such destruction of its election to restore the Premises and the
Building, then Landlord shall be deemed to have elected to terminate this Lease.

        If the Premises or the Building is destroyed or damaged by fire,
earthquake, or other casualty during the Term to the extent that they are
untenantable in whole or in part, and Landlord is obligated to or elects to
restore the Premises and the Building and such restoration is not completed
within two hundred forty (240) days (as extended by any delay caused by force
majeure events) after the date on which Landlord obtains all permits necessary
for such restoration, then either Landlord or Tenant may, at its election within
sixty (60) days after the expiration of such period, terminate this Lease
effective as of the date of such destruction. If neither party makes any
election under the preceding sentence and gives the other party notice of such
election, then the parties shall be deemed to have elected to continue this
Lease and the parties' right to terminate this Lease shall be void and of no
further force or effect.

                15.3    Rent Abatement. During the period from destruction or
damage until completion of restoration (or termination of this Lease), Rent
shall be abated in the same ratio as that portion of the Premises which Landlord
reasonably determines is unfit for occupancy shall bear to the whole Premises.
If damage is due to the fault or neglect of Tenant or its agents, employees,
invitees, or licensees, there shall be no abatement of Rent except to the extent
Landlord actually recovers lost rent under its rental insurance policy or could
have recovered such sums if Landlord fails to procure or to pursue recovery
under the insurance required under Section 14.6 above.

                15.4    Restoration of Tenant Improvements. Landlord shall not
be required to repair any injury or damage by fire or other cause, or to make
any repairs or replacements of any of Tenant's personal property, furniture,
equipment or tenant improvements installed by Tenant (all of which Tenant is
required to insure). Instead, if Landlord repairs or rebuilds the Premises under
this Section 15, Tenant shall repair, rebuild or replace all such tenant
improvements and other items of property to substantially the same condition as
they were in immediately before such destruction or damage. If Tenant is not
required to restore such items then the proceeds of Tenant's property insurance
shall belong to and be paid over to Tenant.

                15.5    No Liability. Tenant shall not be entitled to any
compensation or damages from Landlord for loss of the use of the whole or any
part of the Premises, the property of Tenant, or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction, or restoration, except for
the rent abatement provided in Section 15.3 above.

        16.     Condemnation.

                16.1    Total Taking. If all or part of the Premises are taken
under power of eminent domain, or sold under the threat of the exercise of said
power, this Lease shall terminate as to the part so taken as of the date the
condemning authority takes possession.

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<PAGE>   20
                16.2    Partial Taking. If more than 25% of the floor area of
Premises is taken by condemnation or sold under the threat of the exercise of
said power, Landlord or Tenant may, by written notice given to the other within
ten (10) Business Days after notice of such taking, terminate this Lease as to
the reminder of the Premises as of the date the condemning authority takes
possession.

                16.3    Rent Abatement. If Landlord or Tenant does not so
terminate, this Lease shall remain in effect as to such remainder, except that
the Rent shall be reduced in the proportion that the rentable floor area taken
bears to the original rentable total floor area. In the event that neither
Landlord nor Tenant elects to terminate this Lease, Landlord's responsibility to
restore the remainder of the Premises shall be limited to the amount of any
condemnation award allocable to the Premises, as determined by Landlord.

                16.4    Award. Tenant may not participate or appear in the
condemnation proceeding. Any award for the taking of all or part of the Premises
under the power of eminent domain, including payment made under threat of the
exercise of such power, shall be the property of Landlord, whether made as
compensation for diminution in value of the leasehold or for the taking of the
fee or as severance damages. Landlord shall have the sole right to grant early
possession and use to the condemning authority prior to trial. Tenant waives any
right to claim from Landlord or from the condemning authority any compensation
for the value of the leasehold and Landlord shall be entitled to the entire
award for the Premises, the Building and the Property and Tenant assigns any
right it might have in such award to Landlord. Tenant shall not seek any
recovery for the value of the leasehold nor shall it seek to introduce evidence
as to the value of such leasehold in the condemnation action or in any equitable
proceeding to allocate the condemnation award between the parties.

        Notwithstanding the foregoing, so long as Tenant does not violate any of
its covenants under this Section and subject to the rights of Landlord's lender,
Tenant shall be entitled to recover the unamortized cost of any tenant
improvements, alterations and trade fixtures installed in the Premises by Tenant
at its sole cost and expense. The unamortized cost shall be determined by
reference to Tenant's financial records which have been prepared in accordance
with generally accepted accounting principles. Tenant shall provide
documentation of such costs and of the value of the tenant improvements,
alterations and trade fixtures to Landlord upon request so that Landlord may
include such items in its request for compensation from the condemning
authority. If the total award is not sufficient to fully compensate Landlord and
Tenant then Tenant's share of the award shall be equal to (i) the unamortized
value of the items for which Tenant seeks compensation divided by (ii) the value
of the items for which Landlord and Tenant seek compensation, which fraction
shall be multiplied by (iii) the total amount of the award less all costs
incurred by Landlord to obtain the award. Tenant shall also be entitled to such
compensation as may be separately awarded or recoverable by Tenant in Tenant's
own right in a separate action for Tenant's moving expenses. Landlord shall not
be liable to Tenant for the loss of the use of all or any part of the Premises
taken by condemnation.

                16.5    Exclusive Control. Landlord shall have the exclusive
authority to grant possession and use to the condemning authority and to
negotiate and settle all issues of just compensation or, in the alternative, to
conduct litigation concerning such issues; provided, however, that Landlord
shall not enter into any settlement of any separate award that may be made to
Tenant as described in Section 16.4 without Tenant's prior approval of such
settlement, which approval shall not be unreasonably withheld.

                                       20
<PAGE>   21
        17.     Assignment and Subletting.

                17.1    Consent Required. Tenant shall not assign this Lease, or
sublet the Premises or any part thereof, either by operation of law or
otherwise, or permit any other party to occupy all or any part of the Premises
(each of which is referred to herein as a "Transfer"), without first obtaining
the written consent of Landlord which shall not be unreasonably withheld or
delayed provided that Tenant satisfies all of the conditions of this Lease.
Tenant may not enter into a Transfer at any time when Tenant is in default
hereunder. This Lease shall not be assignable by operation of law. If Tenant
intends to enter into a Transfer, Tenant shall give Landlord at least thirty
(30) days written notice of such intent. Tenant's notice shall set forth the
effective date of such Transfer and shall be accompanied by (i) an exact copy of
the proposed agreements between Tenant and the proposed transferee, (ii)
complete financial information regarding the proposed transferee, and (iii) a
description of the transferee's contemplated use of the Premises. If requested
by Landlord, Tenant shall provide Landlord with (a) any additional information
or documents reasonably requested by Landlord relating to the proposed Transfer
or the transferee, and (b) an opportunity to meet and interview the proposed
transferee. Any Transfer without Landlord's consent shall be a default hereunder
and, in addition to any other right or remedies permitted hereunder shall be
voidable by Landlord, at its sole election.

                17.2    Corporate Transfers. All of the following shall
constitute Transfers subject to this Article 17: (x) if Tenant is a corporation
that is not publicly traded on a nationally recognized reputable stock exchange,
then any transfer of this Lease by merger, consolidation or liquidation, or any
direct, indirect or cumulative change in the ownership of, or power to vote the
majority of Tenant's outstanding voting stock, shall constitute a Transfer; (y)
if Tenant is a partnership, then a change in general partners in, or voting or
decision-making control of, the partnership shall constitute a Transfer; and (z)
if Tenant is a limited liability company, then a change in voting or
decision-making control of the limited liability company shall constitute a
Transfer. Any change in ownership of Tenant's parent of the type described in
(x), (y) or (z) above shall also constitute a Transfer subject to this Article
17. These provisions shall apply to any single transaction or any series of
related or unrelated transactions having the effect described.

                17.3    Permitted Transfers. Notwithstanding anything herein to
the contrary, provided Tenant is not in default under this Lease at the time of
such transaction, Landlord's consent under Section 17.1 or otherwise shall not
be required for, and the provisions of Section 17.6 relating to division of
excess rent between Landlord and Tenant shall not apply to, any proposed
Transfer by Tenant under this Section 17 to any of the following (each of whom
shall be a "Permitted Transferee"): (a) a wholly owned subsidiary of Tenant; (b)
an entity with which or into which Tenant may merge whether or not the Tenant is
the survivor of such merger; or (c) any entity that is controlled by, controls
or is under common control with Tenant; provided, however, that any Permitted
Transferee under this provision (or, the Permitted Transferee and Tenant on a
consolidated basis if the Transfer is a sublease for less than all of the
Premises for less than all of the Term) must have and maintain a Net Worth (as
defined in Section 6.2 above) equal to or better than the greater of (i) the Net
Worth of Tenant at the time of execution of this Lease, or (ii) the Net Worth of
Tenant for the year prior to the Transfer. "Control" for purposes of this
Section 17 shall mean ownership of a majority voting interest in any such entity
or the possession, directly or indirectly of the power to direct or cause the
direction of the day-to-day management of the controlled entity. Tenant must
provide Landlord with at least twenty (20) days prior written notice of any
Transfer to a Permitted Transferee, together with such evidence as Landlord may
reasonably request to establish that such Transfer is to a Permitted Transferee.
The rights under this Section are personal to Eden Bioscience Corporation and

                                       21
<PAGE>   22
may not be transferred or assigned to any other party other than a Permitted
Transferee but a series of transfers to Permitted Transferees may not be used to
evade the requirement for Landlord's consent under this Section 17.

                17.4    Intentionally Omitted.

                17.5    Consent. In deciding whether to consent to a proposed
Transfer that requires Landlord's consent, Landlord may consider any factors
that Landlord deems relevant, including but not limited to the following: (i)
whether the use of the Premises by the proposed transferee would be a permitted
use; (ii) whether the proposed transferee is of sound financial condition and
has sufficient financial resources and business expertise, as reasonably
determined by Landlord, to perform under this Lease; (iii) whether the proposed
transferee's use could involve the storage, use, treatment or disposal of any
Hazardous Materials not used by Tenant or in greater quantities than Tenant
uses; and (iv) whether the proposed use or the proposed transferee could cause
the violation of any covenant or agreement of Landlord to any third party.
Landlord may condition its consent to any proposed Transfer on such reasonable
conditions as Landlord may require including construction of any improvements
reasonably deemed necessary or appropriate by Landlord by reason of the
Transfer. Any improvements, additions, or alterations to the Building that are
required by any law, ordinance, rule or regulation, or are reasonably deemed
necessary or appropriate by Landlord as a result of any Transfer hereunder,
shall be installed and provided by Tenant without cost or expense to Landlord.
Failure by Landlord to approve a proposed Transfer shall not cause a termination
of this Lease, and the sole remedy of Tenant shall be an action for injunctive
or declaratory relief.

                17.6    Minimum Rental; Division of Excess Rent. In any Transfer
of this Lease (other than a Transfer to a Permitted Transferee), Tenant shall
seek to obtain from the transferee consideration reflecting the then-current
fair market rent for the space subject to such Transfer. Any rent or other
consideration realized by Tenant in connection with or as a result of any
Transfer (other than a Transfer to a Permitted Transferee) in excess of the Base
Monthly Rent payable hereunder, after first deducting all reasonable and
customary costs actually incurred by Tenant to effect such Transfer (such as
tenant improvements, brokerage fees, advertising costs and the like) shall be
divided equally between Landlord and Tenant and Landlord's share shall be paid
promptly to Landlord as Additional Rent; provided, however, that Landlord shall
be entitled to receive the total rent and other consideration if a default
(after any required notice and expiration of any applicable cure period) is
outstanding under this Lease until such default is cured.

                17.7    Tenant Not Released. No Transfer by Tenant (including a
Transfer to a Permitted Transferee) shall relieve Tenant of any obligation under
this Lease and Tenant shall remain primarily liable hereunder. If the transferee
defaults, Landlord may, without affecting any other rights of Landlord, proceed
against Tenant or any transferee or any other person liable for Tenant's
obligations hereunder. Any Transfer that conflicts with the provisions hereof
shall be void. No consent by Landlord to any Transfer shall constitute a consent
to any other Transfer nor shall it constitute a waiver of any of the provisions
of this Article 17 as they apply to any future Transfers. Following any
Transfer, the obligations for which the Tenant or subsequent transferor remains
liable under this Lease shall include, without limitation, any obligations
arising in connection with any amendments to this Lease executed by Landlord and
the transferee, whether or not such amendments are made with knowledge or
consent of the transferor; provided, however, that Landlord shall not extend the
term of the Lease (except in connection with the Extension Options granted
herein) without Tenant's consent.

                                       22
<PAGE>   23
                17.8    Written Agreement. Any Transfer must be in writing. With
respect to any assignment, the transferee shall assume in writing, for the
express benefit of Landlord, all of the obligations of Tenant under this Lease,
provided that no such assumption shall be deemed a novation or other release of
the transferor. With respect to any sublease, the subtenant shall agree in
writing to comply with all of the obligations of Tenant under this Lease with
respect to the use or occupancy of the space transferred and all insurance and
indemnity provisions provided that no such agreement shall be deemed a novation
or other release of the transferor. If this Lease is terminated, Landlord, at
its option, may elect to either (a) terminate any or all existing subleases or
(b) have such termination operate as an assignment to Landlord of any or all
existing subleases. Tenant shall provide to Landlord true and correct copies of
the executed Transfer documents and any amendment thereto during the Term.

                17.9    Expenses. Landlord may hire outside consultants to
review the Transfer documents and information. Tenant shall reimburse Landlord
for all reasonable costs and expenses incurred by Landlord in connection with
any request for consent under this Section 17 (even if consent is denied or the
request is withdrawn) and such reimbursement shall include the reasonable
allocated cost of Landlord's or its management company's staff plus all
out-of-pocket expenses, including reasonable attorneys' fees, on demand.

                17.10   No Restriction on Landlord. Without liability to Tenant,
Landlord shall have the right to offer and to lease space to any party,
including without limitation parties with whom Tenant is negotiating, or with
whom Tenant desires to negotiate, a Transfer.

                17.11   No Leasehold Financing. Tenant shall not encumber,
pledge or mortgage the whole or any part of the Premises or this Lease, nor
shall this Lease or any interest thereunder be assignable or transferable by
operation of law or by any process or proceeding of any court or otherwise
without the prior written consent of Landlord, which consent may be given or
withheld in Landlord's sole discretion.

                17.12   Bankruptcy. If this Lease is assigned pursuant to the
provisions of the Revised Bankruptcy Act, 11 U.S.C. Section 101, et seq., any
and all consideration paid or payable in connection with such assignment shall
be Landlord's exclusive property and paid or delivered to Landlord, and shall
not constitute the property of Tenant or Tenant's estate in bankruptcy. Any
person or entity to whom the Lease is assigned pursuant to the Revised
Bankruptcy Act shall be deemed automatically to have assumed all of Tenant's
obligations under this Lease.

                17.13   Sale by Landlord. In the event of any sale of the
Building or Property, or any assignment of this Lease by Landlord, Landlord
shall be relieved of all liability under this Lease arising out of any act,
occurrence, or omission occurring after sale or assignment; and the purchaser or
assignee at such sale or assignment or any subsequent sale or assignment of
Lease, the Property, or Building, shall be deemed without any further agreement
to have assumed all of the obligations of the Landlord under this Lease accruing
after the date of such sale or assignment. Notwithstanding the foregoing, except
in the event of a foreclosure or transfer in lieu of foreclosure, Landlord shall
make good faith efforts to obtain from the purchaser or assignee a written
assumption of Landlord's obligations under this Lease and shall deliver a copy
of such document to Tenant upon request.

                17.14   Successors and Assigns. Subject to the provisions of
this Section 17, this Lease shall be binding upon and inure to the benefit of
the parties, their heirs, successors and assigns.

                                       23
<PAGE>   24
        18.     Default.

                18.1    The occurrence of any one or more of the following
events shall constitute a material default and breach of the Lease by Tenant
("Default"):

                        18.1.1  vacation or abandonment of all or any portion of
the Premises;

                        18.1.2  failure by Tenant to make any payment of Base
Monthly Rent or Operating Expenses as and when due or failure by Tenant to make
any other payment required hereunder within five (5) Business Days after notice
that such payment is due;

                        18.1.3  failure by Tenant to observe or perform any of
the covenants, conditions, or provisions of this Lease, other than the making of
any payment, where such failure shall continue after twenty (20) days written
notice from Landlord; provided, however, that if more than twenty (20) days are
reasonably required to complete a cure, Tenant shall not be in default so long
as it commences cure within such period and diligently pursues completion within
a reasonable period of time thereafter;

                        18.1.4  the making by Tenant of any general assignment
or general arrangement for the benefit of creditors; (ii) the filing by or
against Tenant of a petition in bankruptcy, including reorganization or
arrangement, unless, in the case of a petition filed against Tenant the same is
dismissed within 30 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; (iv) the seizure by any department of any
government or any officer thereof of the business or property of Tenant; and (v)
adjudication that Tenant is bankrupt.

                        18.1.5  Failure to provide the Security Deposit or
Letter of Credit as and when due or to increase the Security Deposit or Letter
of Credit if required hereunder.

                        18.1.6  Failure to execute and return any estoppel
certificate or subordination agreement required pursuant to this Lease within
the time limits set forth herein, and such failure is not cured within five (5)
business days after written notice of such failure.

                18.2    Tenant shall notify Landlord promptly of any Default by
Tenant (or event or occurrence which, with the passage of time, the giving of
notice, or both, would become a Default) that by its nature is not necessarily
known to Landlord.

                18.3    Landlord shall be in default if it fails to observe or '
perform any of the covenants, conditions, or provisions of this Lease, where
such failure shall continue after thirty (30) days written notice from Tenant;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, Landlord shall not be in
default if Landlord commences performance within thirty (30) days after Tenant's
notice and thereafter completes such performance diligently and within a
reasonable time. Tenant shall copy Landlord's lender with any such notice of
default if Tenant has been provided with the name and address of any such
lender.

                18.4    In no event shall a default by Landlord under this Lease
give rise to any right of Tenant to terminate this Lease. In no event shall a
default by Landlord under this Lease give rise to any right of Tenant to
withhold or offset the payment of Base Monthly Rent or

                                       24
<PAGE>   25
Additional Rent and such obligations shall continue unaffected in all events
unless suspended or terminated pursuant to an express provision of this Lease.

        19.     Remedies in Default.

                19.1    Remedies. In the event of any Default by Tenant,
Landlord may, at any time without waiving or limiting any other right or remedy,
do any one or more of the following: (i) re-enter and take possession of the
Premises, (ii) pursue any remedy allowed by law or equity, and/or (iii)
terminate this Lease.

                19.2    Costs. Whether Landlord has elected to terminate this
Lease or not, Tenant agrees to pay Landlord the cost of recovering possession of
the Premises, the expenses of reletting, and any other costs or damages arising
out of Tenant's Default including without limitation the costs of removing
persons and property from the Premises, the costs of preparing or altering the
Premises for reletting, broker's commissions, and attorneys' fees provided,
however, that the costs of preparing or altering the Premises for reletting
shall be amortized over the term of the new tenant's lease, and Tenant shall
only be liable to Landlord for the portion of such amounts attributable to the
period prior to the expiration of the Term.

                19.3    Reentry. No reentry or taking possession of the Premises
by Landlord pursuant to this Section 19, or acceptance of Tenant's keys to or
surrender of the Premises shall be construed as an election to terminate this
Lease unless a written notice of such intention is given to Tenant.

                19.4    Damages. Notwithstanding termination of this Lease and
reentry by Landlord pursuant to Section 18, Landlord shall be entitled to
recover from Tenant:

                19.4.1  The worth at the time of an award (including interest at
the rate set forth in Section 33.8), of any unpaid rent which had been earned by
Landlord prior to the time of termination; plus

                19.4.2  The worth at the time of an award (including interest at
the rate set forth in Section 33.8), of the amount by which the unpaid rent
which would have been earned after termination until the time of an award
exceeds the amount of loss of rent that Tenant proves could have been reasonably
avoided; plus

                19.4.3  The worth at the time of an award of the amount by which
the unpaid rent and additional rent for the balance of the term of this Lease
(as extended, if at all prior to termination) exceeds the amount of such loss of
rent and additional rent that Tenant proves could have been reasonably avoided
(including interest at the rate set forth in Section 33.8 from the date of the
award until paid). Such worth of the time of award shall be computed at the
discount rate of the Federal Reserve Bank of San Francisco, or successor Federal
Reserve Bank, on the date of termination; plus

                19.4.4  Any other amount necessary to compensate Landlord for
all the damage 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.

                19.5    No Termination of Lease. No act of Landlord other than a
written declaration of termination of Lease shall serve to terminate this Lease.
Notwithstanding any reentry or termination, the liability of Tenant for the Rent
shall continue for the balance of the

                                       25
<PAGE>   26
Term, and Tenant shall make good to Landlord any deficiency arising from
reletting the Premises at a lesser rent than the Rent provided for in this
Lease. If Landlord reenters the Premises pursuant to this Section 19, and does
not elect to terminate this Lease, Tenant shall indemnify Landlord for the loss
of rent by a payment at the end of each month during the remaining Term
representing the difference between the Base Monthly Rent, and other charges
which would have been paid in accordance with this Lease and the rental actually
derived from the Premises by Landlord for such month. Separate actions may be
maintained by Landlord against Tenant from time to time to recover any damages
which, at the commencement of any action, are then due and payable to Landlord
under this Lease without waiting until the end of the Term of this Lease.

                19.6    Reletting. If this Lease is terminated, Landlord may at
any time, and from time to time, relet the Premises in whole or in part either
in its own name or as agent of Tenant for any period equal to or greater or less
than the remainder of the then-current Term. All rentals received by Landlord
from such reletting shall be applied first to the payment of any amounts other
than rent due hereunder from Tenant to Landlord; second, to the payment of any
costs and expenses of such reletting and of alterations and repairs; third, to
the payment of Base Monthly Rent and Additional Rent due and unpaid hereunder;
and the residue, if any, shall be held by Landlord and applied in payment of
future Rent as it becomes due hereunder. Upon a reletting of the Premises,
Landlord shall not be required to pay Tenant any sums received by the Landlord
in excess of amounts payable in accordance with this Lease.

                19.7    Right of Landlord to Cure Defaults. If Tenant defaults
under this Lease, Landlord may cure the default, at Tenant's expense,
immediately and without notice in case of emergency threatening harm to persons
or property, or in any other case only upon Tenant's failure to remedy such
default within twenty (20) days after Landlord notifies Tenant in writing of
such default or, if more than twenty (20) days are reasonably required to
complete a cure, only if Tenant fails to commence cure within such period or to
diligently pursue completion within a reasonable period of time thereafter.
Tenant shall reimburse Landlord for any costs of the cure with interest pursuant
to Section 33.8. Landlord shall have the same rights and remedies as for the
nonpayment of sums due under this Section 19 as in the case of default by Tenant
in the payment of Rent.

        20.     Access. Tenant shall permit Landlord to enter the Premises at
all reasonable times for the purpose of inspecting, altering, and repairing the
Premises and the Building and ascertaining compliance with the provisions of
this Lease by Tenant. The existence or exercise of such right of access shall
not be construed as imposing any obligation on Landlord to inspect, discover or
correct or repair any condition in the Premises or the Building. Landlord may
also show the Premises to prospective lenders and purchasers at reasonable times
during the Term and to tenants during the last twelve (12) months of the Term or
at any time when Tenant is in Default, provided that (except in an emergency)
Landlord shall comply with Tenant's normal security procedures, including
signing-in before entering the Premises and wearing a badge provided by Tenant
while on the Premises and shall not materially interfere with Tenant's business
operation.

        21.     Hold-Over Tenancy. If without execution of a new Lease or
written extension Tenant shall hold over after the expiration or termination of
the Term, with Landlord's written consent, Tenant shall be deemed to be
occupying the Premises as a Tenant from month to month, which tenancy may be
terminated as provided by law, unless the parties agree otherwise at the time of
Landlord's consent. If Tenant shall hold over after expiration or termination of
the Term without Landlord's written consent, the Base Monthly Rent payable shall

                                       26
<PAGE>   27
be one hundred fifty percent (150%) of the Base Monthly Rent payable in the last
month prior to expiration or termination of the Term, and Tenant shall continue
to pay Additional Rent. During any such tenancy, Tenant shall continue to be
bound by all of the terms, covenants, and conditions of this Lease, insofar as
applicable.

        22.     Compliance With Laws. Tenant shall not use the Premises or
permit anything to be done in or about the Premises which will in any way
conflict with any applicable law, statute, ordinance, or governmental rule or
regulation, including without limitation the Americans with Disabilities Act and
all regulations related thereto, and the CC&R's and any other restrictive
covenants and obligations created by private contracts which affect the use and
operation of the Premises, Building, Common Areas or Business Park, now or
hereafter in force ("Laws"). Landlord will not consent to any amendment of the
CC&R's which materially restricts or prohibits the use of the Premises for the
uses permitted herein without Tenant's prior written consent which shall not be
unreasonably withheld, conditioned or delayed. Tenant shall at its sole cost and
expense promptly comply with all Laws and with the requirements of any board of
fire insurance underwriters, Insurance Service Office, or other similar bodies
now or hereafter constituted, relating to, or affecting the use or occupancy of
the Premises; provided, however, Tenant shall not be required to cure any
existing violation of Laws unless cure is required as a condition to Tenant's
use of the Premises or because of any alterations that Tenant desires to make to
the Premises. The judgment of any court of competent jurisdiction, whether
Landlord be a party thereto or not, that Tenant has violated any Laws, shall be
conclusive of the fact as between Landlord and Tenant.

        23.     Rules and Regulations. Tenant shall faithfully observe and
comply with any reasonable rules and regulations that Landlord shall from time
to time promulgate including but not limited to the rules attached hereto as
Exhibit D. Landlord reserves the right from time to time to make all reasonable
modifications to such rules and regulations. Additions and modifications to
rules and regulations shall be binding on Tenant upon delivery of a copy of them
to Tenant. Landlord shall not be responsible to Tenant for the nonperformance of
any rules or regulations by any other person.

        24.     Parking. To the extent permitted by the CC&Rs and other
documents presently recorded against the Property, Tenant shall have the
exclusive right to use of all parking spaces located on the Property during the
Term without charge. Such use by Tenant shall comply with all Laws and shall be
subject to any reasonable rules and regulations that may be established by
Landlord and any rules and regulations established pursuant to the CC&Rs for
such parking facilities from time to time.

        25.     Estoppel Certificates. Tenant shall execute, within ten (10)
days following Landlord's request a certificate in such form as may be
required by Landlord or a prospective purchaser, mortgagee or trust deed
beneficiary, or Landlord's successor after a sale or foreclosure, certifying:
(i) the Commencement Date of this Lease, (ii) that the Lease is unmodified and
in full force and effect, (or if there have been modifications hereto, that this
Lease is in full force and effect, and stating the date and nature of such
modifications); (iii) that to the best of Tenant's knowledge, there have been no
defaults under this Lease by either Landlord or Tenant except as specified in
Tenant's statement, (iv) the dates to which the Base Monthly Rent, Additional
Rent and other charges have been paid, and (v) any other information reasonably
requested by the requesting party. Such certificate may be relied upon by
Landlord and/or such other requesting party. Tenant's failure to deliver such
statement within such time shall be conclusive upon Tenant that this Lease is in
full force and effect, without modification except to the extent represented by
Landlord, that there are no uncured defaults in Landlord's

                                       27
<PAGE>   28
performance under this Lease, and that not more than one month's Rent has been
paid in advance. Tenant's failure to deliver said statement within ten (10) days
of request shall constitute a default.

        Landlord shall execute, within ten (10) days following Tenant's request
a certificate stating: (i) the Commencement Date of this Lease, (ii) that the
Lease is unmodified and in full force and effect, (or if there have been
modifications hereto, that this Lease is in full force and effect, and stating
the date and nature of such modifications); and (iii) the dates to which the
Base Monthly Rent, Additional Rent and other charges have been paid.

        26.     Subordination. Tenant agrees that this Lease shall be
subordinate to the lien of any mortgage, deeds of trust or ground leases now or
hereafter placed against the Property or Building, and to all renewals and
modifications, supplements, consolidations, and extensions thereof.
Notwithstanding the foregoing, Landlord reserves the right however, to
subordinate or cause to be subordinated any such mortgage, deed of trust or
ground lease to this Lease. Upon a foreclosure or conveyance in lieu of
foreclosure under such mortgage or deed of trust, or a termination of such
ground lease, and a demand by Landlord's successor, Tenant shall attorn to and
recognize such successor as Landlord under this Lease. Tenant shall execute and
deliver on request and in the form requested by Landlord, any instruments
reasonably necessary or appropriate to evidence, effect or confirm such
subordination provided that such agreement (i) shall provide Tenant's rights
under the Lease shall not be disturbed so long as Tenant is not in default under
the Lease beyond applicable notice and cure periods, (ii) shall not materially
modify the Lease in any respect, (iii) shall not materially increase Tenant's
obligations or decrease Tenant's rights under the Lease. Should Tenant fail to
sign and return any such documents that comply with this Section or to provide
specific written objections to such documents stating in particular how the
documents fail to comply with this Lease within ten (10) days of request, Tenant
shall be in default.

        27.     Surrender; Removal of Property. Tenant shall surrender the
Premises to Landlord upon the expiration or sooner termination of this Lease, in
the same condition as when received, excluding ordinary wear and tear, the
effect of any taking by condemnation, and casualty damage that is not required
to be restored hereunder. On or before the expiration or termination of this
Lease, Tenant shall: (i) remove from the Premises all of its personal property,
including any furniture, fixtures, equipment and signage; (ii) remove from the
Premises any improvements or alterations installed by Tenant including all
fixtures, cabling and wiring, and (iii) restore the Premises to a clean, capped
and in good order shell condition compatible with general office use. Upon
expiration or termination of this Lease, any and all damage done to the Premises
as a result of Tenant's removal of any of the foregoing items shall be repaired
and the Premises restored, at Tenant's expense. In the event Tenant fails to
remove any of the foregoing items or to repair any damage occurring during such
removal, Landlord shall be entitled to remove any of the foregoing items and to
make such repairs, at Tenant's expense, and shall further be entitled to draw
upon the Security Deposit. Landlord shall not be required to return any portion
of the Security Deposit until Tenant's obligations with respect to removal and
restoration have been satisfied and Tenant shall be considered a hold-over
tenant until such work is completed. All property of Tenant remaining on the
Premises after reentry or termination of this Lease shall conclusively be deemed
abandoned and may be removed by Landlord. Landlord may store such property of
Tenant in any place selected by Landlord, including but not limited to a public
warehouse, at the expense and risk of the owner thereof, with the right to sell
such stored property of Tenant without notice to Tenant. The proceeds of such
sale shall be applied first to the cost of such sale, second to the payment of

                                       28
<PAGE>   29
the cost of removal and storage, if any, and third to the payment of any other
amounts that may then be due from Tenant to Landlord under this Lease, and any
balance shall be paid to Tenant.

        28.     Personal Property Taxes. Tenant shall pay prior to delinquency
all personal property taxes payable with respect to all property of Tenant
located on the Premises or the Building and promptly upon request of Landlord
shall provide satisfactory evidence of such payment. "Personal property taxes"
under this Section 28 shall include all property taxes assessed against the
property of Tenant, whether assessed as real or personal property.

        29.     Notices. All notices under this Lease shall be in writing.
Notices shall be effective (i) three (3) days after the date of mailing by
certified mail, return receipt requested, or (ii) when personally delivered, in
each case to the notice address(es) of the receiving party set forth in Section
1. Either party may change its address(es) for notices by notice to the other
from time to time. Any notice changing the address for rent payments shall be
effective only for rent payments due more than three (3) days after the
effective date of such notice.

        30.     Condition of Premises. By taking possession of the Premises,
Tenant accepts the Premises as being in good, sanitary order, condition and
repair, and further accepts all aspects of the Premises, Building, Property and
Business Park in their present condition, AS IS, including latent defects,
without any representations or warranties, express or implied, from Landlord.

        31.     Hazardous Materials.

                31.1    Restriction on Use. Tenant and Tenant's officers,
contractors, subcontractors, licensees, agents, servants, employees, guests,
invitees or visitors, or any assignee or sublessee or other person for whom
Tenant would otherwise be liable (individually, a "Tenant Party" and
collectively, "Tenant Parties") shall comply with all Environmental Laws (as
defined below) in connection with Tenant's or Tenant Parties use, production,
storage or disposal of any Hazardous Materials (as defined below) on, under or
about the Premises. The foregoing sentence is not intended to impose any
contractual liability on the Tenant Parties for Tenant's obligations under this
Lease. Tenant hereby represents, warrants, covenants and agrees that all
operations or activities upon, or any use or occupancy of the Premises, or any
portion thereof, by Tenant or any Tenant Party of the Premises or any portion
thereof, shall be in all material respects in compliance with all state, federal
and local laws and regulations governing or in any way relating to the
generation, handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, discharge or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials. Neither Tenant nor any
Tenant Party shall use or dispose of any Hazardous Materials in or on the
Premises, the Building, the Project, or any adjacent property, or in any
improvements thereto, except for such Hazardous Materials as are essential to
the operation of Tenant's and Tenant Parties' business and reported to Landlord
not less often than annually, and then only in accordance with all applicable
laws and regulation. Tenant shall, and shall ensure that all Tenant Parties
shall, at all times comply with Environmental Laws and best industry standard
research, medical and safety practices in connection with the use, handling,
production storage or disposal of any Hazardous Material, including, but not
limited, to any Medical Products (as defined below), at Tenant's sole expense.
Tenant shall not without first obtaining Landlord's prior written approval,
generate, release, store, deposit, transport, or dispose of (collectively
"Release") any hazardous substances, sewage, petroleum products, hazardous
materials, toxic substances or any pollutants or substances, defined as
hazardous or toxic in applicable federal, state and local laws and regulations
("Hazardous Substances") in, on or about the Premises. In the event, and only in

                                       29
<PAGE>   30
the event, Landlord approves such Release of Hazardous Substances on the
Premises, such Release shall occur safely and in compliance with all applicable
federal, state, and local laws and regulations.

                        31.1.1  As used herein, the term "Hazardous Materials"
means any chemical, compound, substance, material, controlled substance, object,
condition, waste, living organism or part thereof (including genetic materials),
virus or combination or modification thereof which is or may be hazardous to
human health or safety or to the environment (whether potentially injurious to
persons and property and whether potentially injurious by themselves or in
combination with other materials) due to its radioactivity, ignitability,
corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity,
phytotoxicity, infectiousness or other harmful or potentially harmful properties
or effects, including, without limitation, petroleum and petroleum products,
asbestos, radon, polychlorinated biphenyls (PCBs) and all of those chemicals,
substances, materials, controlled substances, objects, conditions, wastes,
living organisms or combinations thereof which are now or become in the future
listed in the United States Department of Transportation Hazardous Materials
Table [49 C.F.R. Section 172.101], as amended from time to time, or listed,
defined or regulated in any manner by any Environmental Law.

                        31.1.2  As used herein, the term "Environmental Laws"
means any and all federal, state or local environmental, health and/or
safety-related laws, regulations, standards, decisions of courts, ordinances,
rules, codes, orders, decrees, directives, guidelines, permits or permit
conditions, currently existing and as amended, enacted, issued or adopted in the
future relating to the environment or to any Hazardous Material (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601, et seq.), the Washington Model
Toxics Control Act (Ch. 70.105D RCW) and the Washington Hazardous Waste
Management Act (Ch. 70.105 RCW) which are or become applicable to Tenant or the
Premises.

                        31.1.3  As used herein, the term "Medical Products"
means all regulated substances, chemicals, compounds, drugs, blood, tissue,
organs, serums, organisms or part thereof (including genetic materials),
viruses, waste and other materials related thereto and used in connection with
medical treatment, laboratory analysis, production or analysis of drugs, or
other biomedical research.

                        31.1.4  As used herein, the term "Environmental
Condition" means any release or spill of any Hazardous Materials into the
environment, including surface water, groundwater, drinking water supply, sewer
or storm water drain, land, soil, surface or subsurface strata or the ambient
air, where such release or spill is potentially in violation of Environmental
Laws or is required to be reported to the Washington State Department of Ecology
or other appropriate governmental authority.

                31.2    Air Quality. Tenant and Tenant Parties shall design and
construct their Tenant Improvements, including any upgraded HVAC and plumbing
systems, using best available commonly used industry technique designed to
ensure that Tenant's and Tenant Parties' Hazardous Materials do not compromise
the air quality outside the Premises or in any space occupied by other tenants
(including Tenant's subtenants) or allow the possibility of water system back-up
into the Building or otherwise migrate to any adjacent space occupied by any
other tenant. In particular, Tenant shall use, and shall require Tenant Parties
to use best-available, commonly used industry techniques to prevent air mixing
from areas of potential contamination into other areas of the Building. Tenant
shall indemnify and hold Landlord harmless from and against any and all losses,
expenses, liabilities, penalties or costs arising

                                       30
<PAGE>   31
directly or indirectly from Tenant's or Tenant Parties' failure to isolate
building systems or to cause an Environmental Condition in areas of the Project
outside the Premises as a result of its design or construction of the Tenant
Improvements.

                31.3    Reporting. Tenant shall deliver (or cause Tenant Parties
to deliver) to Landlord (a) prior to Lease execution, and (b) once each year on
or before January 1st during the Term, a list specifying the type and quantity
of all Hazardous Materials used or stored by Tenant or Tenant Parties on the
Premises together with copies of all permits, licenses and approvals required in
connection with the use or storage of such materials, together with Tenant's and
Tenant Parties' Hazardous Materials data safety sheets and any other
documentation with respect to Tenant's and Tenant Parties' usage, storage, and
disposal of Hazardous Materials that are required by the City of Bothell Fire
Department. Notwithstanding the foregoing, Tenant shall respond, and shall cause
Tenant Parties to respond to any written request by Landlord for confirmation
whether there has been a significant increase, as evaluated in Tenant's
reasonable judgment, in the quantity of Hazardous Materials or change in the
type of Hazardous Materials utilized by Tenant or Tenant Parties, provided that
such request shall not be made more than once per calendar quarter. Tenant will
provide additional documents or information with respect to its and Tenant
Parties' Hazardous Materials within a reasonable period of time after receipt of
a specific written request from Landlord. Tenant shall promptly notify Landlord
in writing of (i) any notices of violation or potential or alleged violation of
any Environmental Law which are received by Tenant from any governmental agency
or any Tenant Party; (ii) any and all inquiry, investigation, enforcement,
clean-up, removal or other governmental or regulatory actions instituted or
threatened relating to the Premises; and (iii) all claims made or threatened by
any third-party against Tenant or a Tenant Party or the Premises relating to any
Hazardous Materials used by Tenant or a Tenant Party at the Premises. If any
Environmental Condition occurs that is or may be a result of Tenant's or any
Tenant Party's actions during the Initial or Extended Term, or if Tenant or any
Tenant Party has disposed of or caused a release of Hazardous Materials at, on
or about the Project other than in accordance with Environmental Laws, Tenant
shall promptly prepare or cause the Tenant Party to prepare a remediation plan
for Landlord's review and approval, which shall not be unreasonably withheld,
provided, however, that Landlord shall not require any remediation in excess of
or to higher standards than would be mandated by applicable Environmental Laws.
Tenant's obligation to remediate any Environmental Condition shall not be
contingent on an enforcement action by any governmental authority and shall be
independent of any governmentally mandated remediation. If Landlord approves the
plan, then Tenant shall execute or cause the Tenant Party to execute the
remediation plan at Tenant's sole cost and expense (subject to such
reimbursement as Tenant may obtain from a Tenant Party). If the remediation plan
is not reasonably acceptable to Landlord or if Tenant fails to execute or cause
execution of the remediation plan within a reasonable period of time, then, at
Landlord's option, Tenant shall reimburse Landlord, upon demand, for the cost to
Landlord of performing rectifying work provided that such work is not in excess
of or to higher standards than would be mandated by applicable Environmental
Laws. The reimbursement shall be paid to Landlord in advance of Landlord's
performing such work, based upon Landlord's reasonable estimate of the cost
thereof; and upon completion of such work by Landlord, Tenant shall pay to
Landlord any shortfall within thirty (30) days after Landlord bills Tenant
therefor or Landlord shall within thirty (30) days refund to Tenant any excess
deposit, as the case may be. To the extent reasonably requested by Landlord,
Tenant shall furnish Landlord with detailed reports concerning any Environmental
Condition which occurs on the Premises during the Term.

                31.4    Inspection. After notice to Tenant and a reasonable
opportunity for Tenant to effect such compliance, Landlord may, but shall not be
obligated to, enter upon the

                                       31
<PAGE>   32
Premises (including subleased Premises) and take such actions and incur such
costs and expenses to effect such compliance as it deems advisable to protect
its interest in the Premises. However, Landlord shall not be obligated to give
Tenant notice and an opportunity to effect compliance if (i) such delay might
result in material adverse harm to Landlord, the Premises, the Building or the
Project; (ii) Tenant has already had actual knowledge of the situation and a
reasonable opportunity to effect compliance, or (iii) Landlord reasonably
believes that an emergency exists. Landlord shall use good faith efforts to
comply with Tenant's reasonable requirements with respect to security to the
extent such requirements have been provided to Landlord in advance. Whether or
not Tenant has actual knowledge of the release of Hazardous Materials on the
Premises, the Building, or the Project as the result of Tenant's or Tenant
Parties' use of the Premises, the Building or the Project, Tenant shall
reimburse Landlord for all reasonable costs and expenses incurred by Landlord
relating to such Hazardous Materials or in connection with such compliance
activities. Tenant shall notify Landlord immediately of any release of any
Hazardous Materials on the Premises in violation of any Environmental Law of
which Tenant is aware.

                31.5    Indemnity. Tenant agrees to indemnify, defend and hold
harmless Landlord against any and all losses, liabilities, suits, obligations,
fines, damages (including diminution in the value of the Premises or Building,
loss or restrictions on use of space in the Building or Project, and sums paid
in settlement of claims), judgments, penalties, claims, charges, cleanup costs,
remedial actions, costs and expenses (including, without limitation, attorneys'
and other professional fees and disbursements) that may be imposed on, incurred
or paid by, or asserted against Landlord, the Premises, the Building, or the
Project by reason of, or in connection with (i) any misrepresentation, breach of
warranty or other default by Tenant or any Tenant Party under this Section, or
(ii) the acts or omissions of Tenant or any Tenant Party resulting in the
release of any Hazardous Materials. All of Tenant's obligations and liabilities
under this Section shall survive expiration or other termination of this Lease
and shall be separately enforceable by Landlord. This indemnification is
intended to constitute an indemnity agreement within the meaning of Section
9607(e)(i) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. Section 9607(e)(i)). Neither the written
consent by Landlord to the presence of Hazardous Materials on, under or about
the Premises, nor the strict compliance by Tenant with all Environmental Laws,
shall excuse Tenant from Tenant's obligation of indemnification pursuant
thereto.

                31.6    Decontamination. Upon expiration or early termination of
this Lease, Tenant shall at its sole cost and expense undertake and complete a
thorough wash and decontamination of those portions of the Premises that have or
may have been exposed to Hazardous Materials, including but not limited to
scrubbing of all surfaces, equipment, cabinets, fixtures and flume hood external
surfaces in the Premises, in order to remove all residues of Hazardous Materials
(including chemicals and biological material). Upon completion of such wash and
decontamination, Tenant shall cause, at its sole cost and expense, a reputable
environmental engineering company to perform an environmental inspection of the
Premises and prepare a written report for delivery to Landlord and Tenant no
later than thirty (30) days after Lease expiration or early termination,
certifying that the Premises are free from all Hazardous Materials.

                31.7    Monitoring. At its option, Landlord may once in each
Lease year, and more frequently if Landlord has reasonable cause to believe that
a violation of Environmental Law or this Section 31 is occurring, monitor
Tenant's and Tenant Parties' compliance with the requirements set forth in this
Section, including without limitation obtaining an environmental assessment of
the Premises from a qualified environmental engineering company of Landlord's

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selection which has demonstrated industry related experience, the cost of which
shall be paid by Landlord unless such assessment shows a material failure by
Tenant or Tenant Parties to comply with the requirements of this Section, in
which case the cost shall be paid by Tenant. Any such environmental assessment
shall be performed at a reasonable time mutually acceptable to Landlord and
Tenant (and coordinated with Tenant Parties). Landlord shall provide a copy of
any written assessment to Tenant and, Tenant shall comply (and cause Tenant
Parties to comply), at Tenant's cost and expense (provided that Tenant may seek
to have Tenant Parties bear costs so long as the work is done), with any
industry-standard recommendations contained in any such environmental assessment
that Landlord may reasonably require including without limitation, any
recommended precautions which should be taken with respect to Tenant's or Tenant
Parties' activities on the Premises.

                31.8    Survival. The provisions of this Section 31 shall
survive the expiration or termination of this Lease with respect to any
occurrences during the Term.

        32.     Signs. Tenant shall not place upon or install in windows or
other openings or exterior sides of doors or walls of the Premises any symbols,
drapes, or other materials without the written consent of Landlord. Tenant shall
observe and comply with the requirements of all Laws. Tenant shall have the
right to install identifying signage on the Building and the monument sign
comparable to the signage on the Building and monument sign for Catapult, Inc.,
provided that such signage is permitted under applicable laws. Landlord shall
have the right to review and approve Tenant's proposed signage which shall be
included in Tenant's Plans pursuant to Exhibit C.

        33.     General Provisions.

                33.1    Attorneys' Fees. In the event Landlord reasonably
requires the services of any attorney in connection with any default or
violation by Tenant of the terms of this Lease or the exercise by Landlord of
its remedies for any default by Tenant under this lease, or a request by Tenant
for Landlord's waiver of any terms of this Lease or extension of time to perform
or pay any obligation of Tenant under this Lease, Tenant shall promptly on
demand reimburse Landlord for its reasonable attorneys' fees incurred in such
instance. In the event of any litigation, arbitration or other proceeding
(including proceedings in bankruptcy and probate and on appeal) brought to
enforce or interpret or other wise arising under this Lease, the substantially
prevailing party therein shall be entitled to the award of its reasonable
attorneys' fees, witness fees, and court costs incurred therein and in
preparation therefor.

                33.2    Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State of Washington. Any suit
arising from or relating to this Lease shall be brought in the county in which
the Premises are located, and the parties hereto waive the right to be sued
elsewhere.

                33.3    Cumulative Remedies. No remedy or election under this
Lease shall be deemed exclusive but shall, wherever possible, be cumulative with
all other remedies at law or in equity.

                33.4    Exhibits; Addenda. Exhibits and Addenda, if any, affixed
to this Lease are a part of and incorporated into this Lease.

                33.5    Interpretation. This Lease has been submitted to the
scrutiny of all parties hereto and their counsel, if desired, and shall be given
a fair and reasonable

                                       33
<PAGE>   34
interpretation in accordance with the words hereof, without consideration or
weight being given to its having been drafted by any party hereto or its
counsel. Tenant acknowledges that it has had an opportunity to be represented by
legal counsel during the course of such negotiations.

                33.6    Joint Obligation. If there is more than one Tenant under
this Lease, the obligations hereunder imposed upon Tenants shall be joint and
several.

                33.7    Keys. Upon expiration or termination of this Lease,
Tenant shall surrender all keys to the Premises to Landlord at the place then
fixed for payment of Rent and shall inform Landlord of all combination looks,
safes, and vaults, if any, in the Premises.

                33.8    Late Charges; Interest. Late payment by Tenant to
Landlord of Rent or other sums due under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which would be
difficult and impractical to ascertain. Such costs include without limitation
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, Tenant shall pay to Landlord as Additional Rent a late charge equal
to the greater of One Hundred Fifty ($150) or five percent (5%) of such
installment as liquidated damages for such late payment, other than for time
value damages. Waiver of said late charge with respect to any installment or sum
shall not be deemed to constitute a waiver with respect to any subsequent late
charge which may accrue. Payment of the Rent via Tenant's delivery of a check
returned for "Insufficient Funds" shall constitute the delinquent payment of
Rent and shall be subject to the late charge and interest provisions of this
Section. In addition, any Rent or other sums due under this Lease to Landlord
that is not paid when due shall bear interest at the rate of fifteen (15%) per
annum or the maximum amount permitted by law if less, calculated from the date
due or expended until the date of payment. The existence or payment of charges
and interest under this Section shall not cure or limit Landlord's remedies for
any Default under this Lease.

                33.9    Light, Air, and View. Landlord does not guarantee the
continued present status of light, air, or view in, to or from the Premises.

                33.10   Name. Tenant shall not use the name of the Building or
Business Park for any purpose other than as an address of the business conducted
by the Tenant in the Premises.

                33.11   Prior Agreements; Amendments. This Lease contains all of
the agreements of the parties with respect to any matter covered or mentioned in
this Lease, and no prior agreements of understandings pertaining to any such
matters shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties or
their respective successors in interest. This Lease shall not be effective or
binding on any party until fully executed by both parties hereto.

                33.12   Recordation. Landlord and Tenant shall execute and
record a short form memorandum of this Lease on Tenant's request only after
Tenant has taken possession of the Premises. Simultaneously with the execution
of such memorandum, Tenant shall sign and deliver to Landlord a quit claim deed
which Landlord may record when this Lease expires or terminates. Tenant shall
execute any further documentation necessary to remove this Lease from the public
records upon request and shall indemnify and hold harmless Landlord from any
loss, damage, cost or expense related to or arising out of the recordation of
such memorandum. Landlord understands that Tenant will have to file a copy of
this Lease with the Securities

                                       34
<PAGE>   35
Exchange Commission and that the entire Lease may become publicly available.
Except as set forth above, Tenant shall treat the contents of this Lease as
confidential information and shall not disclose the terms and conditions hereof
to other parties; provided, however, Tenant may disclose portions of the Lease
to its officers, directors, employees, attorneys, architects, accountants, and
other consultants and advisors to the extent such persons need to know such
information provided such parties are first informed of the confidential nature
of such information and each such party agrees to treat the information as
confidential. In addition, the contents of this Lease may be divulged by Tenant
to the extent, but only to the extent, required by law or in any administrative
or judicial proceeding in which Tenant is required to divulge such information,
however Tenant shall notify Landlord prior to making such disclosure. Tenant
shall be responsible for any disclosure of this Lease in violation of the terms
of this Section made by any person who received this Lease or learns of its
terms and conditions, directly or indirectly, from Tenant.

                33.13   Liability. Tenant recognizes that Landlord is a limited
partnership. Tenant expressly agrees, anything herein to the contrary
notwithstanding, that each and all of the representations and agreements made by
Landlord are intended to bind only the Premises, the Building and the Property.
No personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforced against, any of the managers, shareholders,
partners, directors, officers, employees or agents of Landlord on account of any
agreements of Landlord contained in this Lease and Tenant expressly waives any
right to proceed against the partners or the officers, directors, or
shareholders of any partner in Landlord, except to the extent necessary to
subject the assets of such partnership to such claim. If Landlord fails to
perform any obligation of Landlord under this Lease and as a result Tenant
recovers a money judgment against Landlord, such judgment shall be satisfied
only out of the proceeds of sale received upon execution of such judgment and
levied against the right, title and interest of Landlord in the Property.

                33.14   Severability. That any provision of this Lease is
invalid, void, or illegal shall in no way affect impair, or invalidate any other
provision of this Lease and such other provision shall remain in full force and
effect.

                33.15   Time. Time is of the essence of this Lease and each of
its provisions.

                33.16   Waiver. No provision of this Lease shall be deemed to
have been waived by either party unless such waiver is in writing signed by such
party's duly authorized representatives. The waiver by either party of any
provision of this Lease shall not be deemed to be a waiver of such provision or
any other provision, in any subsequent instance. The acceptance of Rent by
Landlord shall not be deemed to be a waiver of any preceding default or breach
by Tenant under this Lease, whether known or unknown to Landlord, other than the
failure of the Tenant to pay the particular Rent so accepted.

                33.17   No Waste. Tenant shall not commit or suffer to be
committed any waste, damage or nuisance in or upon the Premises.

                33.18   Quiet Enjoyment. Provided Tenant observes its
obligations under this Lease, its quiet enjoyment of the Premises throughout the
Term shall not be disturbed.

                33.19   Construction. Words and phrases used in the singular '
shall be deemed to include the plural and vice versa. When the word "including"
is used in this Lease, it shall mean "including, but not limited to." Whenever
words such as "herein," "hereunder," etc., are

                                       35
<PAGE>   36
used in this Lease, they shall mean and refer to this Lease in its entirety and
not to any specific section, paragraph or other part of this Lease. The word
"person" includes any natural person, corporation, firm, partnership, limited
partnership, limited liability company, trust, estate, unincorporated
organization, or other legal or business entity, however designated or
constituted. "Business day" means days when national banks are open in Seattle,
Washington. The caption of each section of this Lease is for convenience of
reference only, and in no way defines, limits or describes the scope or intent
of such section.

                33.20   Force Majeure. Whenever a period of time is herein
prescribed for action to be taken by either party, said party shall not be
liable or responsible for, and there shall be excluded from the computation of
any such period of time, any delays due to ("force majeure"): strikes, riots,
acts of God, delay caused by the failure of a governmental agency to issue a
building or occupancy permit despite diligent pursuit thereof, shortages of
labor or materials because of priority or similar regulations or order of any
governmental or regulatory body, war, or any other causes of any kind which are
beyond the reasonable control of said party. Lack of funds or inability to
obtain financing shall not be an event of force majeure.

        34.     Rooftop Equipment. Landlord shall permit Tenant to install and
maintain at Tenant's sole expense communications equipment to be used solely for
communications from or to Tenant ("Communications Equipment") and HVAC equipment
serving the Premises on the roof of the Building in locations acceptable to
Landlord and in strict compliance with all applicable governmental laws and
regulations and Landlord's roof warranty. Landlord will not install any
communications equipment on the roof without Tenant's consent which shall not be
unreasonably withheld. The Communications Equipment may not be leased or hired
out to any third parties and shall not be used for commercial purposes unrelated
to Tenant's business conducted in the Premises. Landlord makes no warranties or
representations to Tenant as to the permissibility of any Communications
Equipment on the Building under applicable law. Tenant must remove the
Communications Equipment (including any related cabling or wiring) upon the
expiration or earlier termination of this Lease. Tenant shall be required to
obtain all governmental permits, consents or authorizations necessary for the
erection and operation of the Communications Equipment and rooftop HVAC
equipment. If installation of the Communications Equipment and rooftop HVAC
equipment requires any roof penetrations, Tenant shall use a contractor approved
by Landlord and shall cause such work to be done in a manner that will preserve
any roof warranty held by Landlord. The nature, design and specifications of any
rooftop HVAC equipment to be subject to Landlord's reasonable approval which
shall not be unreasonably withheld or delayed. Tenant's insurance and
indemnification obligations shall apply to any rooftop installations made by
Tenant and any activities of Tenant in relation thereto.

        Tenant's installation and use of the Communications Equipment may not in
any way materially interfere with the systems of the Building or the quiet
enjoyment of other tenants of the Building. Upon the expiration or earlier
termination of this Lease, Tenant, at its sole cost and expense, shall remove
the Communications Equipment including any related cabling or wiring (and if
Landlord so directs, the rooftop HVAC equipment installed by Tenant and any
related duct work or wiring) and restore the Building to a condition comparable
to its condition immediately prior to the installation of such equipment
ordinary wear and tear, and damage by casualty not caused by Tenant, its agents,
employees, contractors or invitees, excepted. If installation, maintenance, use,
or removal of any equipment on the rooftop causes any damage to the roof or roof
membrane or any other portion of the Building, then Tenant shall be solely
responsible for such damage and shall ensure that the remaining useful life of
the roof is the same as it would have been but for the penetrations.

                                       36
<PAGE>   37
        35.     Authority. Each individual executing this Lease on behalf of
Landlord and Tenant represents and warrants that (s)he is duly authorized by all
necessary action of the partners of Landlord, or the board directors of Tenant,
as the case may be, to execute and deliver this Lease, and that this Lease is
binding upon Landlord or Tenant, as the case may be, in accordance with its
terms.

        36.     Financial Statements. Tenant shall furnish to Landlord on a
quarterly basis, within forty-five (45) days after the end of each fiscal
quarter, Tenant's most recent financial statements, including at a minimum a
balance sheet, income statement and statement of changes in financial condition,
and statement of cash flows, or the equivalent including all notes thereto. Such
statements shall be unaudited and in the form furnished to the SEC and/or to
Tenant's shareholders or other owners. In addition, Tenant shall furnish to
Landlord on an annual basis, within ninety (90) days after the end of each
fiscal year or at such earlier time as provided to the SEC, Tenant's most recent
audited financial statements, including at a minimum a balance sheet, income
statement and statement of changes in financial condition, and statement of cash
flows, or the equivalent, including all notes thereto.

        37.     Commissions. Landlord shall pay the following commissions: (a)
two and one-half percent (2.5%) of the gross lease consideration from the
Commencement Date through April 30, 2005, shall be paid to the Broderick Group,
(b) two and one-half percent (2.5%) of the gross lease consideration from May 1,
2005, through December 31, 2010, shall be divided equally between The Broderick
Group and CenturyPacific, L.P. Each party represents and warrants to the other
that it has not had dealings with any real estate broker, agent or salesperson,
other than the Brokers identified in Section 1 of this Lease, if any, with
respect to this Lease that would cause the other party to have any liability for
any commissions or other compensation to such broker, agent or salesperson, and
that no such broker, agent or salesperson has asserted any claim or right to any
such commission or other compensation. Such representing party shall defend and
indemnify the other party and hold the other party harmless from and against any
and all loss, cost, liability, damage and expense (including reasonable
attorneys' fees) whatsoever that may arise out of the breach of such
representation and warranty. Landlord shall make separate payment on behalf of
Grubb & Ellis and Landlord's indemnity shall include any claim for a commission
by Grubb & Ellis.

        EXECUTED the day and year above written.

                                           LANDLORD:
                                           --------

                                           DITTY PROPERTIES LIMITED PARTNERSHIP

                                           By     /s/ Kirk Mathewson
                                              ------------------------------
                                              Its PRESIDENT, GENERAL PARTNER
                                                  --------------------------

                                           TENANT:
                                           ------

                                           EDEN BIOSCIENCE CORPORATION

                                           By     /s/ J. Butler
                                              ------------------------------
                                              Its PRESIDENT & CEO
                                                  --------------------------

                                       37
<PAGE>   38
STATE OF WASHINGTON                 )
                                    ) ss.
COUNTY OF KING                      )

        On this 25TH of January, 2001, before me, the undersigned, a Notary
Public in and for the State of Washington, personally appeared Kirk Mathewson to
me known to be the PRESIDENT, GENERAL MANAGER of DITTY PROPERTIES LIMITED
PARTNERSHIP, the corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he/she was authorized to execute the said instrument on behalf of
said corporation.

        WITNESS MY HAND AND OFFICIAL SEAL hereto affixed the day and year first
above written.

                            Name  /s/ S.C. Mathewson
                                  ------------------------------
                                  NOTARY PUBLIC and for the State of Washington,
                                  residing at King County
                                  My commission expires  11/20/093

STATE OF WASHINGTON                 )
                                    ) ss.
COUNTY OF KING                      )
              ----------------------

        On this 12TH day of January, 2001, before me, the undersigned, a Notary
Public in and for the State of Washington, personally appeared Jerry Butler to
me known to be the CEO of EDEN BIOSCIENCE CORPORATION, the corporation that
executed the foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of said corporation, for the uses and
purposes therein mentioned, and on oath stated that he/she was authorized to
execute the said instrument on behalf of said corporation.

        WITNESS MY HAND AND OFFICIAL SEAL hereto affixed the day and year first
above written.

                            Name  /s/ Linda J. Edam
                                  ------------------------------
                                  NOTARY PUBLIC and for the State of Washington,
                                  residing at Kirkland, WA
                                  My commission expires 5/1/01

                                       38
<PAGE>   39
                                   EXHIBIT A-1

                                  THE BUILDING

                                     A-1-1
<PAGE>   40
                                   EXHIBIT A-2

                              PROPERTY DESCRIPTION

               Lot 11, according to the plat of Quadrant Monte Villa Center,
               Snohomish County Recording No. 9212225003.

               Situated in the City of Bothell, County of Snohomish,
               Washington.

                                      A-2-1
<PAGE>   41
                                   EXHIBIT A-3

                            BUSINESS PARK DESCRIPTION

               The entirety of the plat of Quadrant Monte Villa Center, recorded
               in Volume 54 of Plats, Pages 165-169, inclusive, records of
               Snohomish County, Washington under Auditor's file No. 9212225003.

                                     A-3-1
<PAGE>   42
                                    EXHIBIT B

                            FORM OF LETTER OF CREDIT

                                [BANK LETTERHEAD]

                                 ________, 2001

                        Letter of Credit Number _________

APPLICANT:
----------
[Tenant's name and address]

BENEFICIARY:
-----------
Ditty Properties

-----------------
Bellevue, WA  98004

AMOUNT: USD $1,250,000.00
------

EXPIRATION DATE:      December 31, 2001
---------------

Gentlemen:

        We hereby issue our Irrevocable Standby Letter of Credit Number ________
in your favor available in one or multiple drawings by your draft in the form of
Annex I attached hereto, drawn at sight on us and signed by a purported officer
of your partnership, and accompanied by a certificate in the form of Annex II
attached hereto.

        Amounts drawn under this Standby Letter of Credit may not exceed, in the
aggregate, ONE MILLION TWO HUNDRED FIFTY THOUSAND U.S. Dollars (USD $1,250,000).
Partial drawings and multiple drawings may be made under this Letter of Credit,
provided that each such drawing that is paid by us shall reduce the amount
available under this Letter of Credit.

        This Letter of Credit shall be deemed automatically extended without
amendment for one year periods from the present Expiration Date hereof, with a
final Expiration Date of December 31, 2010, [NOTE THE LETTER OF CREDIT WILL HAVE
TO BE RENEWED AND HAVE A NEW EXPIRATION DATE DURING RENEWAL PERIODS] unless at
least thirty (30) days prior to any such Expiration Date we shall notify the
Beneficiary in writing (by certified mail or nationally-recognized courier
service at the above-listed address) that we elect not to renew this Letter of
Credit for such additional period. Upon receipt of such notice, the Beneficiary
may draw hereunder as provided in the opening paragraph of this Letter of
Credit.

        We hereby engage with you that if the drawing in respect of payment is
presented to us for payment at this office currently located at
______________________________Seattle, Washington, on or before the expiration
date of this Standby Letter of Credit, on a Business Day (being a day in Seattle
which is not a Saturday or Sunday, or a day on which banking institutions are
authorized or required to close), at or before 8:30 a.m. (Seattle Time) and

                                      B-1
<PAGE>   43
provided that such drawing and the draft presented in connection therewith
strictly conform to the terms and conditions hereof, payment shall be made to
you of the amount specified, in immediately available funds, at or before 11:00
a.m. (Seattle Time), on the same day. If a drawing with respect to payment is
made by you hereunder after 8:30 a.m. (Seattle Time) and, provided that such
drawing and the draft presented in connection therewith strictly conform to the
terms and conditions hereof, payment shall be made to you of the amount
specified, in immediately available funds, at or before 11:00 a.m. (Seattle
Time) on the next succeeding Business Day.

        This Standby Letter of Credit is transferable in its entirety provided
that our standard transfer form is duly executed and returned to us with the
original Standby Letter of Credit for endorsement.

        This Standby Letter of Credit is subject to the "Uniform Customs &
Practices for Documentary Credits" (1993 Revision), International Chamber of
Commerce, Publication No. 500, (the "UCP"). As to matters not covered by the
UCP, this Standby Letter of Credit shall be governed by and construed in
accordance with the laws of the State of Washington and U.S. Federal law.

                                    Sincerely,

                                    [Issuing Bank]

Attachments:
-----------
        Annex I
        Annex II

                                      B-2
<PAGE>   44
                                     ANNEX I

                                      DRAFT

        Pay to the order of DITTY PROPERTIES. the sum of _____________________
U.S. Dollars (USD $ ________).

        Drawn under _____________________Bank, Standby Letter of Credit Number
__________ dated _________, 20___.

                                            DITTY PROPERTIES

                                       By
                                          --------------------------------------
                                       Its
                                          --------------------------------------

                                      B-3
<PAGE>   45
                                    ANNEX II

                                   CERTIFICATE

        Landlord hereby certifies:

                (a)     that Tenant has failed to secure and deliver to Landlord
the replacement Letter of Credit in strict compliance with the terms of the
Lease; or

                (b)     that Landlord has received notice from [ISSUING BANK]
that the Letter of Credit will not be extended beyond its current Expiration
Date; or

                (c)     that Tenant is in default under the terms and conditions
of the Lease.

                                            DITTY PROPERTIES

                                       By
                                          --------------------------------------
                                       Its
                                          --------------------------------------

                                      B-4
<PAGE>   46
                                    EXHIBIT C

                       CONSTRUCTION OF TENANT IMPROVEMENTS

        This Exhibit constitutes a part of the Lease and its terms are
incorporated in the Lease for all purposes. Capitalized terms used herein and
not otherwise defined shall have the meanings given in the Lease.

I.      LANDLORD'S OBLIGATIONS. Landlord shall deliver the Premises to Tenant in
their current condition and shall not be obligated to construct any improvements
or additions to the Premises nor shall Landlord be required to upgrade the
Building structure or systems to accommodate Tenant's planned improvements.
Tenant accepts the Premises in their current As-Is condition, with all faults.
Tenant acknowledges that Landlord did not design or construct the Building.
Nevertheless, Landlord has provided Tenant with copies of such plans and
specifications as the property manager may have in its possession with respect
to the current improvements in the Building. Landlord shall not be responsible
for the completeness or accuracy of such plans, all of which shall be provided
for information purposes only and without warranty of any kind.

II.     TENANT'S OBLIGATIONS

        A. TENANT IMPROVEMENTS. Tenant shall be solely responsible for the cost
of all Tenant Improvements in the Premises, including but not limited to:
design, engineering, labor and materials, permitting fees, construction and
installation of Tenant Improvements and any changes, relocations or other
modifications or upgrades to the Building shell and core; and all applicable
taxes. Tenant shall construct the Tenant Improvements at its sole cost and
expense in compliance with plans approved by Landlord pursuant to this Exhibit.

        B. SELECTION OF ARCHITECT AND CONTRACTOR. Tenant may select the
architect to prepare plans and specifications for the Tenant Improvements
provided that Tenant's selection must be approved in advance by Landlord in
writing, which approval may be granted or withheld in the reasonable discretion
of Landlord. Construction shall be performed by a reputable contractor and
subcontractors approved in advance by Landlord in writing, which approval may be
granted, conditioned or withheld in the reasonable discretion of Landlord. If
Landlord refuses to approve any architect or contractor proposed by Tenant,
Landlord shall identify alternatives that Landlord would be prepared to approve.

        C. PREPARATION OF PLANS. Tenant shall, at Tenant's expense, prepare the
Basic Schematic Plan, Design Development Plans and Final Construction Documents
as described below (collectively, "Tenant's Plans"), for the Tenant
Improvements. All of Tenant's Plans must be approved by Landlord in accordance
with Paragraph II.F below. Tenant's architect shall ensure that Tenant's Plans
are compatible with the current Building structure and systems.

        Tenant shall supply Landlord with one (1) mylar sepia, (2) two blue line
prints and one (1) disk on AutoCAD of the following Tenant's Plans:

        (1) BASIC SCHEMATIC PLAN:

        The basic schematic plan and schematic design ("Basic Schematic Plan")
shall consist of architectural floor plans which show the office and partition
layout, quantities and locations of

                                      C-1
<PAGE>   47
doors and relites, and shall identify each room or area with a specific
function. The Basic Schematic Plan must also clearly identify and locate
equipment requiring special plumbing, mechanical or electrical systems, areas
subject to above normal loads, special openings in the floor and other special
features.

        (2)     DESIGN DEVELOPMENT PLANS:

        Based on the Basic Schematic Plan as approved by Tenant and Landlord,
Tenant's architect shall produce design development plans (the "Design
Development Plans") which shall include the following:

                1.      Architectural floor plans with locating and dimensioning
partition layouts, relite and door locations, built-in cabinetry and other
special features.

                2.      Power and telephone plans which indicate number,
location and type of power, telephone and computer outlets and other items
requiring electrical power.

                3.      Plumbing and Mechanical.

                4.      Furniture plans showing layout and workstation furniture
locations.

                5.      Preliminary finish schedule locating and identifying
special floor, wall or ceiling finishes.

                6.      Reflected ceiling plan which locates, describes, and
dimension ceiling types and lighting layouts.

        (3)     FINAL CONSTRUCTION DOCUMENTS:

        Based on the Design Development Plans, as approved by Tenant and
Landlord, Tenant's architect shall produce final construction documents (the
"Final Construction Documents") which shall include the following:

                1.      Final and fully dimensioned architectural floor plans.

                2.      Structural plans and specifications as required by
applicable codes, governing authorities and/or at the request of Landlord.

                3.      Final mechanical and plumbing plans, diagrams and
details; final equipment schedules.

                4.      Final power, telephone and computer outlet plans.

                5.      Final reflected ceiling plans, which locate, describe,
and dimension ceiling systems and any special or accent lighting.

                6.      Door and hardware schedules and details.

                7.      Room finish, color schedule and specifications for
interior finishes including floors, walls, ceilings and trim.

                                      C-2
<PAGE>   48
                8.      Construction notes and specifications for all material
and equipment to be provided and/or installed by Landlord.

                9.      Construction and cabinet work details for stairs, wall
and floor openings, special equipment and all cabinet and millwork items.

        (4)     UTILITY SERVICES

        Tenant's Plans shall provide for utilities. All utility services to and
within the Premises are subject to the capacities of the Building shell and core
and the availability of service from local serving utilities. Tenant, at its own
expense shall provide and install any equipment necessary to adapt the utilities
to Tenant's requirements.

        (5)     STRUCTURAL CRITERIA

        Tenant shall request in writing Landlord's prior written approval for
the construction or installation of any improvements, equipment or fixtures
which could exceed the load capacity of the Building structure as reflected in
the plans provided to Tenant. Under no circumstances shall Tenant be permitted
to make penetrations in or to attach or hang any item to or from Landlord's
ceiling, soffit, fascia, columns, piping, ductwork, metal or concrete floor deck
or metal or concrete roof deck or lateral support structure, unless otherwise
specifically permitted herein, or in the approved Tenant's Plans.

        D.      MODIFICATIONS TO BUILDING SHELL AND CORE. If Tenant wishes to
modify the Building structure or systems to accommodate the Tenant Improvements,
Tenant shall direct its architect to prepare plans identifying with
particularity any requested changes to the Building structure or systems. Such
modifications must be approved by Landlord's architect and by Landlord in
writing. Landlord's approval may be given, withheld or subject to such
conditions as Landlord's in its reasonable discretion desires. The expense of
Landlord's architect shall be paid by Tenant.

        E.      EXISTING CONDITIONS. Upon taking possession of the Premises and
prior to commencing construction of the Tenant Improvements, Tenant's architect
shall verify existing conditions and construction. Tenant shall ensure that
Tenant's Plans and any other plans, specifications or drawings accommodate
existing conditions and construction. Tenant shall be solely responsible for the
completeness of all plans for the Tenant Improvements and for conformity of the
plans with the existing conditions in the Building and the Premises.

        F.      LANDLORD APPROVALS. Landlord's approvals of Tenant's Plans shall
not be unreasonably withheld or delayed and may be subject to reasonable
conditions, but Landlord's approval or disapproval of any Tenant's Plans shall
be in Landlord's sole discretion if Tenant's proposed work would (a) require
changes to structural components or exterior design of the Building, (b) require
material modification to any Building's mechanical system or improvements or
installation, or (c) have a negative impact on the value of the Building.
Landlord shall, within ten (10) business days following receipt by Landlord of
plans from Tenant, review, comment on and return the plans to Tenant, marked
"Approved", "Approved as Noted" or "Disapproved as Noted, Revise and Resubmit".
If the plans are returned to Tenant marked "Disapproved as Noted, Revise and
Resubmit", Tenant shall cause such plans to be revised, taking into account the
reasons for Landlord's disapproval, and shall resubmit revised plans to Landlord
for review. The same procedure shall be repeated until Landlord fully approves
the plans. Landlord shall

                                      C-3
<PAGE>   49
be entitled to reimbursement from Tenant on demand for the third-party costs
incurred by Landlord in reviewing plans hereunder.

        Tenant agrees and understands that Landlord's review of all plans
prepared by Tenant is solely to protect the interests of Landlord in the
Building and the Premises, and Landlord shall not be the guarantor of, nor in
any way or to any extent responsible for, the correctness or accuracy of any
such plans or of the compliance of such plans with applicable regulations, laws,
ordinances, codes and rules or of the conformance of such plans with existing
conditions in the Building. Tenant shall require that its architects, engineers
and contractors verify all existing conditions in the Building, insofar as they
are relevant to, or may affect, the design and construction of the Tenant
Improvements.

        Approval by Landlord of the Tenant's Plans prepared by Tenant shall not:
(i) imply approval by Landlord as to compliance of such plans with applicable
regulations, laws, ordinances, codes and rules; (ii) imply the compatibility of
the plans with the Building; or (iii) limit Landlord's right, as a condition and
at the time of Landlord's approval, to require changes in portions of the plans
which are incompatible with or which, in the reasonable opinion of Landlord,
adversely affect the Building structure or the electrical, plumbing, life safety
or mechanical systems of the Building or which adversely affect the availability
to Landlord of third party warranties. Tenant acknowledges that both the
compliance of the Tenant's Plans with all applicable regulations, laws,
ordinances, codes and rules and the compatibility of the Tenant's Plans with the
Building structure and the mechanical, plumbing, life safety and electrical
systems of the Building are the responsibility of Tenant.

III.    CONSTRUCTION OF TENANT IMPROVEMENTS

        A.      GENERAL. The construction shall be performed by or on behalf of
Tenant in a good and workmanlike manner and in compliance with all laws and such
reasonable rules and regulations regarding construction in the Building as
Landlord may impose from time to time. Upon completion of the Final Construction
Documents and approval thereof by Landlord, Tenant shall enter into a
construction contract in form and substance reasonably satisfactory to Landlord
with the contractor approved by Landlord for the construction of the Tenant
Improvements which approval shall not be unreasonably withheld or delayed.
Tenant shall also submit the Final Construction Documents to any applicable
governmental authorities for permits. Tenant covenants and agrees that all work
undertaken by it or on its behalf shall comply with the requirements of all
governmental agencies, offices and boards having jurisdiction over the Premises.
Tenant shall not commence construction of the Tenant Improvements until Tenant
has provided to Landlord (1) a copy of the building permit for the Tenant
Improvements, (2) certificates of insurance for all insurance required to be
carried by Tenant and its general contractor, and (3) a copy of the construction
contract between Tenant and its general contractor.

        B.      COOPERATION. Landlord shall have the right to observe the
construction of the Tenant Improvements. Tenant shall notify Landlord of all
construction meetings and Landlord has the right to attend all meetings of
Tenant and its contractor and subcontractors, and the Tenant's construction
contract(s) shall so provide.

        C.      NO LIENS. Tenant's contractor shall complete the Tenant
Improvements in conformance with the Final Construction Documents as approved in
writing by Landlord. Tenant shall complete the Tenant Improvements at Tenant's
sole cost and expense, and shall keep the Premises, Building and Property free
and clear of liens of any kind. If any such liens

                                      C-4
<PAGE>   50
are filed, Tenant shall have ten (10) days (or five (5) days if Landlord is in
the process of refinancing) from the date the lien is filed to either remove the
liens or to provide a bond in the amount necessary to cause such lien to be
released or removed from the Property pursuant to RCW 60.04.161.

        D.      TENANT MODIFICATIONS. If Tenant desires to change or revise the
Tenant Improvements specified by the Final Construction Documents, then Tenant
shall submit such change in writing for Landlord's approval, which shall not be
unreasonably withheld, and such request shall be accompanied by plans,
specifications and details as may be required to fully identify and quantify
such changes. If Landlord approves such changes, then Tenant will provide
Landlord with revised Final Construction Documents ("Revised Final Construction
Documents") incorporating the changes.

        E.      ASSIGNMENT OF WARRANTIES. To the extent permitted by law and by
the applicable warranties, Tenant hereby assigns to Landlord all warranties and
any rights received by Tenant from contractors or material suppliers with
respect to workmanship and materials supplied in connection with the Tenant
Improvements contemplated by this Exhibit.

        F.      COMPLETION. Upon completion of the Tenant Improvements, Tenant
or Tenant's contractor shall submit to Landlord:

                (1)     Copies of as-built plans and drawings and specifications
(one mylar sepia, two blue line prints and one CADD disk) for the Tenant
Improvements, including details of any changes to the Building's mechanical,
electrical, architectural, plumbing, cabling, sprinkler and fire alarm systems,
as applicable;

                (2)     Original final occupancy permit for the Premises; and

                (3)     Final lien waivers from all contractors and
subcontractors providing materials and labor to Tenant.

        G.      CONSTRUCTION INSURANCE. During construction, Tenant and its
general contractor shall procure and maintain in effect the following insurance
coverages in addition to the insurance required under Section 14 of the Lease
with an insurance company or companies acceptable to Landlord and authorized to
do business in the State of Washington:

                (1)     Worker's Compensation. Statutory Limits, together with
"ALL STATES," "VOLUNTARY COMPENSATION" and "FOREIGN COMPENSATION" coverage
endorsements;

                (2)     Employer's Liability Insurance. With a limit of not less
than $1,000,000.00;

                (3)     Commercial General Liability. At least $2,000,000.00,
Combined Single Limit, including Personal Injury, Contractual and
Products/Completed Operations Liability naming Landlord and Tenant as additional
insured. Coverage must be primary and non-contributing and include the
following:

                        (a)     Premises - Operations;

                        (b)     Elevators and Hoists;

                        (c)     Independent Contractor;

                                      C-5
<PAGE>   51
                        (d)     Contractual Liability assumed under the
                construction contract;

                        (e)     Completed Operations - Products;

                        (f)     Explosion, Underground and Collapse (XUC)
                Coverage

                (4)     Automobile Liability. Including Owned, Hired and
Non-owned licensed vehicles used in connection with performance of the
construction work of at least: $1,000,000.00 each person, Bodily Injury;
$3,000,000.00 each occurrence, Bodily Injury; $300,000.00 each occurrence,
Property Damage. Coverage must include the following:

                        (a)     Owned Vehicles;

                        (b)     Leased Vehicles;

                        (c)     Hired Vehicles;

                        (d)     Non-owned Vehicles;

                (5)     Procure or cause contractor to procure and maintain
installation floater insurance to protect against the risk of physical damage
until acceptance of the construction work; and

                (6)     Furnish the Landlord with certificates of insurance
evidencing such coverage prior to the commencement of the construction work. All
insurance shall be carried in companies reasonably acceptable to the Landlord.

IV.     CONSTRUCTION REPRESENTATIVES

        Tenant hereby appoints _____________________ to act on its behalf and
represent its interests with respect to all matters requiring Tenant action
under this Exhibit C. Landlord hereby appoints Campbell Mathewson of
CenturyPacific L.P. to act on its behalf and represent its interests with
respect to all matters requiring Landlord action in this Exhibit C. Either party
may change its construction representative by notice to the other party given in
accordance with Section 29 of the Lease. No consent, authorization or other
action by Tenant or Landlord with respect to matters set forth in this Section
shall bind Tenant or Landlord unless in writing and signed by the aforementioned
person. Tenant hereby expressly recognizes and agrees that no other person
claiming to act on behalf of Landlord is authorized to do so. If Tenant complies
with any request or direction presented to it by anyone else claiming to act on
behalf of Landlord, such compliance shall be at Tenant's sole risk and
responsibility and shall not in any way alter or diminish the obligations and
requirements created and imposed by this Exhibit C and Landlord shall have the
right to enforce compliance with this Exhibit C without suffering any waiver,
dilution or mitigation of any of its rights hereunder.

                                      C-6
<PAGE>   52
                                    EXHIBIT D

                              RULES AND REGULATIONS

1.      The Premises shall not be used for lodging or sleeping.

2.      Tenant shall not alter any lock or install a new or additional lock or
any bolt on any door of the Premises without furnishing Landlord with a key for
any lock and obtaining Landlord's prior permission. Tenant, upon the termination
of its tenancy, shall deliver to Landlord all keys and/or security cards to
doors in the Premises.

3.      No safes or other objects larger or heavier than the freight elevator of
the Premises is limited to carry shall be brought into or installed on the
Premises without Landlord's prior written consent. Heavy objects shall, if
considered necessary by Landlord, stand on wood strips of thickness as is
necessary to properly distribute the weight of those objects. Except as provided
in the Lease, Landlord will not be responsible for loss of or damage to any
property from any cause, and all damage done to the Premises by moving or
maintaining Tenant's property shall be repaired at the expense of Tenant.

4.      Tenant shall not use, keep or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord by reason of
noise, odors and/or vibrations.

5.      Tenant shall see that the doors of the Premises are closed and securely
locked when Tenant's employees leave the Premises, after hours.

6.      The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be deposited in any of them, and
any damage resulting to them from Tenant's misuse shall be paid for by Tenant.

7.      No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by Tenant on any part of the
Premises without the prior written consent of Landlord. If Landlord shall have
consented at anytime, whether before or after the execution of this Lease, that
consent shall in no way operate as a waiver or release of any of the provisions
of this Rule or of this Lease, and shall be deemed to relate only to the
particular sign, advertisement or notice so consented to by Landlord and shall
not be construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to each and every such sign,
advertisement or notice other than the particular sign, advertisement or notice,
as the case may be, so consented to by Landlord.

8.      Tenant shall not lay linoleum or other similar floor covering so that it
is affixed to the floor of the Premises in any manner except by a paste, or
other material which may easily be removed with water, the use of cement or
other similar adhesive materials being expressly prohibited. The method of
affixing any linoleum or other similar floor covering to the floor, as well as
the method of affixing carpets or rugs to the Premises, shall be subject to
approval by Landlord. The expense of repairing any damage resulting from a
violation of this Rule 8 shall be borne by the Tenant by whom, or by whose
agents, clerks, employees or visitors, the damage shall have been caused.

9.      Tenant shall coordinate with Landlord or Landlord's property manager the
connection, installation or relocation of any major utilities, including
telephone service. Such coordination is intended to ensure uninterrupted service
to the Premises and avoid damage to existing utility

                                      D-1
<PAGE>   53
service lines. No boring or cutting for wires or otherwise shall be made without
directions from Landlord or Landlord" representative.

10.     Tenant shall comply with all covenants, conditions, restrictions and
easements and other encumbrances applicable to the Property and recorded in the
real property records, as amended or replaced from time to time.

11.     Landlord reserves the right to select the name of the Premises and to
change the name as it may deem appropriate from time to time, so long as such
name does not interfere with tenant signage previously approved pursuant to the
Lease, and Tenant shall not refer to the Premises by any name other than: (a)
the names as selected by Landlord (as that name may be changed from time to
time), or (b) the postal address, approved by the United States Post Office.
Tenant shall not use the name of the Premises in any respect other than as an
address of its operation in the Premises without the prior written consent of
Landlord.

12.     Wherever the word "Tenant" occurs in these Rules and Regulations, it is
understood and agreed that it shall mean Tenant's assigns, subtenants,
associates, agents, clerks, employees and visitors. Wherever the word "Landlord"
occurs in these Rules and Regulations, it is understood and agreed that it shall
mean Landlord's assigns, agents, clerks, employees and visitors.

13.     In the event of any express conflict between the terms and conditions of
these Rules and Regulations and the terms and conditions of the Lease to which
these Rules are an exhibit, the terms and conditions of the Lease shall control.
Where there is no express conflict, these Rules and Regulations shall be deemed
to be in addition to, and shall not be construed in any way to modify, alter or
amend, in whole or part, the terms, covenants, agreements and conditions of the
Lease.

                                      D-2<PAGE>   1
                                                                   Exhibit 10.20

                                        BLDG: Walsh 3
                                        OWNER: 60
                                        PROP: 603
                                        UNIT: 1
                                        TENANT: 60303

                                LEASE AGREEMENT

     THIS LEASE, made this 30th day of March, 1995 between BOYD C. SMITH,
Trustee, or his Successor Trustee, UTA dated 12/27/76 (RICHARD T. PEERY 1976
CHILDREN TRUSTS) as amended, and LOUIS B. SULLIVAN, Trustee, or his Successor
Trustee, UTA dated 12/27/76 (JOHN ARRILLAGA 1976 CHILDREN TRUSTS) as amended,
hereinafter called Landlord, and NEW FOCUS, INC., a California corporation,
hereinafter called Tenant.

                                  WITNESSETH:

     Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by reference thereto more
particularly described as follows:

     All of that certain 55,000+- square foot, one-story building and parking
     appurtenant thereto located at 2630 Walsh Avenue, California 95051. Said
     Premises leased hereunder, is more particularly shown within the area
     outlined in Red on Exhibit A attached hereto. The Premises is leased on an
     "as-is" basis, in its present condition, and in the configuration as shown
     in Red on Exhibit B to be attached hereto.

     The interior of the building leased hereunder shall be improved by Landlord
     and leased by Tenant in the configuration as shown in Red on Exhibit B to
     be attached hereto.

     The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the building shall be measured from outside of exterior walls to
outside of exterior walls, and shall include any atriums, covered entrances or
egresses and covered loading areas.

     Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.

1. USE  Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises nor bring or keep or permit to be brought or kept in or about the
Premises anything which is prohibited by or will in any way increase the
existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Premises or neighboring premises or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. No sale by auction shall be
permitted on the Premises. Tenant shall not place any loads upon the floors,
walls, or ceiling which endanger the structure, or place any harmful fluids or
other materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside the
Premises. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
outside the Premises. No loudspeaker or other device, system or apparatus which
can be heard outside the Premises shall be used in or at the Premises without
the prior written consent of Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend and
hold Landlord harmless against any loss, expense, damage, reasonable attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law which regulates Tenant's use of the Premises. Tenant shall comply
with any covenant, condition, or restriction ("CC&R's") affecting the Premises
which regulates Tenant's use of the Premises. The provisions of this paragraph
are for the benefit of Landlord only and shall not be construed to be for the
benefit of any tenant or occupant of the Premises.

2. TERM

     A. The term of this Lease shall be for a period of TEN (10) years (unless
sooner terminated as hereinafter provided) and, subject to Paragraphs 2B and 3,
shall commence on the 1st day of May, 1995 and end on the 30th day of April
2005.

<PAGE>   2
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2B, above. The above is, however, subject
to the provision that the period of delay of delivery of the Premises shall not
exceed 60 days from the commencement date herein (except those delays caused by
Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable
materials, and delays beyond Landlord's control shall be excluded in calculating
such period) in which instance Tenant, at its option, may, by written notice to
Landlord, terminate this Lease.

4. RENT

   A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may
designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of SIX
MILLION ONE HUNDRED FIFTEEN THOUSAND FIVE HUNDRED AND NO/100 Dollars
($6,115,500.00) in lawful money of the United States of America, payable as
follows:

   See Paragraph 39 for Basic Rent Schedule

   B. Time for Payment. Full monthly rent is due in advance on the first day of
each calendar month. In the event that the term of this Lease commences on a
date other than the first day of a calendar month, on the date of commencement
of the term hereof, Tenant shall pay to Landlord as rent for the period from
such date of commencement to the first day of the next succeeding calendar month
that proportion of the monthly rent hereunder which the number of days between
such date of commencement and the first day of the next succeeding calendar
month bears to thirty (30). In the event that the term of this Lease for any
reason ends on a date other than the last day of a calendar month, on the first
day of the last calendar month of the term hereof Tenant shall pay to Landlord
as rent for the period from said first day of said last calendar month to and
including the last day of the term hereof that proportion of the monthly rent
hereunder which the number of days between said first day of said last calendar
month and the last day of the term hereof bears to thirty (30).

   C. Late Charges. Notwithstanding any other provision of this Lease, if Tenant
is in default in the payment of rental as set forth in this Paragraph 4 when
due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten percent (10%) of each rental payment so
in default.

   D. Additional Rent. Beginning with the commencement date of the term of this
Lease, Tenant shall pay to Landlord or to Landlord's designated agent in
addition to the Basic Rent and as Additional Rent the following:

      (a) All Taxes relating to the Premises as set forth in Paragraph 9, and

      (b) All insurance premiums relating to the Premises, as set forth in
Paragraph 12, and

      (c) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.

   The Additional Rent due hereunder shall be paid to Landlord or Landlord's
agent (i) within ten days for taxes and insurance and within thirty (30) days
for all other Additional Rent items after presentation of invoice from Landlord
or Landlord's agent setting forth such Additional Rent and/or (ii) at the option
of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year or more
frequently if Landlord elects to do so at Landlord's sole and absolute
discretion as compared to Landlord's actual expenditure for said Additional Rent
items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
refunding to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items which payment by Tenant shall be made within
thirty (30) days after delivery by Landlord to Tenant of a written
reconciliation identifying the amount to be paid. If a refund is due Tenant,
Landlord shall credit Tenant's account accordingly within thirty (30) days of
said reconciliation.

   The respective obligations of Landlord and Tenant under this paragraph shall
survive the expiration or other termination of the term of this Lease, and if
the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of Additional Rent for such
calendar year and shall be prorated in the proportion which the number of days
in such calendar year preceding such expiration or termination bears to 365.

   E. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and
all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at A&P FAMILY INVESTMENTS, C/O PEERY/ARRILLAGA, 2560 MISSION
COLLEGE BLVD., SUITE 101, SANTA CLARA, CA 95054 or to such other person or to
such other place as Landlord may from time to time designate in writing.

*  F. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of ONE HUNDRED THIRTY SEVEN THOUSAND
FIVE HUNDRED AND NO/100 Dollars ($137,500.00). Said sum shall be held by
Landlord as a Security Deposit for the faithful performance by Tenant of all of
the terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any provision
of this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith, Landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of Tenant's default or to compensate Landlord for

*  $68,750.00 cash due upon execution of this Lease.
   $68,750.00 Promissory Note due May 1, 1996.

                                  page 2 of 8
<PAGE>   3
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with landlord
in the amount sufficient to restore the Security Deposit to its original amount.
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep this Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant
fully and faithfully performs every provision of this Lease to be performed by
it, the Security Deposit or any balance thereof shall be returned to Tenant (or
at Landlord's option, to the last assignee of Tenant's interest hereunder) at
the expiration of the Lease term and after Tenant has vacated the Premises. In
the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor.

5.   ACCEPTANCE AND SURRENDER OF PREMISES  By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; all broken, marred or
nonconforming accoustical ceiling tiles replaced; all windows washed; the air
conditioning and heating systems serviced by a reputable and licensed service
firm and in good operating condition and repair; the plumbing and electrical
systems and lighting in good order and repair, including replacement of any
burned out or broken light bulbs or ballasts; the lawn and shrubs in good
condition including the replacement of any dead or damaged plantings; the
sidewalk, driveways and parking areas in good order, condition and repair;
together with all alterations, additions, and improvements which may have been
made in, to, or on the Premises (except moveable trade fixtures installed at the
expense of Tenant) except that Tenant shall ascertain  from Landlord within
thirty (30) days before the end of the term of this Lease whether Landlord
desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and if
Landlord shall so desire, then Tenant shall restore said Premises or such part
or parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Leases, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant's sole cost. If the Premises be not surrendered
at the end of the term or sooner termination of this Lease, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises including, without limitation, any claims made
by any succeeding tenant founded on such delay. Nothing contained herein shall
be construed as an extension of the term hereof or as a consent of Landlord to
any holding over by Tenant. The voluntary or other surrender of this Lease or
the Premises by Tenant or a mutual cancellation of this Lease shall not work as
a merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.

6. ALTERATIONS AND ADDITIONS  Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant (such consent not to be
unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all contractors and mechanics proposed by Tenant to make
such alterations and additions. Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises. All heating, lighting,
electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting,
and floor installations made by Tenant, together with all property that has
become an integral part of the Premises, shall not be deemed trade fixtures.
Tenant agrees that it will not proceed to make such alteration or additions,
without having obtained consent from Landlord to do so, and until five (5) days
from the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. Tenant shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10)
days after the filing thereof, at the cost and expense of Tenant. Any exceptions
to the foregoing must be made in writing and executed by both Landlord and
Tenant.

7.  TENANT MAINTENANCE  Except as otherwise provided in Paragraphs 21, 51 and
53, Tenant shall, at its sole cost and expense, keep and maintain the Premises
(including appurtenances) and every part thereof in a high standard of
maintenance and repair, or replacement, and in good and sanitary condition.
Tenant's maintenance and repair responsibilities herein referred to include, but
are not limited to, janitorization, all windows (interior and exterior), window
frames, plate glass and glazing (destroyed by accident or act of third parties),
truck doors, plumbing systems (such as water and drain lines, sinks, toilets,
faucets, drains, showers and water fountains), electrical systems (such as
panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts),
heating and airconditioning systems (such as compressors, fans, air handlers,
ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and
return grills), and exterior surfaces of the building, store fronts, roofs,
downspouts, all interior improvements within the premises including but not
limited to wall coverings, window coverings, carpet, floor coverings,
partitioning, ceilings, doors (both interior and exterior), including closing
mechanisms, latches, locks, skylights (if any), automatic fire extinguishing
systems, and elevators and all other interior improvements of any nature
whatsoever, and all exterior improvements including but not limited to
landscaping, sidewalks, driveways, parking lots including striping and sealing,
sprinkler systems, lighting, ponds, fountains, waterways and drains. Tenant
hereby waives all rights under, and benefits of, Subsection 1 of Section 1932
and Section 1941 and 1942 of the California Civil Code and under any similar
law, statute or ordinance now or hereafter in effect. In the event any of the
above maintenance responsibilities apply to any other tenant(s) of Landlord
where there is common usage with other tenant(s), such maintenance
responsibilities and charges shall be allocated to the leased Premises by square
footage or other equitable basis as calculated and determined by Landlord.

8. UTILITIES  Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communication
service, 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 term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed. In the event the above charges apply to any other tenant(s) of Landlord
where there is common usage with  other tenant(s), such charges shall be
allocated to the leased Premises by square footage or other equitable basis as
calculated and determined by Landlord.

   Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.

9. TAXES
   A. As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax
Collector, all Real Property Taxes relating to the Premises. In the event the
Premises leased hereunder consist of only a portion of the entire tax parcel,
Tenant shall pay to Landlord Tenant proportionate share of such real estate
taxes allocated to the leased Premises by square footage or other reasonable
basis as calculated and determined by Landlord. If the tax billing pertains 100%
to the leased Premises, and Landlord chooses to have Tenant pay said real estate
taxes directly to the Tax Collector, then in such event it shall be the
responsibility of Tenant to obtain the tax and assessment bills and pay, prior
to delinquency, the applicable real property taxes and assessments pertaining to
the leased Premises, and failure to receive a bill for taxes and/or assessments
shall not provide a basis for cancellation of or nonresponsibility for payment
of penalties for nonpayment or late payment by Tenant. The Term "Real Property
Taxes", as used herein, shall mean (i) 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 general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Premises)
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 Premises (as now constructed or as may at any
time hereafter be constructed, altered, or otherwise changed) or Landlord's
interest therein; any improvements located within the Premises (regardless of
ownership); the fixtures, equipment and other property of Landlord, real or
personal, that are an integral part of and located in the Premises; or parking
areas, public utilities, or energy within the Premises; (ii) all charges, levies
or fees imposed by reason of environmental regulation or other governmental
control of the Premises; and (iii) all cost and fees (including

                                  page 3 of 8
<PAGE>   4
reasonable attorneys' fees) incurred by Landlord in reasonably contesting any
Real Property Tax and in negotiating with public authorities as to any Real
Property Tax. If at any time during the term of this Lease the taxation or
assessment of the Premises prevailing as of the commencement date of this Lease
shall be altered so that in lieu 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 Premises or Landlord's interest therein or (ii)
on or measured by the gross receipts, income or rentals from the Premises, on
Landlord's business of leasing the Premises, or computed in any manner with
respect to the operation of the Premises, 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 Premises, then only that part of such Real
Property Tax that is fairly allocable to the Premises 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, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.

     B. Taxes on Tenant's Property. Tenant shall be liable for and shall pay ten
days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right to
do regardless of the validity thereof, but only under property protest if
requested by Tenant, Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.

10. LIABILITY INSURANCE  Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for bodily injury and property damage occurring in, on or about the Premises,
including parking and landscaped areas. Such insurance shall be primary and
noncontributory as respects any insurance carried by Landlord. The policy or
policies effecting such insurance shall name Landlord as additional insureds,
and shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days
prior written notice to Landlord. A certificate of insurance of said policy
shall be delivered to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this Paragraph 10 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.

11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.

     Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.

12. PROPERTY INSURANCE  Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord) of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises (excluding routine maintenance and repairs and
incidental damage or destruction caused by accidents or vandalism for which
Tenant is responsible under Paragraph 7) in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent. If such insurance cost is increased due to Tenant's use of the
Premises. Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in nor any right to the proceeds of any insurance
procured by Landlord for the Premises.

     Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.

13. INDEMNIFICATION  Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises but excluding, however, the willful misconduct or negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence of Landlord has knowledge and reasonable time to correct. Except as
to injury to persons or damage to property to the extent arising from willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors. Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any cause whatsoever.

14. COMPLIANCE  Tenant, all its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. Tenant shall, at its
sole cost and expense, comply with any and all requirements pertaining to said
Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises.

15. LIENS  Tenant shall keep the Premises free from any liens arising out of any
work performed, materials furnished or obligation incurred by Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
such lien, cause the same to be released of record, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but no
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.

16. ASSIGNMENT AND SUBLETTING  Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord may
require that Tenant agrees to pay to Landlord, as additional rent, fifty percent
(50%) of all rents or additional consideration received by Tenant from its
assignees, transferees, or subtenants in excess of the rent payable by Tenant to
Landlord hereunder provided, however, that for sharing such excess rent, Tenant
shall be first entitled to recover from such excess rent the amount of all
reasonable leasing commissions paid to third parties not affiliated with Tenant
in order to obtain the assignment or sublease in question. Tenant shall, by
thirty (30) days written notice, advise Landlord of its intent to assign or
transfer Tenant's interest in the Lease or sublet the Premises or any portion
thereof for any part of term hereof. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written

                                  page 4 of 8
<PAGE>   5
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord which consent shall not be unreasonably withheld. A consent of Landlord
to one assignment, transfer, hypothecation, subletting, occupation or use by any
other person shall not release Tenant from any of Tenant's obligations hereunder
or be deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other person. Any
such assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Lease by Tenant
and shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease.

See Paragraph 45

17.  SUBORDINATION AND MORTGAGES  In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay all rent and observe and perform all of the provisions set
forth in this Lease. See Paragraph 46.

18.  ENTRY BY LANDLORD  Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to make repairs or provide any services to a contiguous tenant(s); to
submit the Premises to prospective purchasers, mortgagers or tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises or
other parts of the building, all without abatement of rent, and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however that the business of Tenant shall be interfered with to the least extent
that is reasonably practical. Any entry to the Premises by Landlord for the
purposes provided for herein shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. See Paragraph 47

19.  BANKRUPTCY AND DEFAULT  The commencement of a bankruptcy action or
liquidation action or liquidation action or reorganization action or insolvency
action or an assignment of or by Tenant for the benefit of creditors, or any
similar action undertaken by Tenant, or the insolvency of Tenant, shall, at
Landlord's option, constitute a breach of this Lease by Tenant. If the trustee
or receiver appointed to serve during a bankruptcy, liquidation, reorganization,
insolvency or similar action elects to reject Tenant's unexpired Lease, the
trustee or receiver shall notify Landlord in writing of its election within
thirty (30) days after an order for relief in a liquidation action or within
thirty (30) days after the commencement of any action.

     Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of landlord that the trustee or receiver shall cure)
any and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.

     Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.

     The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5)days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of
written notice from Landlord within which to cure any other default under this
Lease; provided, however, that if the nature of Tenant's failure is such that
more than thirty (30) days in reasonably required to cure the same, Tenant
shall not be in default so long as Tenant commences performance with in such
thirty (30) day period and thereafter prosecutes the same to completion.
Upon an uncured default of this Lease by Tenant, Landlord shall have
the following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:

     (a)  The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of 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 rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner; Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers of selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.

     (b)  The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.

     (c)  The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.

     (d)  To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may from time to time sublet the Premises or
any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting, including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof) exceeds
the amount to be paid as rent for the premises for such period or (ii) at the
option of Landlord, rents received from such subletting shall be applied first
to payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third to payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
rents as the same becomes due hereunder. If Tenant has been credited with any
rent to be received by such subletting under option (i) and such rent shall not
be promptly paid to Landlord by the subtenant(s), or if such rentals received
from such subletting under option (ii) during any month be less than that to be
paid during that month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. No taking
possession of the premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such subletting without termination, Landlord may
at any time hereafter elect to terminate this Lease for such previous breach.

     (e)  The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d. above.

20.  ABANDONMENT  Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder), and if
Tenant shall abandon, vacate or surrender said premises, or be dispossessed by
the process of law, or otherwise, any personal property belonging to Tenant and
left on the Premises shall be deemed to be abandoned, at the option of Landlord
except such property as may be mortgaged to Landlord.

21.  DESTRUCTION  In the event the premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental

                                  page 5 of 8

<PAGE>   6
damage and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7. Landlord shall elect to either:

            (a)   Rebuild or restore the Premises to their condition prior to
the damage or destruction, or

            (b)   Terminate this Lease. (providing that the Premises is damaged
to the extent of 33 1/3% or more of the replacement cost)

      If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargos, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors of subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.

      Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.

      In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not.

22.   EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.

      If any action or proceeding is commenced for such taking of the Premises
or any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, then Landlord shall have the right to terminate
this Lease by giving Tenant written notice thereof within sixty (60) days of the
date of receipt of said written advice, or commencement of said action or
proceeding, or taking conveyance, which termination shall take place as of the
first to occur of the last day of the calendar month next following the month in
which such notice is given or the date on which title to the Premises shall vest
in the condemnor.

      In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.

      If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.

23.   SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned, Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Premises and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor. See Paragraph
48.

24.   ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.

25.   HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.

26.   CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (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) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.

27.   CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes
shall affect this Lease or entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.

28.   RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obliged
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
such performance by Landlord together with interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the date
of such payment on performance by Landlord, shall be paid (and Tenant covenants
to make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.

29.   ATTORNEYS' FEES

      A.    In the event that either Landlord or Tenant should bring suit for
the possession of the Premises, for the recovery of any sum due under this
Lease, or because of the breach of any provision of this Lease, or for any other
relief against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees,

                                  page 6 of 8
<PAGE>   7
incurred by the prevailing party therein shall be paid by the other party,
which obligation on the part of the other party shall be deemed to have accrued
on the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgment.

      B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee.

30. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.

31. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served
on Tenant by leaving the same at the Premises of if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices, demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at A&P FAMILY INVESTMENTS, C/O
PEERY/ARRILLAGA, 2560 MISSION COLLEGE BLVD., SUITE 101, SANTA CLARA, CA 95054.
Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.

32. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant.

33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than (30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have heretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligations; provided,
however, that if the nature of Landlord's obligations is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.

34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of the resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease. In lieu of
said corporate resolution, Tenant shall provide Landlord with an outside legal
opinion stating that the parties executing this Lease on behalf of Tenant are
authorized to do so by the Board of Directors.

35.

36. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder. Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord;

      (a)   the sole and exclusive remedy shall be against Landlord and
Landlord's assets;

      (b)   no partner of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership);

      (c)   no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);

      (d) no partner of Landlord shall be required to answer or otherwise plead
to any service of process;

      (e) no judgment will be taken against any partner of Landlord;

      (f) any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;

      (g) no writ of execution will ever be levied against the assets of any
partner of Landlord;

      (h) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.

  Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.

37. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained and Landlord shall have the right to
remove any such sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. If Tenant is allowed to print or affix
or in any way place a sign in, on, or about the Premises, upon expiration or
other sooner termination of this Lease, Tenant at Tenant's sole cost and
expense shall both remove such sign and repair all damage in such a manner as
to restore all aspects of the appearance of the Premises to the condition prior
to the placement of said sign.

  All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.

  Tenant shall not place anything or allow anything to be placed near the glass
of any window, door partition or wall which may appear unsightly from outside
the Premises.

38. MISCELLANEOUS AND GENERAL PROVISIONS

    A. Use of Building Name. Tenant shall not, without the written consent of
Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.

                                  page 7 of 8
<PAGE>   8

     B. Choice of Law; Severability. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.

     C. Definition of Terms. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes the
plural as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.

     The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction or interpretation of any provision hereof.

     D. Time of Essence. Time is of the essence of this Lease and of each and
all of its provisions.

     E. Quitclaim. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.

     F. Incorporation of Prior Agreements; Amendments. This instrument along
with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.

     G. Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.

     H. See Paragraph 44

     I. Additional Paragraphs. Paragraphs 39 through 54 are added hereto and are
included as a part of this lease.

     J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed by
Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof.

     K. Diminution of Light, Air or View. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect his
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.

     IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.

LANDLORD:                                     TENANT:

RICHARD T. PEERY 1976 CHILDREN TRUSTS         NEW FOCUS, INC.
                                              a California corporation

By  /s/ BOYD C. SMITH, Trustee                By  /s/ MILTON CHANG
   ---------------------------------             -------------------------------
        Boyd C. Smith, Trustee                Title: President
                                              Type or Print Name: Milton Chang
Dated: 4/24/95                                Date: 4/18/95

JOHN ARRILLAGA 1976 CHILDREN TRUSTS

By  /s/ LOUIS B. SULLIVAN, Trustee
  ----------------------------------
        Louis B. Sullivan, Trustee

Dated: 5/1/95

                                  Page 8 of 8

<PAGE>   9
Paragraphs 39 through 54 to Lease Agreement Dated March 30, 1995, By and
Between John Arrillaga 1976 Children Trusts and Richard T Peery 1976 Children
Trusts (dba A&P Family Investments), as Landlord, and NEW FOCUS, INC., a
California corporation, as Tenant for 55,000 (plus or minus) Square Feet of
Space Located at 2630 WALSH AVENUE, SANTA CLARA, CALIFORNIA.

39. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of SIX MILLION ONE HUNDRED FIFTEEN THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($6,115,500.00), shall be payable as follows:

        For the period May 1, 1995 through July 31, 1995, no Basic Rent will be
due; however, Tenant will be responsible for all Additional Rent expenses as
outlined in Paragraph 4D from the Commencement Date of the Lease.

        On August 1, 1995, the sum of SEVENTEEN THOUSAND AND NO/100 DOLLARS
($17,000.00) shall be due, and a like sum due on the first day of each month
thereafter, through and including April 1, 1996.

        On May 1, 1996, the sum of TWENTY SIX THOUSAND AND NO/100 DOLLARS
($26,000.00) shall be due, and a like sum due on the first day of each month
thereafter, through and including October 1, 1997.

        On November 1, 1997, the sum of FIFTY TWO THOUSAND TWO HUNDRED FIFTY AND
N0/100 DOLLARS ($52,250.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 1999.

        On May 1, 1999, the sum of FIFTY SEVEN THOUSAND SEVEN HUNDRED FIFTY AND
NO/100 DOLLARS ($57,750.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 2001.

        On May 1, 2001, the sum of SIXTY THREE THOUSAND TWO HUNDRED FIFTY AND
NO/100 DOLLARS ($63,250.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 2003.

        On May 1, 2003, the sum of SIXTY EIGHT THOUSAND SEVEN HUNDRED FIFTY AND
NO/100 DOLLARS ($68,750.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 2005; or until the entire
aggregate sum of SIX MILLION ONE HUNDRED FIFTEEN THOUSAND FIVE HUNDRED AND
N0/100 DOLLARS ($6,115,500.00) has been paid.

40. "AS-IS" BASIS: Subject to Paragraphs 41 and 51 and to Landlord making the
improvements shown on Exhibit B to be attached hereto, it is hereby agreed that
the Premises leased hereunder is leased strictly on an "as-is" basis and in its
present condition, and in the configuration as shown on Exhibit B to be attached
hereto, and by reference made a part hereof. It is specifically agreed between
the parties that after Landlord makes the interior improvements as shown on
Exhibit B, Landlord shall not be required to make, nor be responsible for any
cost, in connection with any repair, restoration, and/or improvement to the
Premises in order for this Lease to commence, or thereafter, throughout the Term
of this Lease (subject, however, to Landlord's responsibilities under Paragraphs
41 and 51). Landlord makes no warranty or representation of any kind or nature
whatsoever as to the condition or repair of the Premises, nor as to the use or
occupancy which may be made thereof.

41. PUNCH LIST: In addition to and notwithstanding anything to the contrary in
Paragraphs 5 and 40 of this Lease, Tenant shall have thirty (30) days after the
Commencement Date to provide Landlord with a written "punch list" pertaining to
latent defects in the Building and in the interior improvements constructed by
Landlord for Tenant. Landlord shall have thirty (30) days thereafter (or longer
if necessary, provided Landlord is diligently pursuing the completion of the
same) to complete the "punch list" items without the Commencement Date of the
Lease and Tenant's obligation to pay Rental thereunder being affected.
Notwithstanding the foregoing, a crack in the foundation, or exterior walls that
does not endanger the structural integrity of the building, or which is not
life-threatening, shall not be considered material, nor shall Landlord be
responsible for repair of same. This Paragraph 41 shall be of no force and
effect if Tenant shall fail to give any such notice to Landlord within thirty
(30) days after the Lease Commencement Date.

                                      Page 9                Initial: /s/
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<PAGE>   10

42. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.

43. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property").

As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous 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 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.

Except to the extent otherwise specifically stated in this Paragraph 43, Tenant
shall have no obligation to "clean up", reimburse, release, indemnify, or defend
Landlord with respect to the presence of Hazardous Materials on the Property.

Notwithstanding the immediately preceding subparagraph, and except to the extent
caused by Landlord, its agents, employees, or contractors, Tenant shall be 100%
liable and responsible for the following to the extent required by applicable
law: (i) any and all "clean up" of Hazardous Materials contamination resulting
from the use, storage, disposal, transportation, or release of Hazardous
Materials within the Premises during the term of the Lease (excluding
contamination resulting from subsurface migration of Hazardous Materials
originating from other property and not caused by or contributed to by Tenant),
and (ii) any and all "clean up" of Hazardous Materials contamination of any
portion of the Property (including the Premises) resulting from the use,
storage, disposal, transportation, or release of Hazardous Materials by Tenant,
its agents, employees, contractors, invitees or its future subtenants and/or
assignees or third parties on the Property. Tenant shall indemnify Landlord and
hold Landlord harmless from any claims, liabilities, demands, costs, expenses
and damages, including, without limitation, attorneys' fees, incurred as a
result of any claims resulting from any Hazardous Materials contamination
described in clauses (i) and (ii) of the immediately preceding sentence.

Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property without first obtaining Landlord's written consent, provided, however,
that Tenant may use Hazardous Materials needed in the conduct of its business so
long as Tenant notifies Landlord in writing of such Hazardous Materials to be
brought upon the Premises and so long as Tenant strictly complies with all laws
regulating the use, storage, and disposal of such Hazardous Materials. Tenant
agrees to complete compliance with governmental regulating the use or removal or
remediation of Hazardous Materials stored, disposed, transported, or caused to
be on the Property as stated above, and prior to the termination of said Lease.
Tenant agrees to follow the proper closure procedures and will obtain a
clearance from the local fire department and/or the appropriate governing
agencies. If Tenant uses Hazardous Materials, Tenant also agrees to install, at
Tenant's expense, such Hazardous Materials monitoring devices as Landlord deems
reasonably necessary. It is agreed that the Tenant's responsibilities related to
Hazardous Materials will survive the termination date of the Lease and that
Landlord may obtain specific performance of Tenant's responsibilities under this
Paragraph 43.

Landlord hereby makes the following representations to Tenant, each of which is
made only to the best of Landlord's knowledge as of the date Landlord executes
this Lease, without any inquiry or investigation having been made or required by
Landlord regarding this subject, nor does Landlord have any obligation to
investigate or make inquiry regarding the subject:

        1) Landlord, to the best of its knowledge as of the date of this Lease,
has no knowledge of any environmental problems (including any release of
Hazardous Materials affecting the groundwater or soil on or under the Property
which violates any laws to the extent that any governmental entity could require
either Landlord or Tenant to take any remedial action with respect to such
Hazardous Materials) existing on the Property.

                                     Page 10               Initial: /s/
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<PAGE>   11

44. AMENDMENTS TO LEASE: Tenant agrees to execute any amendments reasonably
required by a lender to enable Landlord to obtain financing, so long as Tenant's
rights hereunder are not materially and adversely affected and there is no
change in Basic Rent, Additional Rent, any Options to Renew, or the Term of this
Lease.

45. ASSIGNMENT AND SUBLETTING (CONTINUED):

        A. Permitted Assignments and Subletting: In addition to and
notwithstanding anything to the contrary in Paragraph 16 of this Lease, Tenant
shall be entitled to assign or sublet without Landlord's consent (but shall
still give Landlord notice thereof, however, Landlord shall not be entitled to
terminate this Lease on account of such Permitted Assignment) to: (i) any parent
or subsidiary corporation, or corporation with which Tenant merges or
consolidates, or (ii) any third party or entity to whom Tenant sells all or
substantially all of its assets (collectively referred to as "Permitted
Assignment"); provided, that the net worth of the resulting or acquiring
corporation has a net worth after the merger, consolidation or acquisition equal
to or greater than the net worth of Tenant at the time of such merger,
consolidation or acquisition. No such assignment or subletting will release the
Tenant from its liability and responsibility under this Lease to the extent
Tenant continues in existence following such transaction. Landlord shall not be
entitled to share to the proceeds of any excess rent Tenant may receive from a
Permitted Assignment.

        B. Excess Rent: In addition to and notwithstanding anything to the
contrary in Paragraph 16, for the first thirty (30) months of the Lease Term,
Tenant shall be entitled to retain one hundred percent (100%) of any rent
received by Tenant from its assignees, transferees, or subtenants in excess of
the Rent payable by Tenant to Landlord under this Lease (the "Excess Rent");
thereafter and throughout the Term of the Lease, Tenant shall be entitled to
retain fifty percent (50%) of any Excess Rent; provided, however, that prior to
sharing such Excess Rent, Tenant shall be first entitled to recover from such
Excess Rent the amount of all reasonable leasing commissions paid to third
parties not affiliated with Tenant in order to obtain the assignment or sublease
in question; the net amount of the Excess Rent (after the deduction of the
aforementioned commission) shall then be shared equally between Landlord and
Tenant as noted above.

46. SUBORDINATION AND MORTGAGES (CONTINUED): Paragraph 17 is modified to provide
that this Lease shall not subordinate to a mortgage or deed of trust unless the
lender holding such mortgage or deed of trust enter into a written
subordination, non-disturbance and attornment agreement in which the lender
agrees that notwithstanding any subordination of this Lease to such lender's
mortgage or deed of trust, (i) such Lender shall recognize all of Tenants rights
under this Lease, and (ii) in the event of a foreclosure, this Lease shall not
be terminated so long as Tenant in not in material default of its obligations
under this Lease, but shall continue in effect and Tenant and such lender (or
any party acquiring the Premises through such foreclosure) shall each be bound
to perform in the respective obligations of Tenant and Landlord with respect to
the Premises arising after such foreclosure.

47. ENTRY BY LANDLORD (CONTINUED): Notwithstanding the provisions of Paragraph
18, (i) except in the event of an emergency, Landlord shall give Tenant
twenty-four (24) hours notice prior to entering the Premises, agrees to comply
with any reasonably safety and/or security regulations imposed by Tenant with
respect to such entry, and shall only enter the Premises when accompanied by
Tenant or its agent (so long as Tenant makes itself reasonably available for
this purpose), and (ii) Landlord may install "for lease" signs relating to the
Premises only during the last 180 days of the Lease term. Landlord agrees to use
its reasonable, good faith efforts such that any entry by Landlord, and
Landlord's agents, employees, contractors and invitees shall be performed in a
manner with as minimal interference as possible with Tenant's business at the
Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and
Landlord's agents, employees and contractors so that responsibilities of
Landlord under the Lease can be fulfilled in a reasonable manner during normal
business hours so that no extraordinary costs are incurred by Landlord.

48. SALE OR CONVEYANCE BY LANDLORD (CONTINUED):

The provisions of Paragraph 23 of the Lease to the contrary notwithstanding,
upon any sale or transfer, (i) Landlord shall not be released from any then
outstanding liability arising under this Lease during the period preceding the
date of transfer, and (ii) Landlord shall not be relieved of the obligations
under the Lease which may accrue after the date of a sale or other transfer
unless the transferee agrees in writing to assume and be bound by the terms of
this Lease and to perform all obligations of the Landlord under the Lease which
may accrue after the date of such transfer.

                                     Page 11               Initial: /s/
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<PAGE>   12

49. LANDLORD'S LIEN WAIVER: Landlord, within thirty (30) days after demand from
Tenant, shall execute and deliver Landlord's Lien Waiver as reasonably required
by any supplier, lessor, or lender in connection with the installation in the
Premises of the Tenants personal property or trade fixtures.

50. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 50 shall modify
Paragraphs 8 and 9 of the Lease, as follows:

        A. Tenant shall have the right to reconfigure modular,
non-floor-to-ceiling walls and non-floor-to-ceiling partitions without
Landlord's prior consent, which have been installed by Tenant and paid for by
Tenant.

      B. At all times during the Lease Term, (i) Tenant shall maintain and keep
updated "as built" plans for all alterations constructed by Tenant, and (ii)
Tenant shall provide to Landlord copies of such "as built" plans as such
alterations (which alterations are subject to Landlord's prior written consent)
are made.

        C. At all times during the Term of this Lease, Tenant shall have the
right to install and remove trade fixtures as defined in the Lease which are
installed and paid for by Tenant, so long as Tenant immediately repairs all
damage caused by the installation thereof and returns the Premises to the
condition existing prior to the installation of such trade fixtures and repairs
and restores any so-called "donuts" or gaps in the roof and/or floor (including
floor structure, subfloor and appropriate floor covering for said area) and/or
floor tiles and/or ceiling tiles and lighting resulting from the removal of said
trade fixtures.

51. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding anything to
the contrary in Paragraph 7, Landlord shall maintain the structural shell,
foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense, provided Tenant has not caused such damage, in which event Tenant shall
be responsible for 100 percent of any such costs for repair or damage so caused
by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life-threatening, shall not be considered material, nor shall
Landlord be responsible for repair of same.

52. SIGNS (CONTINUED): Notwithstanding anything contained in Paragraph 37,
Tenant may, at its expense, install its name of the glass portion of the
building, provided Tenant obtains and complies with the required permit of the
City of Santa Clara and further provided Tenant removes the same by Lease
Termination and repairs any and all damage to the glass surface of the building.

53. REPLACEMENT OF HVAC AND/OR ROOF MEMBRANE: Notwithstanding anything to the
contrary herein, Landlord agrees, at its cost and expense, to have the roof
membrane replaced during the first eighteen (18) months of the Lease Term, and
Tenant shall not be responsible for any portion of the cost of the initial
replacement of the roof membrane unless Tenant causes damage to the same in
which event Tenant shall be responsible for one hundred percent (100%) of the
cost of replacement related to the area(s) damaged by Tenant.

In the event Landlord reasonably deems it necessary to replace an HVAC unit
(provided said replacement is not the result of damage caused by Tenant, its
agents, employees, invitees, contractors, or its future subtenants and/or
assignees (if any)) to the Leased Premises during the Term of the Lease,
Landlord shall have said HVAC unit replaced and Landlord shall amortize the cost
of the replacement over the useful life of said replacement in accordance with
standard accounting practices, and Tenant shall be responsible for paying to
Landlord one hundred percent (100%) of Tenant's pro rata share of the
amortization of said cost of said replacement over the term remaining in the
Lease at the time the replacement is made. For Example: In the event: (i) the
HVAC unit is replaced at a cost of $50,000; and (ii) said HVAC unit has a useful
life of ten years; and (iii) Tenant has one year remaining in its Lease Term at
the time said replacement is made, Tenant would be charged $5,000 as Additional
Rent, in which case the $5,000 would be due within thirty (30) days of notice
from Landlord. Tenant hereby waives all rights under, and benefits of subsection
I of Section 1932 and Sections 1941 and 1942 of the California Civil Code and
under any similar law, statute or ordinance now or hereafter in effect.

In the event the Term of the Lease is extended by any agreement between Landlord
and Tenant, Tenant's pro rata share of the earlier replacement cost shall be
increased to include the additional amount payable to Landlord due to the
Extended Term of the Lease. For Example:

                                     Page 12               Initial: /s/
                                                                    ------------

<PAGE>   13

In the event: (i) the HVAC unit was replaced as illustrated above, and (ii)
Tenant extends this Lease for an additional five year period, Tenant would be
liable for an additional payment to Landlord of $25,000 as Additional Rent. Said
payment would be due in full immediately upon execution of an agreement to
extend the Lease Term.

54. CONSTRUCTION OF TENANT IMPROVEMENTS RELATED TO LABORATORY AREA AND
AMORTIZATION OF SAID COSTS: It is hereby understood and agreed between the
parties that Landlord shall construct a laboratory (the "Lab Improvements") in
the Leased Premises shown on Exhibit B to be attached hereto at Tenant's sole
cost and expense.

        A. Costs and Construction of Lab Improvements: Tenant shall provide
Landlord with a 1/8" scale drawing of the Lab Improvements and specifications
thereto which Landlord is to construct on Tenant's behalf (said plans shall
become Exhibit C to the Lease); Landlord shall obtain bids for the construction
of the Lab Improvements and Landlord shall provide Tenant with the cost to
construct (including labor, materials and permit fees ("Lab Costs")). Tenant
shall not be allowed to make changes to the Lab Improvements design or materials
used therein after it submits its Lab Improvements plans to Landlord. Tenant
shall: (i) approve the Lab Costs in writing within three (3) business days after
Landlord presents the same to Tenant; or (ii) request Landlord to obtain
additional bids in which case any delay in the completion of the Lab
Improvements resulting from the rebidding process shall not delay the
Commencement Date of the Lease and said Lease shall commence on the date it
would have commenced absent the delay caused from the rebidding process. Failure
of Tenant to approve or disapprove the aforementioned Lab Costs within the three
(3) business day period shall be deemed approval by Tenant and Landlord shall
proceed with the construction of the improvements as though Landlord had
received Tenant's written approval as outlined above. It is further agreed, that
in the event any of the specifications for the Lab Improvements are specialized
materials that are not readily available and cause a delay in the completion of
the construction, this Lease shall commence on the date it otherwise would have
commenced absent the delay in the receipt of the specialized materials.

It is agreed by the parties hereto that: (i) in the event the Lab Improvements
constructed by Landlord do not conform exactly to the plans and specifications
as set forth on Exhibit; and (ii) provided the general appearance and Tenant's
use of the Lab Improvements are not materially or unreasonably affected by such
deviation, the Commencement Date of the Lease, and Tenant's obligation to pay
Rental, shall not be affected and Tenant hereby agrees, in such event, to accept
the Lab Improvements as constructed by Landlord.

        B. Amortization of Lab Improvements Costs: The Lab Costs shall be
amortized, without interest, over a nine (9) month period commencing August 1,
1995 through April 1, 1996. Said amortization will result in Tenant's Basic Rent
Schedule and Aggregate Rent being amended. Therefore, the revised monthly Basic
Rental rate during said nine (9) month period will be based on the Basic Rental
rate, as provided for in Paragraph 39, plus the amortized principal. For
example, if the Construction Costs are $30,000.00, the Basic Rent Schedule shall
be amended as follows:

<TABLE>
<CAPTION>
                                     Amortized             Revised
Period               Basic Rent      Principal             Monthly Rental
------               ----------      ---------             --------------
<S>                  <C>             <C>                   <C>
08/01/95-04/30/96    $17,000.00  +   $3,333.33      =      $20,333.33
                                     ($30,000 / 9 months)
</TABLE>

                                     Page 13

<PAGE>   14
                                LEASE AGREEMENT
                            BASIC LEASE INFORMATION

LEASE DATE:              May 15, 2000

LANDLORD:                LINCOLN-RECP HELLYER OPCO, L.L.C.,
                         a Delaware limited liability company

LANDLORD'S ADDRESS:      c/o Legacy Partners Commercial, Inc.
                         101 Lincoln Centre Drive, Fourth Floor
                         Foster City, California 94404-1167

TENANT:                  NEW FOCUS, INC.
                         a California Corporation

TENANT'S ADDRESS:        2630 Walsh Avenue
                         Santa Clara, California 95051, changing to:
                         4747 Hellyer Avenue, San Jose, California

PREMISES:                Approximately 130,436 rentable square feet as shown on
                         Exhibit A

PREMISES ADDRESS:        4747 Hellyer Avenue
                         San Jose, California

                         BUILDING:             Approximately 175,980 rentable
                                               square feet
                         LOT:                  APN 678-20-040
                         PARK: HELLYER OAKS
                          TECHNOLOGY PARK:     Approximately 351,960 rentable
                                               square feet

TERM:                    September 1, 2000 ("Commencement Date"), through
                         August 31, 2007 ("Expiration Date"), subject to
                         adjustment pursuant to the terms of Section 2.1 hereof

BASE RENT
(PARAGRAPH 3):           Two Hundred Sixty Thousand Eight Hundred
                         Seventy Two and 00/100 Dollars ($260,872.00) per month
                         commencing on the Commencement Date through August 31,
                         2001

ADJUSTMENT TO BASE RENT: Effective September 1, 2001, the Base Rent shall
                         increase to $271,306.88 per month ($2.08 sf)
                         Effective September 1, 2002, the Base Rent shall
                         increase to $282,159.15 per month ($2.1632 sf)
                         Effective September 1, 2003, the Base Rent shall
                         increase to $293,445.52 per month ($2.25 sf)
                         Effective September 1, 2004, the Base Rent shall
                         increase to $305,183.34 per month ($2.34 sf)
                         Effective September 1, 2005, the Base Rent shall
                         increase to $317,340.67 per month ($2.433 sf)
                         Effective September 1, 2006, the Base Rent shall
                         increase to $330,086.30 per month ($2.53 sf)

ADVANCE RENT
(PARAGRAPH 3):           Three Hundred Twenty Eight Thousand Four Hundred
                         Forty-Five and 00/100 Dollars ($328,445.00)

SECURITY DEPOSIT
(PARAGRAPH 4):           Three Hundred Twenty Nine Thousand and 00/100 Dollars
                         ($329,000.00)

*TENANT'S SHARE OF OPERATING EXPENSES (PARAGRAPH 6.1):        37.06% of the Park
*TENANT'S SHARE OF TAX EXPENSES (PARAGRAPH 6.2):              37.06% of the Park
*TENANT'S SHARE OF COMMON AREA UTILITY COSTS (PARAGRAPH 7.2): 74.12% of the
                                                              Building
*TENANT'S SHARE OF UTILITY EXPENSES (PARAGRAPH 7.1):          74.12% of the
                                                              Building

*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.

PERMITTED USES
(PARAGRAPH 9):           The Premises shall be used solely for the office, R&D,
                         and manufacturing of fiber optic networking equipment
                         and products and for no other purposes without
                         Landlord's prior written consent, which consent shall
                         not be unreasonably withheld or delayed, but only to
                         the extent permitted by the City of San Jose and all
                         agencies and governmental authorities having
                         jurisdiction thereof.

PARKING SPACES:          Four hundred eighty-one (481) non-exclusive and
                         non-designated spaces

BROKER (PARAGRAPH 33):   CB Richard Ellis for Tenant
                         Colliers International for Landlord

EXHIBITS:                Exhibit A -  Premises, Building, Lot and/or Park
                         Exhibit B -  Tenant Improvements
                         Exhibit C -  Rules and Regulations
                         Exhibit D -  Covenants, Conditions and Restrictions
                         Exhibit E -  Tenant's Initial Hazardous Materials
                                      Disclosure Certificate
                         EXHIBIT F -  Change of Commencement Date - Example
                         EXHIBIT G -  Sign Criteria
                         EXHIBIT H -  Expansion Space
                         EXHIBIT I -  Form of Subordination, Non-Disturbance and
                                      Attornment Agreement

ADDENDA:                 Addendum 1 - Option to Extend the Lease Term
                         Addendum 2 - Right of First Offer

                                       1

<PAGE>   15
                               TABLE OF CONTENTS

SECTION                                                                     PAGE

1.   Premises .................................................................3
2.   Occupancy; Adjustment of Commencement Date ...............................3
3.   Rent .....................................................................3
4.   Security Deposit .........................................................3
5.   Condition of Premises; Tenant Improvements ...............................4
6.   Additional Rent ..........................................................4
7.   Utilities and Services ...................................................6
8.   Late Charges .............................................................6
9.   Use of Premises ..........................................................6
10.  Alterations; and Surrender of Premises ...................................7
11.  Repairs and Maintenance ..................................................8
12.  Insurance ................................................................9
13.  Limitation of Liability and Indemnity ...................................10
14.  Assignment and Subleasing ...............................................10
15.  Subordination ...........................................................12
16.  Right of Entry ..........................................................13
17.  Estoppel Certificate ....................................................13
18.  Tenant's Default ........................................................13
19.  Remedies for Tenant's Default ...........................................13
20.  Holding Over ............................................................14
21.  Landlord's Default ......................................................14
22.  Parking .................................................................14
23.  Transfer of Landlord's Interest .........................................15
24.  Waiver ..................................................................15
25.  Casualty Damage .........................................................15
26.  Condemnation ............................................................16
27.  Environmental Matters/Hazardous Materials ...............................16
28.  Financial Statements ....................................................18
29.  General Provisions ......................................................18
30.  Signs ...................................................................19
31.  Mortgagee Protection ....................................................19
32.  Warranties of Tenant ....................................................19
33.  Brokerage Commission ....................................................20
34.  Quiet Enjoyment .........................................................20
35.  Collateral for Performance of Lease Obligations .........................20
36.  Cafeteria ...............................................................21

                                       2
<PAGE>   16

                             NNN TENANT IMPROVEMENTS
                                 LEASE AGREEMENT

The Basic Lease Information set forth on Page 1 and this Lease are and shall be
construed as a single instrument.

1.      PREMISES

Landlord hereby leases the Premises to Tenant upon the terms and conditions
contained herein. Tenant shall have the right to use, on a non-exclusive basis,
parking areas (including the parking spaces) and ancillary facilities located
within the Common Areas of the Park, subject to the terms of this Lease.
Landlord and Tenant hereby agree that for purposes of this Lease, as of the
Lease Date, the rentable square footage area of each of the Premises, the
Building, the Phase (if any) and the Park shall be deemed to be the number of
rentable square feet as set forth in the Basic Lease Information. Tenant hereby
acknowledges that the rentable square footage of the Premises may include a
proportionate share of certain areas used in common by all occupants of the
Building, the Phase (if any) and/or the Park (for example corridors, common
restrooms, an electrical room or telephone room). Tenant further agrees that the
number of rentable square feet of any of the Building, the Phase (if any) and
the Park may subsequently change after the Lease Date commensurate with any
modifications to any of the foregoing by Landlord, and Tenant's Share shall
accordingly change. The term "Project" as used herein shall mean and
collectively refer to the Building, the Common Areas, the Lot, the Phase (if
any) and the Park in the condition described in Section 5 hereof.

2.      OCCUPANCY; ADJUSTMENT OF COMMENCEMENT DATE

        2.1 If Landlord, for any reason whatsoever, cannot deliver possession of
the Premises to Tenant on the Commencement Date in the condition specified in
Section 5 hereof, Landlord shall not be subject to any liability nor shall the
validity of the Lease be affected; provided, the Term of this Lease and the
obligation to pay Rent shall commence on the date possession of the Premises is
actually tendered to Tenant in the condition described in Section 5 and the Work
Letter, and the Expiration Date shall be extended commensurately. If the
commencement date and/or the expiration date of this Lease is other than the
Commencement Date and Expiration Date specified in the Basic Lease Information,
Landlord and Tenant shall execute a written amendment to this Lease,
substantially in the form of Exhibit F hereto, wherein the parties shall specify
the actual commencement date, expiration date and the date on which Tenant is to
commence paying Rent. The word "Term" whenever used herein refers to the initial
term of this Lease and any valid extension(s) thereof. Notwithstanding the
above, if the Premises are not delivered to Tenant in a substantially complete
condition subject to Tenant Delays and Force Majeure Delays as defined in
Exhibit B herein, on or before January 1, 2001, then Tenant may terminate this
Lease upon providing ten (10) days' prior written notice to Landlord on or
before January 10, 2001, in which case the Advance Rent, Security Deposit,
Letter of Credit and other prepaid amounts shall be returned to Tenant.

        2.2 If Landlord permits Tenant to occupy the Premises prior to the
actual Commencement Date, such occupancy shall be at Tenant's sole risk and
subject to all the provisions of this Lease. Additionally, Landlord shall have
the right to impose additional reasonable conditions on Tenant's early
occupancy.

3.      RENT

On the date that Tenant executes this Lease, Tenant shall deliver to Landlord
the original executed Lease, the Advance Rent (which shall be applied against
the Rent payable for the first month(s) Tenant is required to pay Rent), the
Security Deposit, and all insurance certificates evidencing the insurance
required to be Obtained by Tenant under Section 12 and Exhibit of this Lease.
Tenant agrees to pay Landlord the Base Rent, without prior notice or demand,
abatement, offset, deduction or claim except as expressly otherwise set forth
herein, in advance at Landlord's Address on the Commencement Date and thereafter
on the first (1st) day of each month throughout the balance of the Term of the
Lease. In addition to the Base Rent, Tenant shall pay Landlord in advance on the
Commencement Date and thereafter on the first (1st) day of each month throughout
the balance of the Term of this Lease, as Additional Rent, Tenants Share of
Operating Expenses, Tax Expenses, Common Area Utility Costs, and Utility
Expenses. The term "Rent" whenever used herein refers to the aggregate of all
these amounts. If Landlord permits Tenant to occupy the Premises without
requiring Tenant to pay rental payments for a period of time, the waiver of the
requirement to pay rental payments shall only apply to the waiver of the Base
Rent. The Rent for any fractional part of a calendar month at the commencement
or expiration or termination of the Lease Term shall be a prorated amount of the
Rent for a full calendar month based upon a thirty (30) day month. To the extent
not already paid as part of the Advance Rent any prorated Rent shall be paid on
the Commencement Date, and any prorated Rent for the final calendar month hereof
shall be paid on the first day of the calendar month in which the date of
expiration or termination occurs.

4.      SECURITY DEPOSIT

Simultaneously with Tenant's execution and delivery of this Lease, Tenant shall
deliver to Landlord, as a Security Deposit for the faithful performance by
Tenant of its obligations under this Lease, the amount specified in the Basic
Lease Information. If Tenant is in default hereunder beyond any applicable
notice and cure period, Landlord may, but without obligation to do so, use all
or any portion of the Security Deposit to cure the default or to compensate
Landlord for all damages sustained by Landlord in connection therewith. Tenant
shall, immediately on demand, pay to Landlord a sum equal to the portion of the
Security Deposit so applied or used to replenish the amount of the Security
Deposit held to increase such deposit to the amount initially deposited with
Landlord. At any time after Tenant has defaulted hereunder, Landlord may require
an increase in the amount of the Security Deposit required hereunder for the
then balance of the Term and Tenant shall, immediately on demand, pay to
Landlord such additional sums. As soon as practicable after the expiration or
termination of this Lease but in no event later than sixty (60) days thereafter,
Landlord shall return the Security Deposit to Tenant, less such amounts as are
reasonably necessary, as determined by Landlord, to remedy Tenant's default(s)
hereunder or to otherwise restore the Premises to a clean and safe condition,
reasonable wear and tear excepted, casualty and condemnation and damage caused
by the gross negligence or willful misconduct of Landlord or Landlord's
Representatives excepted. If the cost to restore the Premises exceeds the amount
of the Security Deposit, Tenant shall promptly deliver to Landlord any and all
of such excess sums. Landlord shall not be required to keep the Security Deposit
separate from other funds, and, unless otherwise required by law, Tenant shall
not be entitled to interest on the Security Deposit. In no event or circumstance
shall Tenant have the right to any use of the Security Deposit and,
specifically, Tenant may not use the Security Deposit as a credit or to
otherwise offset any payments required hereunder.

                                       3
<PAGE>   17

5.      CONDITION OF PREMISES; TENANT IMPROVEMENTS

Tenant agrees to accept the Premises on the Commencement Date as then being
suitable for Tenant's intended use and in good operating order, condition and
repair in its then existing "AS IS" condition, except as otherwise set forth in
hereto. The Tenant Improvements (defined in Exhibit B) shall be installed in
accordance with the terms, conditions, criteria and provisions set forth in
Exhibit B. By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises in good condition and state of repair. Tenant expressly
acknowledges and agrees that neither Landlord nor any of Landlord's agents,
representatives or employees has made any representations as to the suitability,
fitness or condition of the Premises for the conduct of Tenant's business or for
any other purpose, including without limitation, any storage incidental thereto.
Any Tenant Improvements to be constructed hereunder shall be in compliance with
the requirements of the ADA (defined below), and all costs incurred for purposes
of compliance therewith shall be a part of and included in the costs of the
Tenant Improvements. In addition and prior to the Commencement Date, Landlord,
at Landlord's cost and expense, shall (i) renovate the lobby to the Premises
with new finishes and entry subject to Tenant's reasonable review and approval
and (ii) install submeters in the Premises. Such lobby shall be exclusive to
Tenants use. Notwithstanding the foregoing, Landlord shall provide the Premises
with the operating systems of the Building, including the electrical, plumbing,
HVAC, roof membrane and parking lot, in good working order.

6.      ADDITIONAL RENT

It is intended by Landlord and Tenant that this Lease be a "triple net lease."
The costs and expenses described in this Section 6 and all other sums, charges,
costs and expenses specified in this Lease to be paid by Tenant other than Base
Rent are to be paid by Tenant to Landlord as additional rent (collectively,
"Additional Rent").

6.1     OPERATING EXPENSES:

        6.1.1 DEFINITION OF OPERATING EXPENSES. Tenant shall pay to Landlord
Tenant's Share of all Operating Expenses as Additional Rent. The term "Operating
Expenses" as used herein shall mean the total amounts paid or payable by
Landlord in connection with the ownership, management, maintenance, repair and
operation of the Premises and the other portions of the Project. These Operating
Expenses may include, but are not limited to, Landlord's cost of: (i) repairs
to, and maintenance of, the roof membrane, the non-structural portions of the
roof and the nonstructural elements of the perimeter exterior walls of the
Building; (ii) maintaining the outside paved area, landscaping and other common
areas of the Park. The term "Common Areas" shall mean all areas and facilities
within the Park exclusive of the Premises and the other portions of the Park
leasable exclusively to other tenants. The Common Areas include, but are not
limited to, interior lobbies, mezzanines, parking areas, access and perimeter
roads, sidewalks, rail spurs (if any), and landscaped areas; (iii) annual
insurance premium(s) insuring against personal injury and property damage
(including, if Landlord elects, "all risk" or "special purpose" coverage) and
all other insurance, including, but not limited to, earthquake (which premium
for earthquake coverage only shall not exceed $0.05 per square foot per month
compounded at a rate of three percent (3%) annually during the initial term of
the Lease) and flood for the Project, rental value insurance against loss of
Rent for a period of at least nine (9) months commencing on the date of loss,
and subject to the provisions of Section 25 below, any deductible (provided,
however, that if any deductible that is Tenant's responsibility to pay per this
Lease and will cost more than an amount equivalent to one month's Base Rent,
then, at Tenant's option, Tenant shall pay to Landlord within thirty (30) days
of receipt of an invoice therefor such amount equivalent to one month's Base
Rent, and the balance of the cost of such deductible shall be amortized on a
straight-line basis over the balance of the term of this Lease, and Tenant shall
pay to Landlord monthly, in the same time and manner as the payment of Base
Rent, the amortized portion of the cost of such deductible); (iv) (a)
modifications and/or new improvements to any portion of the Project occasioned
by any rules, laws or regulations effective subsequent to the Commencement Date;
(b) reasonably necessary replacement improvements to any portion of the Project
after the Commencement Date; and (c) new improvements to the Project that reduce
operating costs or improve life/safety conditions, all of the foregoing as
reasonably determined by Landlord, in its sole but reasonable discretion;
provided, if such costs are of a capital nature, then such costs or allocable
portions thereof shall be amortized on a straight-line basis over the estimated
useful life of the capital item or fifteen (15) years whichever is shorter, as
reasonably determined by Landlord, together with reasonable interest on the
amortized balance; (v) the management and administration of any and all portions
of the Project, including, without limitation, a property management fee (which
shall not exceed three percent (3%) of Rent), accounting, auditing, billing,
postage, salaries and benefits for clerical and supervisory employees, whether
located on the Project or off-site, payroll taxes and legal and accounting costs
and all fees, licenses and permits related to the ownership, operation and
management of the Project; (vi) preventative maintenance and repair contracts
including, but not limited to, contracts for elevator systems (if any) and
heating, ventilation and air conditioning systems, lifts for disabled persons,
if Landlord elects to so procure; (vii) security and fire protection services
for any portion of tire Project, if and to the extent, in Landlord's sole
discretion, such services are provided; (viii) the creation and modification of
any licenses, easements or other similar undertakings with respect to the
Project; (ix) supplies, materials, equipment, rental equipment and other similar
items used in the operation and/or maintenance of the Project for replacement or
repair of any Common Area Improvements or equipment; (x) any and all levies,
charges, fees and/or assessments payable to any applicable owner's association
or similar body; (xi) any barrier removal work or other required improvements,
alterations or work to any portion of the Project generally required under the
ADA (defined below) (the "ADA Work") (subject to the amortization schedule
designated in (iv) above); provided, if such ADA Work is required under the ADA
due to Tenant's use of the Premises or any Alteration (defined below) made to
the Premises by or on behalf of Tenant, then the cost of such ADA Work shall be
borne solely by Tenant and shall not be included as part of the Operating
Expenses; and (xii) the repairs and maintenance items set forth in Section 11.2
below, to the extent permitted by the terms of that Section.

        6.1.2 OPERATING EXPENSE EXCLUSIONS. Notwithstanding anything to the
contrary contained herein, for purposes of this Lease, the term "Operating
Expenses" shall not include the following: (i) costs (including permit, license,
and inspection fees) incurred in renovating, improving, decorating, painting, or
redecorating vacant space or space for other tenants within the Project; (ii)
costs incurred because Landlord or another tenant actually violated the terms
and conditions of any lease for premises within the Project; (iii) legal and
auditing fees (other than those fees reasonably incurred in connection with the
maintenance and operation of all or any portion the Project), leasing
commissions, advertising expenses, and other costs incurred in connection with
the original leasing of the Project or future re-leasing of any portion of the
Project; (iv) depreciation of the Building or any other improvements situated
within the Project; (v) any items for which Landlord is entitled to be
reimbursed by insurance or by direct reimbursement by any other tenant of the
Project or any other third party; (vi) costs of repairs or other work
necessitated by fire, windstorm or other casualty (excluding any deductibles)
and/or costs of repair or other work necessitated by the exercise of the right
of eminent domain to the extent insurance proceeds or a condemnation award, as
applicable, is actually received by

                                       4
<PAGE>   18
Landlord for such purposes; provided, such costs of repairs or other work shall
be paid by the parties in accordance with the provisions of Sections 25 and 26,
below; (vii) other than any interest charges for capital improvements referred
to in Section 6.1.1(iv) hereinabove, any interest or payments on any financing
for the Building, the Phase or the Project, interest and penalties incurred as a
result of Landlord's late payment of any invoice (provided that Tenant pays
Tenant's Share of Operating Expenses and Tax Expenses to Landlord when due as
set forth herein), and any bad debt loss, rent loss or reserves for same; (viii)
costs associated with the investigation and/or remediation of Hazardous
Materials (hereafter defined) present in, on or about any portion of the
Project, unless such costs and expenses are the responsibility of Tenant as
provided in Section 27 hereof, in which event such costs and expenses shall be
paid solely by Tenant in accordance with the provisions of Section 27 hereof;
(ix) Landlord's cost for the repairs and maintenance items set forth in Section
11.3, below; (x) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services in the Project
to the extent the same exceeds the costs of such by unaffiliated third parties
on a competitive basis; or any costs included in Operating Expenses representing
an amount paid to a person, firm, corporation or other entity related to
Landlord which is in excess of the amount which would have been paid in the
absence of such relationship; (xi) any payments under a ground lease or master
lease; (xii) damages or repairs covered by insurance or warranties maintained by
Landlord; (xiii) damages or repairs due to Landlord's gross negligence and
willful misconduct; (xiv) Landlord's overhead not related to the Building or
Park; and (xv) costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling or change of ownership of the Project or any
portion thereof, including brokerage commissions, consultants, attorneys' and
accountants' fees, closing costs, title insurance premiums, transfer taxes and
interest charges (except for real property taxes).

        6.2 TAX EXPENSES: Tenant shall pay to Landlord Tenant's Share of all
real property taxes applicable to the Project. Prior to delinquency, Tenant
shall pay any and all taxes and assessments levied upon Tenant's Property
(defined below in Section 10) located or installed in or about the Premises by,
or on behalf of Tenant. To the extent any such taxes or assessments are not
separately assessed or billed to Tenant, then Tenant shall pay the amount
thereof as invoiced by Landlord. Tenant shall also reimburse and pay Landlord,
as Additional Rent, within ten (10) days after demand therefor, one hundred
percent (100%) of (i) any increase in real property taxes attributable to any
and all Alterations (defined below in Section 10), Tenant Improvements,
fixtures, equipment or other improvements of any kind whatsoever placed in, on
or about the Premises for the benefit of, at the request of, or by Tenant, and
(ii) taxes and assessments levied or assessed upon or with respect to the
possession, operation, use or occupancy by Tenant of the Premises or any other
portion of the Project. Any such assessment shall be paid over the maximum
permitted period. The term "Tax Expenses" shall mean and include, without
limitation, any form of tax and assessment (general, special, supplemental,
ordinary or extraordinary), commercial rental tax, payments under any
improvement bond or bonds, license fees, license tax, business license fee,
rental tax, transaction tax or levy imposed by any authority having the direct
or indirect power of tax (including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
district thereof) as against any legal or equitable interest of Landlord in the
Premises or any other portion of the Project or any other tax, fee, or excise,
however described, including, but not limited to, any value added tax, or any
tax imposed in substitution (partially or totally) of any tax previously
included within the definition of real property taxes, or any additional tax the
nature of which was previously included within the definition of real property
taxes. The term "Tax Expenses" shall not include any franchise, estate,
inheritance, net income, or excess profits tax imposed upon Landlord, or a
penalty fee imposed as a result of Landlord's failure to pay Tax Expenses when
due.

        6.3 PAYMENT OF EXPENSES: Landlord shall estimate Tenant's Share of the
Operating Expenses and Tax Expenses for the calendar year in which the Lease
commences. Commencing on the Commencement Date, one-twelfth (1/12th) of this
estimated amount shall be paid by Tenant to Landlord, as Additional Rent, and
thereafter on the first (1st) day of each month throughout the remaining months
of such calendar year. Thereafter, Landlord may estimate such expenses for each
calendar year during the Term of this Lease and Tenant shall pay one-twelfth
(1/12th) of such estimated amount as Additional Rent hereunder on the first
(1st) day of each month during such calendar year and for each ensuing calendar
year throughout the Term of this Lease. Tenant's obligation to pay Tenant's
Share of Operating Expenses and Tax Expenses shall survive the expiration or
earlier termination of this Lease.

        6.4 ANNUAL RECONCILIATION: By June 30th of each calendar year, or as
soon thereafter as reasonably possible, Landlord shall furnish Tenant with an
accounting of actual and accrued Operating Expenses and Tax Expenses. Within
thirty (30) days of Landlord's delivery of such accounting, Tenant shall pay to
Landlord the amount of any underpayment. Notwithstanding the foregoing, failure
by Landlord to give such accounting by such date shall not constitute a waiver
by Landlord of its right to collect any underpayment by Tenant at any time.
Landlord shall credit the amount of any overpayment by Tenant toward the next
estimated monthly installment(s) falling due, or where the Term of the Lease has
expired, refund the amount of overpayment to Tenant as soon as possible
thereafter. If the Term of the Lease expires prior to the annual reconciliation
of expenses Landlord shall have the right to reasonably estimate Tenant's Share
of such expenses, and if Landlord determines that there has been an
underpayment, Landlord may deduct such underpayment from Tenant's Security
Deposit. Failure by Landlord to accurately estimate Tenant's Share of such
expenses or to otherwise perform such reconciliation of expenses shall not
constitute a waiver of Landlord's right to collect any of Tenant's underpayment
at any time during the Term of the Lease or at any time after the expiration or
earlier termination of this Lease.

        6.5 AUDIT: After delivery to Landlord of at least thirty (30) days prior
written notice, Tenant, at its sole cost and expense through any accountant
designated by it, shall have the right to examine and/or audit the books and
records evidencing such costs and expenses for the previous one (1) calendar
year, during Landlord's reasonable business hours but not more frequently than
once during any calendar year. Any such accounting firm designated by Tenant may
not be compensated on a contingency fee basis. The results of any such audit
(and any negotiations between the parties related thereto) shall be maintained
strictly confidential by Tenant and its accounting firm and shall not be
disclosed, published or otherwise disseminated to any other party other than to
Landlord and its authorized agents. Landlord and Tenant each shall use its best
efforts to cooperate in such negotiations and to promptly resolve any
discrepancies between Landlord and Tenant in the accounting of such costs and
expenses if through such audit it is determined that there is a discrepancy of
more than seven percent (7%) of the actual Operating Expenses and Tax Expenses
for such period, then Landlord shall reimburse Tenant for the reasonable
accounting costs and expenses incurred by Tenant in performing such audit,
including Tenant's in-house or outside auditors or accountants. However, if
through such audit it is determined that there is a discrepancy of seven percent
(7%) or less, then Tenant shall reimburse Landlord for the reasonable accounting
costs and expenses associated with Landlord's in-house auditors or accounting
personnel as well as those reasonable costs and expenses incurred by Landlord
for any outside accounting firms or auditors in connection with such audit.

                                       5
<PAGE>   19

7.      UTILITIES AND SERVICES

Tenant shall pay the cost of all (i) water, sewer use, sewer discharge fees and
sewer connection fees, gas, electricity, telephone, telecommunications, cabling
and other utilities billed or metered separately to the Premises and (ii) refuse
pickup and janitorial service to the Premises. Utility Expenses, Common Area
Utility Costs and all other sums and charges set forth in this Section 7 are
considered part of Additional Rent.

        7.1 UTILITY EXPENSES: For any such utility fees, use charges, or similar
services that are not billed or metered separately to Tenant, including without
limitation, water and sewer charges, and garbage and waste disposal
(collectively, "Utility Expenses"), Tenant shall pay to Landlord Tenant's Share
of Utility Expenses. If Landlord reasonably determines that Tenant's Share of
Utility Expenses is not commensurate with Tenant's use of such services, Tenant
shall pay to Landlord the amount which is attributable to Tenant's use of the
utilities or similar services, as reasonably estimated and determined by
Landlord, based upon factors such as size of the Premises and intensity of use
of such utilities by Tenant such that Tenant shall pay the portion of such
charges reasonably consistent with Tenant's use of such utilities and similar
services. Tenant shall also pay Tenant's Share of any assessments, charges, and
fees included within any tax bill for the Lot on which the Premises are
situated, including without limitation, entitlement fees, allocation unit fees,
sewer use fees, and any other similar fees or charges.

        7.2 COMMON AREA UTILITY COSTS: Tenant shall pay to Landlord Tenant's
Share of any Common Area utility costs, fees, charges and expenses
(collectively, "Common Area Utility Costs"). Tenant shall pay to Landlord
one-twelfth (1/12th) of the estimated amount of Tenant's Share of the Common
Area Utility Costs on the Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease. Any
reconciliation thereof shall be substantially in the same manner as set forth in
Section 6.4 above.

        7.3 MISCELLANEOUS: Tenant acknowledges that the Premises may become
subject to the rationing of utility services or restrictions on utility use as
required by a public utility company, governmental agency or other similar
entity having jurisdiction thereof. Tenant agrees that its tenancy and occupancy
hereunder shall be subject to such rationing restrictions as may be imposed upon
Landlord, Tenant, the Premises, or other portions of the Project, and Tenant
shall in no event be excused or relieved from any covenant or obligation to be
kept or performed by Tenant by reason of any such rationing or restrictions. If
permitted by applicable Laws, Landlord shall have the right at any time and from
time to time during the Term of this Lease to either contract for service from a
different company or companies (each such company referred to as an "Alternate
Service Provider") other than the company or companies presently providing
electricity service for the Project (the "Electric Service Provider") or
continue to contract for service from the Electric Service Provider, at
Landlord's sole discretion. Tenant agrees to cooperate with Landlord, the
Electric Service Provider, and any Alternate Service Provider at all times and,
as reasonably necessary, shall allow Landlord, the Electric Service Provider,
and any Alternate Service Provider reasonable access to the Building's electric
lines, feeders, risers, wiring, and any other machinery within the Premises.

8.      LATE CHARGES

Any and all sums or charges set forth in this Section 8 are considered part of
Additional Rent. Tenant acknowledges that late payment (the fifth day of each
month or any time thereafter) by Tenant to Landlord of Rent and all other sums
due hereunder, will cause Landlord to incur costs not contemplated by this
Lease. Such costs may include, without limitation, processing and accounting
charges, and late charges that may be imposed on Landlord by the terms of any
note secured by any encumbrance against the Premises, and late charges and
penalties due to the late payment of Tax Expenses on the Premises. Therefore, if
any installment of Rent or any other sum payable by Tenant is not received by
Landlord within five (5) days of when due, Tenant shall promptly pay to Landlord
a late charge, as liquidated damages, in an amount equal to six percent (6%) of
such delinquent amount. Notwithstanding the foregoing, Landlord waives the late
charge for the first (1st) instance during each 12-month period during the Term
of this Lease in which Tenant fails to timely pay Rent. If Tenant delivers to
Landlord a check for which there are not sufficient funds, Landlord may require
Tenant to replace such check with a cashier's check for the amount of such check
and all other charges payable hereunder. The parties agree that this late charge
and the other charges referenced above represent a fair and reasonable estimate
of the costs that Landlord will incur by reason of such late payment by Tenant,
excluding attorneys' fees and costs. Acceptance of any late charge or other
charges shall not constitute a waiver by Landlord of Tenant's default with
respect to the delinquent amount, nor prevent Landlord from exercising any of
the other rights and remedies available to Landlord for any other breach of
Tenant under this Lease. If a late charge becomes payable for three (3)
installments of Rent, then Landlord, at Landlord's sole option, can either
require the Rent be paid quarterly in advance or be paid monthly in advance by
cashier's check or by electronic funds transfer.

9.      USE OF PREMISES

        9.1 COMPLIANCE WITH LAWS, RECORDED MATTERS, AND RULES AND REGULATIONS:
The Premises are to be used solely for the purposes and uses specified in the
Basic Lease Information and for no other uses or purposes without Landlord's
prior written consent. Landlord's consent shall not be unreasonably withheld or
delayed so long as the proposed use (i) does not involve the use of Hazardous
Materials other than as expressly permitted under the provisions of Section 29
below, (ii) does not require any additional parking spaces, and (iii) is
compatible with the other uses then being made in the Project and in other
similar types of buildings in the vicinity of the Project, as reasonably
determined by Landlord. The use of the Premises by Tenant and its employees,
representatives, agents, invitees, licensees, subtenants, customers or
contractors (collectively, "Tenant's Representatives") shall be subject to, and
at all times in compliance with, (a) any and all applicable laws, rules, codes,
ordinances, statutes, orders and regulations as same exist from time to time
throughout the Term of this Lease (collectively, the "Laws"), including without
limitation, the requirements of the Americans with Disabilities Act, a federal
law codified at 42 U.S.C. 12101 et seq., including but not limited to Title III
thereof, all regulations and guidelines related thereto and all requirements of
Title 24 of the State of California (collectively, the "ADA"), (b) any and all
documents, instruments, licenses, restrictions, easements or similar
instruments, conveyances or encumbrances which are at any time, and from time to
time, required to be made by or given by Landlord in any manner relating to the
initial development of the Project, and/or the construction from time to time of
any additional buildings or other improvements in the Project, including without
limitation any Tenant Improvements (collectively, the "Development Documents"),
(c) any and all documents, easements, covenants, conditions and restrictions,
and similar instruments, together with any and all amendments and supplements
thereto made from time to time each of which has been or hereafter is recorded
in any official or public records with respect to the Premises or any other
portion of the Project (collectively, the "Recorded Matters"), and (d) any and
all rules and regulations set forth in Exhibit C hereto, any other reasonable
rules and regulations promulgated by Landlord now or

<PAGE>   20

hereafter enacted relating to parking and the operation of the Premises and/or
any other part of the Project and any and all rules, restrictions and/or
regulations imposed by any applicable owners association or similar entity or
body (collectively, the "Rules and Regulations") provided that in the event of
any conflict between the terms of such rules and regulations and the terms of
the Lease, the terms of the Lease shall prevail. Landlord reserves to itself the
right, from time to time, to grant, without the consent of Tenant, such
easements, rights and dedications that Landlord deems reasonably necessary, and
to cause the recordation of parcel or subdivision maps and/or restrictions, so
long as such easements, rights, dedications, maps and restrictions, as
applicable, do not materially and adversely interfere with Tenant's operations
in and access to the Premises. Tenant agrees to sign any documents reasonably
requested by Landlord to effectuate any such easements, rights, dedications,
maps or restrictions, without expense or liability to Tenant. Tenant shall be
solely responsible for the payment of all costs, fees and expenses associated
with any modifications, improvements or other Alterations to the Premises and/or
any other portion of the Project occasioned by the enactment of, or changes to,
any Laws arising from Tenant's particular use of the Premises or Alterations or
other improvements made to the Premises by Tenant after the Commencement Date of
this Lease, regardless of when such Laws became effective, subject to any
violations existing as of the Commencement Date, Landlord's repair obligations
as set forth in Section 11.3 hereof and Landlord's obligations as set forth in
Exhibit B hereto, and latent defects in the original construction of the
Premises or systems serving the Premises which exist as of the Commencement
Date. Tenant shall not initiate, submit an application for, or otherwise
request, any land use approvals or entitlements with respect to the Premises or
any other portion of the Project, including without limitation, any variance,
conditional use permit or rezoning, without first obtaining Landlord's prior
written consent thereto, which consent may be given or withheld in Landlord's
sole discretion. Tenant shall not be responsible for any modifications,
improvements or alterations to the Premises, Building, the Common Areas and/or
the Park occasioned by the enactment of, or changes to, any Laws applicable to
all tenants in the Building and/or the Park generally, except to the extent that
costs and expenses incurred by Landlord with respect to such modifications,
improvements or alterations may be included as Operating Expenses as permitted
under Section 6.1. Tenant shall not be required to make any structural
modifications, improvements or alterations to the Premises, Building, Common
Areas or the Park, unless such structural work is required by reason of Tenant's
particular use and/or Tenant's modifications, improvements or alterations to the
Premises. Subject to Landlord's reasonable security measures, Tenant shall have
access to the Building and the Premises for its employees and visitors 24 hours
per day, 7 days per week.

        9.2 PROHIBITION ON USE: Tenant shall not use the Premises or permit
anything to be done in or about the Premises nor keep or bring anything therein
which will in any way increase the existing rate of or affect any policy of fire
or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy. No auctions (other than by electronic
media) may be held or otherwise conducted in, on or about any portion of the
Premises or the Project without Landlord's prior written consent thereto. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of Landlord or other tenants or
occupants of any portion of the Project. The Premises shall not be used for any
unlawful purpose. Tenant shall not cause, maintain or permit any private or
public nuisance in, on or about any portion of the Premises or the Project,
including, but not limited to, any offensive odors, noises, fumes or vibrations.
Tenant shall not damage or deface or otherwise commit any waste in, upon or
about the Premises or any other portion of the Project. Tenant shall not place
or store, nor permit any other person or entity to place or store, any property,
equipment, materials, supplies, personal property or any other items or goods
outside of the Premises for any period of time, except (i) goods being staged
temporarily in connection with a move into or out of the Premises, (ii) tables,
chairs and benches for the use of Tenant's employees, and (iii) an emergency
generator with ancillary compressor and above ground diesel tank and equipment
associated with Tenant's light manufacturing, (subject to the Limitations set
forth in Section 27.3 below), all of the foregoing being subject to the
commercially reasonable prior written review and approval, conditions and
requirements of Landlord. Tenant shall not permit any animals, including, but
not limited to, any household pets, to be brought or kept in or about the
Premises. Tenant shall not install any radio or television antenna, satellite
dish, microwave, loudspeaker or other device on the roof or exterior walls of
the Building or any other portion of the Project, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld or
delayed. Tenant shall not interfere with radio, telecommunication, or television
broadcasting or reception from or in the Building or elsewhere. Tenant shall
place no loads upon the floors, walls, or ceilings in excess of the maximum
designed load permitted by the applicable Uniform Building Code or which may
damage the Building or outside areas within the Project. Tenant shall not place
any harmful liquids in the drainage systems or dump or store waste materials,
refuse or other such materials, or allow such materials to remain outside the
Building area, except for any non-hazardous or non-harmful materials which may
be stored in refuse dumpsters.

10.     ALTERATIONS; AND SURRENDER OF PREMISES

        10.1 ALTERATIONS: Tenant shall not install any signs, fixtures,
improvements, nor make or permit any other alterations or additions
(individually, an "Alteration", and collectively, the "Alterations") to the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed. However, Tenant shall be permitted to hang
pictures and shelving and perform other similar minor decorating activities and
to perform nonstructural alterations not exceeding an aggregate of $25,000
during any calendar year without securing Landlord's prior consent ("Permitted
Improvements"), provided that Tenant (i) complies with all pertinent building
codes and fire, safety and other such governmental regulations, (ii) does not
take any action which could in any way impact the structural, mechanical,
electrical, maintenance, HVAC or plumbing systems of the Premises and/or
exterior appearance of the Building and (iii) submits its plans for such
Alterations to Landlord at least fifteen (15) business days prior to
commencement of such Alterations (except as to minor decorative items and
installations of furniture for which plans are not required). Within ten (10)
business days following Landlord's receipt of Tenant's written notice with
respect to Tenant's performance of any Permitted Improvements and at such time
as Landlord may approve other Alterations, Landlord shall notify Tenant, in
writing, whether or not Landlord will require Tenant to remove such Permitted
Improvements and Alterations from the Premises upon the expiration or earlier
termination of this Lease. If any such Alteration is expressly permitted by
Landlord, Tenant shall deliver at least ten (10) days prior notice to Landlord,
from the date Tenant intends to commence construction, sufficient to enable
Landlord to post a Notice of Non-Responsibility. In all events, Tenant shall
obtain all permits or other governmental approvals prior to commencing any of
such work and deliver a copy of same to Landlord. All Alterations shall be at
Tenant's sole cost and expense, and shall be installed by a licensed contractor
(reasonably approved by Landlord) in compliance with all applicable Laws
(including, but not limited to, the ADA), Development Documents, Recorded
Matters, and Rules and Regulations. Tenant shall keep the Premises and the
property on which the Premises are situated free from any (liens arising out of
any work performed, materials furnished or obligations incurred by or on behalf
of Tenant. Tenant shall, prior to construction of any and all Alterations, cause
its contractors) and/or major subcontractors) to provide insurance as reasonably
required by Landlord, and Tenant shall provide such assurances to Landlord,
including without limitation, waivers of lien, surety company performance bonds
as Landlord shall require to assure payment of the costs thereof to protect
Landlord and the Project from and against any loss from any mechanic's,
materialmen's or other liens.

                                       7

<PAGE>   21
        10.2 SURRENDER OF PREMISES: At the expiration of the Term or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord (a)
in good condition and repair (damage by acts of God, casualty, condemnation,
Landlord's gross negligence or willful misconduct and normal wear and tear
excepted), but with all interior walls cleaned, any carpets cleaned, all floors
cleaned and waxed, all non-working light bulbs and ballasts replaced and all
roll-up doors and plumbing fixtures in good condition and working order, and (b)
In accordance with the provisions of Section 27 hereof. Normal wear and tear
shall not include any damage or deterioration that would have been prevented by
proper maintenance by Tenant, or Tenant otherwise performing all of its
obligations under this Lease. On or before the expiration or earlier termination
of this Lease, (i) Tenant shall remove all of Tenant's Property (as hereinafter
defined) and Tenant's signage from the Premises and the other portions of the
Project, (ii) Landlord may, by written notice to Tenant given not later than one
hundred twenty (120) days prior to the Expiration Date (except in the event of a
termination of this Lease prior to the scheduled Expiration Date, in which event
no advance notice shall be required), require Tenant, at Tenant's expense, to
remove any or all Alterations and Tenant shall remove such requested Alterations
from the Premises, and (iii) to the extent Landlord has advised Tenant on or
about the time that the Tenant Improvements were constructed and installed in
the Premises that Tenant is to remove all or portions of the items comprising
the Tenant Improvements (the "Removable TIs"), Tenant shall remove the Removable
TIs. Tenant shall repair any damage caused by such removal of the Tenant's
Property, the requested Alterations and the Removable TIs. For purposes hereof,
the term "Tenant's Property" shall mean and refer to all equipment, trade
fixtures, computer wiring and cabling, furnishings, inventories, goods and
personal property of Tenant. Any of Tenant's Property not so removed by Tenant
as required herein shall be deemed abandoned and may be stored, removed, and
disposed of by Landlord at Tenant's expense, and Tenant waives all claims
against Landlord for any damages resulting from Landlord's retention and
disposition of such property; provided, however, Tenant shall remain liable to
Landlord for all costs incurred in storing and disposing of such abandoned
property of Tenant. All Tenant Improvements and Alterations except those which
Landlord requires Tenant to remove shall remain in the Premises as the property
of Landlord. If the Premises are not surrendered at the expiration of the Term
or earlier termination of this Lease, and in accordance with the provisions of
this Section 10 and Section 27 below, Tenant shall continue to be responsible
for the payment of Rent (as the same may be increased pursuant to Section 20
below) until the Premises are so surrendered in accordance with said provisions.
Tenant shall indemnify, defend and hold the Indemnitees (hereafter defined)
harmless from and against any and all damages, expenses, costs, losses or
liabilities arising from any delay by Tenant in so surrendering the Premises
including, without limitation, any damages, expenses, costs, losses or
liabilities arising from any claim against Landlord made by any succeeding
tenant or prospective tenant founded on or resulting from such delay and losses
and damages suffered by Landlord due to lost opportunities to lease any portion
of the Premises to any such succeeding tenant or prospective tenant, together
with, in each case, actual attorneys' fees and costs.

11. REPAIRS AND MAINTENANCE

        11.1 TENANT'S REPAIRS AND MAINTENANCE OBLIGATIONS: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at its sole cost and expense, keep and
maintain all parts of the Premises and such portions of the Building and
Improvements as are within the exclusive control of Tenant in good, clean and
safe condition and repair, promptly making all necessary repairs and
replacements, whether ordinary or extraordinary, with materials and workmanship
of the same character, kind and quality as the original thereof, all of the
foregoing to the reasonable satisfaction of Landlord including, but not limited
to, repairing any damage caused by Tenant or any of Tenant's Representatives and
replacing any property so damaged by Tenant or any of Tenant's Representatives.
Without limiting the generality of the foregoing, Tenant shall be solely
responsible for promptly maintaining, repairing and replacing (a) all mechanical
systems, heating, ventilation and air conditioning systems serving the Premises,
unless maintained by Landlord, (b) all plumbing work and fixtures, (c)
electrical wiring systems, fixtures and equipment exclusively serving the
Premises, (d) all interior lighting (including, without limitation, light bulbs
and/or ballasts) and exterior lighting exclusively serving the Premises or
adjacent to the Premises, (e) all glass, windows, window frames, window
casements, skylights, interior and exterior doors, door frames and door closers,
(f) all roll-up doors, ramps and dock equipment, including without limitation,
dock bumpers, dock plates, dock seals, dock levelers and dock lights, (g) all
tenant signage, (h) lifts for disabled persons serving the Premises, (i)
sprinkler systems, fire protection systems and security systems, except to the
extent maintained by Landlord, and (j) all partitions, fixtures, equipment,
interior painting, interior walls and floors, and floor coverings of the
Premises and every part thereof (including, without limitation, any demising
walls contiguous to any portion of the Premises). Additionally, Tenant shall be
solely responsible for performance of the regular removal of trash and debris.
Tenant shall have no right of access to or right to install any device on the
roof of the Building nor make any penetrations of the roof of the Building
without the express prior written consent of Landlord. Notwithstanding the
above, Tenant's maintenance obligations shall not include (i) damage or repair
covered under any insurance policy covered by Landlord, (ii) conditions covered
under warranties of Landlord's contractor, or (iii) repairs performed by
Landlord and charged to Tenant as Operating Expenses.

        11.2 MAINTENANCE BY LANDLORD: Subject to the provisions of Section 11.1,
and further subject to Tenant's obligation under Section 6 to reimburse
Landlord, in the form of Additional Rent, for Tenant's Share of the cost and
expense of the following described items, Landlord agrees to repair and maintain
the following items: fire protection services; the roof and roof coverings
(provided that Tenant installs no additional air conditioning or other equipment
on the roof that damages the roof coverings, in which event Tenant shall pay all
costs relating to the presence of such additional equipment); the plumbing and
mechanical systems serving the Building, excluding the plumbing, mechanical and
electrical systems exclusively serving the Premises; any rail spur and rail
crossing; exterior painting of the Building; and the parking areas, pavement,
landscaping, sprinkler systems, sidewalks, driveways, curbs, and lighting
systems in the Common Areas. Notwithstanding anything in this Section 11 to the
contrary, Landlord shall have the right to either repair or to require Tenant to
repair any damage to any portion of the Premises and any other portion of the
Project caused by or created due to any act, omission, negligence or willful
misconduct of Tenant or any of Tenant Representatives and to restore the
Premises and the other affected portions of the Project, as applicable, to the
condition existing prior to the occurrence of such damage. If Landlord elects to
perform such repair and restoration work, Tenant shall reimburse Landlord upon
demand for all costs and expenses incurred by Landlord in connection therewith.
Tenant shall promptly report, in writing, to Landlord any defective condition
known to it which Landlord is required to repair, and failure to so report any
such defect shall make Tenant responsible to Landlord for any liability incurred
by Landlord by reason of such condition.

        11.3 LANDLORD'S REPAIRS AND MAINTENANCE OBLIGATIONS: Subject to the
provisions of Sections 11.1, 25 and 26, and except for repairs rendered
necessary by the intentional or negligent acts or omissions of Tenant or any of
Tenant's Representatives, unless such costs thereof are covered by insurance
requirement to be maintained herein, Landlord agrees, at Landlord's sole cost
and expense, to (a) keep in good repair the structural portions of the floors,
foundations and exterior perimeter walls of the Building (exclusive of glass and
exterior doors), below-ground plumbing and sewage facilities, and load-bearing
columns, and (b) replace the structural portions of the roof of the Building
(excluding the roof membrane).

                                       8
<PAGE>   22

        11.4 TENANT'S FAILURE TO PERFORM REPAIRS AND MAINTENANCE OBLIGATIONS: If
Tenant refuses or neglects to repair and maintain the Premises and the other
areas properly as required herein within the applicable notice and cure period
and to the reasonable satisfaction of Landlord, Landlord may, but without
obligation to do so, at any time make such repairs or maintenance without
Landlord having any liability to Tenant for any loss or damage that may accrue
to Tenant's Property or to Tenant's business by reason thereof, except to the
extent any damage is caused by the willful misconduct or gross negligence of
Landlord or its authorized agents and representatives. If Landlord makes such
repairs or maintenance, upon completion thereof Tenant shall pay to Landlord, as
Additional Rent, Landlord's costs and expenses incurred therefor. The
obligations of Tenant hereunder shall survive the expiration of the Term of this
Lease or the earlier termination thereof. Tenant hereby waives any right to
repair at the expense of Landlord under any applicable Laws now or hereafter in
effect with respect to the Premises.

12.     INSURANCE

        12.1 TYPES OF INSURANCE: Tenant shall maintain in full force and effect
at all times during the Term of this Lease, at Tenant's sole cost and expense,
for the protection of Tenant and Landlord, as their interests may appear,
policies of insurance issued by a carrier or carriers reasonably acceptable to
Landlord and its lender (which afford the following coverage's: (i) worker's
compensation and employer's liability, as required by law; (ii) commercial
general liability insurance (occurrence form) providing coverage against any and
all claims for bodily injury and property damage occurring in, on or about the
Premises arising out of Tenant's and Tenant's Representatives' use or occupancy
of the Premises. Such insurance shall include coverage for blanket contractual
liability, fire damage, premises, personal injury, completed operations and
products liability. Such insurance shall have a combined single limit of not
less than Two Million Dollars ($2,000,000) per occurrence with a Three Million
Dollar ($3,000,000) aggregate limit and excess/umbrella insurance in the amount
of Three Million Dollars ($3,000,000). If Tenant has other locations which it
owns or leases, the policy shall include an aggregate limit per location
endorsement, (iii) comprehensive automobile liability insurance with a combined
single limit of at least $1,000,000 per occurrence for claims arising out of any
company owned automobiles; (iv) "all risk" or "special purpose" property
insurance, including without limitation, sprinkler leakage, covering damage to
or loss of any of Tenant's Property and the Tenant Improvements located in, on
or about the Premises, and in addition, coverage for business interruption of
Tenant, together with, if the property of any of Tenant's invitees, vendors or
customers is to be kept in the Premises, warehouse's legal liability or bailee
customers insurance for the full replacement cost of the property belonging to
such parties and located in the Premises. Such insurance shall be written on a
replacement cost basis (without deduction for depreciation) in an amount equal
to one hundred percent (100%) of the full replacement value of the aggregate of
the items referred to in this clause (iv); and (v) such other insurance or
higher limits of liability as is then customarily required for similar types of
buildings within the general vicinity of the Project or as may be reasonably
required by any of Landlord's lenders.

        12.2 INSURANCE POLICIES: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed Five Thousand
Dollars ($5,000). Tenant shall deliver to Landlord certificates of insurance and
true and complete copies of any and all endorsements required herein for all
insurance required to be maintained by Tenant hereunder at the time of execution
of this Lease by Tenant. Tenant shall, at least fifteen (15) days prior to
expiration of each policy, furnish Landlord with certificates of renewal or
"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancelable or otherwise subject to material modification except
after thirty (30) days prior written notice to the parties named as additional
insureds as required in this Lease (except for cancellation for nonpayment of
premium, in which event cancellation shall not take effect until at least ten
(10) days' notice has been given to Landlord). Tenant shall have the right to
provide insurance coverage which it is obligated to carry pursuant to the terms
of this Lease under a blanket insurance policy, provided such blanket policy
expressly affords coverage for the Premises and for Landlord as required by this
Lease.

        12.3 ADDITIONAL INSUREDS AND COVERAGE: Each of Landlord, Landlord's
property management company or agent, and Landlord's lender(s) having a lien
against the Premises or any other portion of the Project shall be named as
additional insureds or loss payees (as applicable) under all of the policies
required in Section 12.1(ii) and, with respect to the Tenant Improvements, in
Section 12.1(iv) hereof. Additionally, all of such policies shall provide for
severability of interest. All insurance to be maintained by Tenant shall, except
for workers' compensation and employer's liability insurance, be primary,
without right of contribution from insurance maintained by Landlord. Any
umbrella/excess liability policy (which shall be in "following form") shall
provide that if the underlying aggregate is exhausted, the excess coverage will
drop down as primary insurance. The limits of insurance maintained by Tenant
shall not limit Tenant's liability under this Lease. It is the parties'
intention that the insurance to be procured and maintained by Tenant as required
herein shall provide coverage for any and all damage or injury arising from or
related to Tenant's operations of its business and/or Tenant's or Tenant's
Representatives' use of the Premises and any of the areas within the Project.
Notwithstanding anything to the contrary contained herein, to the extent
Landlord's cost of maintaining insurance with respect to the Building and/or any
other buildings within the Project is increased as a result of Tenant's acts,
omissions, Alterations, improvements, use or occupancy of the Premises, Tenant
shall pay one hundred percent (100%) of, and for, each such increase as
Additional Rent.

        12.4 FAILURE OF TENANT TO PURCHASE AND MAINTAIN INSURANCE: If Tenant
fails to obtain and maintain the insurance required herein throughout the Term
of this Lease, Landlord may, but without obligation to do so, purchase the
necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall promptly pay to Landlord as Additional
Rent, the amount so paid by Landlord, upon Landlord's demand therefor. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all losses, damages, expenses and costs which Landlord
may sustain or incur by reason of Tenant's failure to obtain and maintain such
insurance.

        12.5 WAIVER OF SUBROGATION: Landlord and Tenant hereby mutually waive
their respective rights of recovery against each other for any loss of, or
damage to, either parties' property to the extent that such loss or damage is
insured by an insurance policy required to be in effect at the time of such loss
or damage. Each party shall obtain any special endorsements, if required by its
insurer, whereby the insurer waives its rights of subrogation against the other
party. This provision is intended to waive fully, and for the benefit of the
parties hereto, any rights and/or claims which might give rise to a right of
subrogation in favor of any insurance carrier.

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<PAGE>   23

        12.6 LANDLORD'S INSURANCE: Landlord shall maintain in full force and
effect during the Term of this Lease, subject to reimbursement as provided in
Section 6, policies of insurance which afford such coverages as are
commercially reasonable and as is consistent with other properties in Landlord's
portfolio. Notwithstanding the foregoing, Landlord shall obtain and keep in
force during the Term of this Lease, as an item of Operating Expenses, a policy
or policies in the name of Landlord, with loss payable to Landlord and to the
holders of any mortgages, deeds of trust or ground leases on the Premises
("Lender(s)"), insuring loss or damage to the Building, including all
improvements, fixtures (other than trade fixtures) and permanent additions.
However, all of the Tenant's Property shall be insured by Tenant rather than by
Landlord. The amount of such insurance procured by Landlord shall be equal to at
least eighty percent (80%) of the full replacement cost of the Building,
including all improvements and permanent additions as the same shall exist from
time to time, or the amount required by Lenders. Such policy or polices shall
insure against all risks of direct physical loss or damage (including, without
limitation, the perils of flood and earthquake), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered cause of loss. If any
such insurance coverage procured by Landlord has a deductible clause, the
deductible shall not exceed commercially reasonable amounts, and in the event of
any casualty, the amount of such deductible shall be an item of Operating
Expenses as so limited. Notwithstanding anything to the contrary contained
herein, to the extent the cost of maintaining insurance with respect to the
Premises is increased as a result of Tenant's acts, omissions, use or occupancy
of the Premises, Tenant shall pay one hundred percent (100%) of, and for, such
increase(s) as Additional Rent. Insurance required to be maintained by Landlord
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of A:X or, only with respect to the Landlord
named herein as of the Lease Date, at least A-:VIII, or in either case, such
higher rating as may be required by a lender having a lien on the Premises, as
such ratings are set forth in the most current issue of "A.M. Best's Rating
Guides." Any deductible amounts under any of the insurance policies required
hereunder shall not exceed commercially reasonable amounts. Landlord shall have
the right to provide insurance coverage which it is obligated to carry pursuant
to the terms of this Lease under a blanket insurance policy, provided such
blanket policy expressly affords coverage as required by this Lease.
Additionally, all of such policies shall provide for severability of interest.
The limits of insurance maintained by Landlord shall not limit Landlord's
liability under this Lease.

13.     LIMITATION OF LIABILITY AND INDEMNITY

Except to the extent of damage resulting from the gross negligence or willful
misconduct of Landlord or its authorized representatives, Tenant agrees to
protect, defend (with counsel acceptable to Landlord) and hold Landlord and
Landlord's lenders, partners, members, property management company (if other
than Landlord), agents, directors, officers, employees, representatives,
contractors, successors and assigns and each of their respective partners,
members, directors, heirs, employees, representatives, agents, contractors,
heirs, successors and assigns (collectively, the "Indemnitees") harmless and
indemnify the Indemnitees from and against all liabilities, damages, demands,
penalties, costs, claims, losses, judgments, charges and expenses (including
reasonable attorneys' fees, costs of court and expenses necessary in the
prosecution or defense of any litigation including the enforcement of this
provision) (collectively, "Claims") arising from or in any way related to,
directly or indirectly, (i) Tenant's or Tenant's Representatives' use of the
Premises and other portions of the Project, (ii) the conduct of Tenant's
business, (iii) from any activity, work or thing done, permitted or suffered by
Tenant in or about the Premises, (iv) in any way connected with the Premises,
the Alterations or with the Tenant's Property therein, including, but not
limited to, any liability for injury to person or property of Tenant, Tenant's
Representatives or third party persons, and/or (v) Tenant's failure to perform
any covenant or obligation of Tenant under this Lease. Tenant agrees that the
obligations of Tenant herein shall survive the expiration or earlier termination
of this Lease.

Except to the extent of damage resulting from the gross negligence or willful
misconduct of Landlord or its authorized representatives, to the fullest extent
permitted by law, Tenant agrees that neither Landlord nor any of the Indemnitees
shall at any time or to any extent whatsoever be liable, responsible or in any
way accountable for any loss, liability, injury, death or damage to persons or
property which at any time may be suffered or sustained by Tenant or by any
person(s) whomsoever who may at any time be using, occupying or visiting the
Premises or any other portion of the Project, including, but not limited to, any
acts, errors or omissions of any other tenants or occupants of the Project.
Tenant shall not, in any event or circumstance, be permitted to offset or
otherwise credit against any payments of Rent required herein for matters for
which Landlord may be liable hereunder. Landlord and its authorized
representatives shall not be liable for any interference with light or air, or
for any latent defect in the Premises or the Building.

14.     ASSIGNMENT AND SUBLEASING

        14.1 PROHIBITION: Tenant shall not, without the prior written consent of
Landlord, assign, mortgage, hypothecate, encumber, grant any license or
concession, pledge or otherwise transfer this Lease or any interest herein,
permit any assignment or other such transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant and Tenant's
Representatives or any Affiliate (as defined in Section 14.8 below) (all of the
foregoing are sometimes referred to collectively as "Transfers" and any person
to whom any Transfer is made or sought to be made is sometimes referred to as a
"Transferee"). No consent to any Transfer shall constitute a waiver of the
provisions of this Section 14, and all subsequent Transfers may be made only
with the prior written consent of Landlord, which consent shall not be
unreasonably withheld, but which consent shall be subject to the provisions of
this Section 14.

        14.2 REQUEST FOR CONSENT: If Tenant seeks to make a Transfer, Tenant
shall notify Landlord, in writing, and deliver to Landlord at least thirty (30)
days (but not more than one hundred eighty (180) days) prior to the proposed
commencement date of the Transfer (the "Proposed Effective Date") the following
information and documents (the "Tenants Notice"): (i) a description of the
portion of the Premises to be transferred (the "Subject Space"); (ii) all of the
terms of the proposed Transfer including without limitation, the Proposed
Effective Date, the name and address of the proposed Transferee, and a copy of
the existing or proposed assignment, sublease or other agreement governing the
proposed Transfer; (iii) current financial statements of the proposed Transferee
certified by an officer, member, partner or owner thereof, and any such other
information as Landlord may then reasonably require, including without
limitation, audited financial statements for the previous three (3) most recent
consecutive fiscal years, if available; (iv) the Plans and Specifications
(defined below), if any; and (v) such other information as Landlord may then
reasonably require. Tenant shall give Landlord the Tenant's Notice by as
provided for in Section 29.9 below, addressed to Landlord at Landlord's Address
specified in the Basic Lease Information. Within twenty (20) days after
Landlord's receipt of the Tenant's Notice (the "Landlord Response Period")
Landlord shall notify tenant, in writing, of its determination with respect to
such

                                       10
<PAGE>   24

requested proposed Transfer and the election to recapture as set forth in
Section 14.5 below, if applicable. If Landlord does not elect to recapture
pursuant to the provisions of Section 14.5 hereof and Landlord does consent to
the requested proposed Transfer, Tenant may thereafter assign its interests in
and to this Lease or sublease all or a portion of the Premises to the same party
and on the same terms as set forth in the Tenant's Notice. If Landlord fails to
respond to Tenant's Notice within Landlord's Response Period, then, after Tenant
delivers to Landlord ten (10) days' written notice (the "Second Response
Period") and Landlord fails to respond thereto prior to the end of the Second
Response Period, the proposed Transfer shall then be deemed approved by
Landlord.

        14.3 CRITERIA FOR CONSENT: Tenant acknowledges and agrees that, among
other circumstances for which Landlord could reasonably withhold consent to a
proposed Transfer, it shall be reasonable for Landlord to withhold its consent
where (a) Tenant is or has been in default of its obligations under this Lease
beyond applicable notice and cure periods, (b) the use to be made of the
Premises by the proposed Transferee is prohibited under this Lease or differs
from the uses permitted under this Lease, (c) the proposed Transferee or its
business is subject to compliance with additional requirements of the ADA beyond
those requirements which are applicable to Tenant, unless the proposed
Transferee shall (1) first deliver plans and specifications for complying with
such additional requirements ( the "Plans and Specifications") and obtain
Landlord's written consent thereto, and (2) comply with all Landlord's
reasonable conditions contained in such consent, (d) the proposed Transferee
does not intend to occupy the majority of the Premises assigned or sublet to it,
(e) Landlord reasonably disapproves of the proposed Transferee's business
operating ability or history, reputation or creditworthiness or the character of
the business to be conducted by the proposed Transferee at the Premises, (f) the
proposed Transferee is a governmental agency or unit or an existing tenant in
the Project (unless Landlord has no comparable space for Lease), (g) the
proposed Transfer would violate any "exclusive" rights of any occupants in the
Project or cause Landlord to violate another agreement or obligation to which
Landlord is a party or otherwise subject, (h) Landlord or Landlord's agent has
shown space in the Project to the proposed Transferee or responded to any
inquiries from the proposed Transferee or the proposed Transferee's agent
concerning availability of space in the Project, at any time within the
preceding six (6) months, (i) Landlord otherwise determines that the proposed
Transfer would have the effect of decreasing the value of the Building or the
Project, or increasing the expenses associated with operating, maintaining and
repairing the Project, (j) the proposed Transferee (i) occupies space in the
Building at the time of the request for consent, (ii) is in active negotiations
with Landlord to lease space in the Building at such time, or (iii) has
negotiated with Landlord during the 6 month period immediately preceding the
Tenant's Notice for available space, (k) 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 negotiated 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 (l) 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 reasonably acceptable
to Landlord.

        14.4 EFFECTIVENESS OF TRANSFER AND CONTINUING OBLIGATIONS: Prior to the
date on which any permitted Transfer becomes effective, Tenant shall deliver to
Landlord (i) a counterpart of the fully executed Transfer document, (ii) an
executed Hazardous Materials Disclosure Certificate substantially in the form of
exhibit E hereto (the "Transferee HazMat Certificate"), and (iii) Landlord's
standard form of Consent to Assignment or Consent to Sublease, as applicable,
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such consent instrument shall not release or discharge
the Transferee from its obligation to do so or from any liability as provided
herein. The voluntary, involuntary or other surrender of this Lease by Tenant,
or a mutual cancellation by Landlord and Tenant, shall not work a merger, and
any such surrender or cancellation shall, at the option of Landlord, either
terminate all or any existing subleases or operate as an assignment to Landlord
of any or all of such subleases. Each permitted Transferee shall, to the extent
of the obligations of such Transferee under its assignment or subleasing
documents, assume and be deemed to assume this Lease and shall be and remain
liable jointly and severally with Tenant for payment of Rent and for the due
performance of, and compliance with all the terms, covenants, conditions and
agreements herein contained on Tenant's part to be performed or complied with,
for the Term of this Lease. No Transfer shall affect the continuing primary
liability of Tenant (which, following assignment, shall be joint and several
with the assignee), and Tenant shall not be released from performing any of the
terms, covenants and conditions of this Lease. An assignee of Tenant shall
become directly liable to Landlord for all obligations of Tenant hereunder, but
no Transfer by Tenant shall relieve Tenant of any obligations or liability under
this Lease whether occurring before or after such consent, assignment,
subletting or other Transfer. The acceptance of any or all of the Rent by
Landlord from any other person (whether or not such person is an occupant of the
Premises) shall not be deemed to be a waiver by Landlord of any provision of
this Lease or to be a consent to any Transfer. For purposes hereof, if Tenant is
a business entity, direct or indirect transfer of fifty percent (50%) or more of
the ownership interest of the entity (whether in a single transaction or in the
aggregate through more than one transaction) shall be deemed a Transfer and
shall be subject to all the provisions hereof. Any and all options, first rights
of refusal, tenant improvement allowances and other similar rights granted to
Tenant in this lease, if any, shall not be assignable by Tenant unless expressly
authorized in writing by Landlord. Any transfer made without Landlord's prior
written consent, shall, at Landlord's option, be null, void and of no effect,
and shall, at Landlord's option, constitute a material default by Tenant of this
Lease. As Additional Rent hereunder, Tenant shall pay to Landlord, a fee in the
amount of five hundred dollars ($500) plus Tenant shall promptly reimburse
Landlord for actual legal and other expenses incurred by Landlord in connection
with any actual or proposed Transfer.

        14.5 RECAPTURE: Except for a transfer to an Affiliate (as defined in
Section 14.8 below), if the Transfer (i) by itself or taken together with then
existing or pending Transfers covers or totals, as the case may be, more than
fifty percent (50%) of the rentable square feet of the Premises, and (ii) is for
a term which by itself or taken together with then existing or pending Transfers
is for the period then remaining in the Term of this Lease as of the time of the
Proposed Effective Date, then Landlord shall have the right, to be exercised by
giving written notice to Tenant, to recapture the Subject Space described in the
Tenant's Notice. If such recapture notice is given, it shall serve to terminate
this Lease with respect to the proposed Subject Space, or, if the proposed
Subject Space covers all the Premises, it shall serve to terminate the entire
Term of this Lease, in either case, as of the Proposed Effective Date. However,
no termination of this Lease with respect to part or all of the Premises shall
become effective without the prior written consent, where necessary, of the
holder of each deed of trust encumbering the Premises or any other portion of
the Project. If this lease is terminated pursuant to the foregoing provisions
with respect to less than the entire Premises, the Rent shall be adjusted on the
basis of the proportion of rentable square feet retained by Tenant to the
rentable square feet originally demised, Tenant's Share shall be decreased
accordingly, the amount of the Security Deposit and Letter of Credit shall be
equitably reduced and Tenant shall thereafter be relieved of all liabilities for
the recapture space, and this Lease as so amended shall continue thereafter in
full force and effect.

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<PAGE>   25
        14.6 TRANSFER PREMIUM: If Landlord consents to a Transfer, as a
condition thereto which the Tenant hereby agrees is reasonable, Tenant shall pay
to Landlord, as Additional Rent any "Transfer Premium" received by Tenant from
such Transferee. The term "Transfer Premium" shall mean all rent, additional
rent and other consideration payable by such Transferee which either Initially
or over the term of the Transfer exceeds the Rent or pro rata portion of the
Rent, as the case may be, for such space reserved in the Lease. Tenant shall pay
the Landlord monthly, as Additional Rent, at the same time as the monthly
installments of Rent are payable hereunder, seventy-five percent (75%) of the
Transfer Premium after deduction of actual reasonable commission costs only.

        14.7 WAIVER: Notwithstanding any Transfer, or any indulgences, waivers
or extensions of time granted by Landlord to any Transferee, or failure by
Landlord to take action against any Transferee, Tenant agrees that Landlord may,
at its option, proceed against Tenant without having taken action against or
joined such Transferee, except that Tenant shall have the benefit of any
indulgences, waivers and extensions of time granted to any such Transferee.

        14.8 AFFILIATED COMPANIES/RESTRUCTURING OF BUSINESS ORGANIZATION: The
assignment or subletting by Tenant of all or any portion of this Lease or the
Premises to (i) a parent or subsidiary of Tenant, or (ii) any person or entity
which controls, is controlled by or under the common control with Tenant, or
(iii) any entity which purchases all or substantially all of the assets of
Tenant, or (iv) any entity into which Tenant is merged or consolidated (all such
persons or entities described in clauses (i), (ii), (iii) and (iv) being
sometimes herein referred to as "Affiliates") shall not be deemed a Transfer
under the Section 14 (hence, the aforesaid events shall not be subject to
obtaining Landlord's prior consent; Landlord shall not have any right to receive
any Transfer Premium in connection therewith; and Landlord shall not have the
recapture rights described in Section 14.5 above), provided in all instances
that:

               14.8.1 any such Affiliate was not formed as a subterfuge to avoid
the obligations of this Section 14;

               14.8.2 Tenant shall give Landlord prior notice of any such
assignment or sublease to an Affiliate;

               14.8.3 the successor of Tenant has as of the effective date of
any such assignment or sublease a tangible net worth and net assets, in the
aggregate, computed in accordance with generally accepted accounting principles
(but excluding goodwill as an asset), which is sufficient to meet the
obligations of Tenant under this Lease, as reasonably determined by Landlord;

               14.8.4 any such assignment or sublease shall be subject to all of
the terms and provisions of this Lease, and such assignee or sublessee (i.e. any
such Affiliate), other than in the case of an Affiliate resulting from a merger
or consolidation as described in Section 14.8(iv) above, shall assume, in a
written document reasonably satisfactory to Landlord and delivered to Landlord
upon or prior to the effective date of such assignment or sublease, all the
obligations of Tenant under this Lease; and

               14.8.5 Tenant and any guarantor shall remain fully liable for all
obligations to be performed by Tenant under this Lease, except in the case of an
Affiliate resulting from the acquisition of all or substantially all of the
assets of Tenant described in Section 14.8(iii) or from a merger or
consolidation as described in Section 14.8(iv) above.

15.     SUBORDINATION

To the fullest extent permitted by law, this Lease, the rights of Tenant under
this Lease and Tenant's leasehold interest shall be subject and subordinate at
all times to: (i) all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building, the Lot, or any other portion of
the Project, and (ii) the lien of any mortgage or deed of trust which may now or
hereafter exist for which the Building, the Lot, ground leases or underlying
leases, any other portion of the Project or Landlord's interest or estate in any
of said items is specified as security. Tenant hereby acknowledges that as of
the date on which Landlord and Tenant execute this Lease there is a deed of
trust encumbering, and in force against, the Premises (i.e. the Building) in
favor of U.S. Bank National Association (the "Current Lender"). If Tenant so
requests, within a reasonable period after the parties execute this Lease but in
no event later than forty-five (45) days after such request, Landlord shall
cause the Current Lender to execute a subordination, non-disturbance and
attornment agreement substantially in the form of Exhibit I attached hereto,
entitled "Subordination, Non-Disturbance and Attornment Agreement." If Landlord
at any time during the Term of the Lease causes the Premises and the Building to
be encumbered by a new deed of trust or mortgage pursuant to which the
beneficiary of such deed of trust or mortgage is a party or entity other than
the Current Lender, the parties acknowledge and agree that the form of any
non-disturbance and attornment agreement that may be requested to be executed
and delivered by Tenant in connection therewith will not be the "Non-Disturbance
and Attornment Agreement" attached to the Lease as Exhibit I, but such agreement
will be a commercially reasonable form which will not adversely affect Tenants
rights hereunder. Notwithstanding the foregoing, Landlord or any such ground
lessor, mortgagee, or any beneficiary shall have the right to require this Lease
be superior to any such ground leases or underlying leases or any such liens,
mortgage or deed of trust. If any ground lease or underlying lease terminates
for any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall attorn to and become
the Tenant of the successor in interest to Landlord, provided such successor in
interest will not disturb Tenant's use, occupancy or quiet enjoyment of the
Premises if Tenant is not in material default of the terms and provisions of
this Lease beyond any applicable notice and cure period. The successor in
interest to Landlord following foreclosure, sale or deed in lieu thereof shall
not be: (a) liable for any act or omission of any prior lessor or with respect
to events occurring prior to acquisition of ownership; (b) subject to any
offsets or defenses which Tenant might have against any prior lessor, (c) bound
by prepayment of more than one (1) month's Rent, except in those instances when
Tenant pays Rent quarterly in advance pursuant to Section 8 hereof, then not
more than three months' Rent; or (d) liable to Tenant for any Security Deposit
not actually received by such successor in interest to the extent any portion or
all of such Security Deposit has not already been forfeited by, or refunded to,
Tenant. Landlord shall be liable to Tenant for all or any portion of the
Security Deposit not forfeited by, or refunded to Tenant, until and unless
Landlord transfers such Security Deposit to the successor in interest. Tenant
covenants and agrees to execute (and acknowledge if required by Landlord, any
lender or ground lessor) and deliver, within ten (10) days of a demand or
request by Landlord and in the form reasonably requested by Landlord, ground
lessor, mortgagee or beneficiary, any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground leases
or underlying leases or the lien of any such mortgage or deed of trust.

                                       12
<PAGE>   26

16.     RIGHT OF ENTRY

Landlord and its agents shall have the right to enter the Premises at all
reasonable times, upon reasonable prior notice, for purposes of inspection,
exhibition, posting of notices, investigation, replacements, repair, maintenance
and alteration. It is further agreed that Landlord shall have the right to use
any and all means Landlord deems necessary to enter the Premises in an
emergency. Landlord shall have the right to place "for rent" or "for lease"
signs on the outside of the Premises, the Building and in the Common Areas
during the last twelve (12) months of the Lease only. Landlord shall also have
the right to place "for sale" signs on the outside of the Building and in the
Common Areas. Tenant hereby waives any Claim from damages or for any injury or
inconvenience to or interference with Tenant's business, or any other loss
occasioned thereby except for any Claim for any of the foregoing arising out of
the gross negligence or willful misconduct of Landlord or its authorized
representatives.

17.     ESTOPPEL CERTIFICATE

Tenant shall execute (and acknowledge if required by any lender or ground
lessor) and deliver to Landlord, within ten (10) days after Landlord provides
such to Tenant, a statement in writing certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification), the date to which the Rent and other charges are paid in advance,
if any, acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults as are
claimed, and such other matters as Landlord may reasonably require. Any such
statement may be conclusively relied upon by Landlord and any prospective
purchaser or encumbrancer of the Building or other portions of the Project.
Tenant's failure to deliver such statement within such time shall be conclusive
upon the Tenant that (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord; (b) there are no uncured
defaults in Landlord's performance; and (c) not more than one month's Rent has
been paid in advance, except in those instances when Tenant pays Rent quarterly
in advance pursuant to Section 8 hereof, then not more than three months' Rent
has been paid in advance.

18.     TENANT'S DEFAULT

The occurrence of any one or more of the following events shall, at Landlord's
option, constitute a material default by Tenant of the provisions of this Lease:

        18.1 The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant which would cause any insurance policy to be invalidated or
otherwise lapse;

        18.2 The failure by Tenant to make any payment of Rent, Additional Rent
or any other payment required hereunder, or to fulfill any obligation under this
Lease which endangers or threatens imminent damage or injury to life or
property, within five (5) business days of receipt of written notice that such
amount is past due or of such failure to fulfill any obligation;

        18.3 The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within (i)
thirty (30) days of the date on which Landlord delivers written notice of such
failure to Tenant for all failures other than with respect to (a) Hazardous
Materials (defined in Section 27 hereof), (b) Tenant making the repairs,
maintenance and replacements required under the provisions of Section 11.1
hereof, which endangers or threatens imminent damage or injury to life or
property, or (c) the timely delivery by Tenant of a subordination,
non-disturbance and attornment agreement (an "SNDA"), a counterpart of a fully
executed Transfer document and a consent thereto (collectively, the "Transfer
Documents"), an estoppel certificate and insurance certificates, (ii) ten (10)
days of the date on which Landlord delivers written notice of such failure to
Tenant for all failures in any way related to Hazardous Materials or Tenant
failing to timely make the repairs, maintenance or replacements required by
Section 11.1 which endangers or threatens imminent damage or injury to life or
property, and (iii) the time period, if any, specified in the applicable
sections of this Lease with respect to subordination, assignment and sublease,
estoppel certificates and insurance. However, Tenant shall not be in default of
its obligations hereunder if such failure (other than any failure of Tenant to
timely and properly make the repairs, maintenance, or replacements required by
Section 11.1 which endangers or threatens imminent damage or injury to life or
property, or timely deliver an SNDA, the Transfer Documents, an estoppel
certificate or insurance certificates, for which no additional cure period shall
be given to Tenant) cannot reasonably be cured within such thirty (30) or ten
(10) day period, as applicable, and Tenant promptly commences, and thereafter
diligently proceeds with same to completion, all actions necessary to cure such
failure as soon as is reasonably possible, but in no event shall the completion
of such cure be later than ninety (90) days after the date on which Landlord
delivers to Tenant written notice of such failure, unless Landlord, acting
reasonably and in good faith, otherwise expressly agrees in writing to a longer
period of time based upon the circumstances relating to such failure as well as
the nature of the failure and the nature of the actions necessary to cure such
failure; or

        18.4 The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets, Tenant taking
any action toward the dissolution or winding up of Tenant's affairs, the
cessation or suspension of Tenant's use of the Premises, or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold.

19.     REMEDIES FOR TENANT'S DEFAULT

        19.1 LANDLORD'S RIGHTS: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any of Tenant's
Property left on the Premises to also have been abandoned. No reentry or taking
possession of the Premises by Landlord pursuant to this Section 19 shall be
construed as an election to

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<PAGE>   27

terminate this Lease unless a written notice of such intention is given to
Tenant. If Landlord relets the Premises or any portion thereof, Tenant shall be
liable immediately to Landlord for all costs Landlord incurs in reletting the
Premises or any part thereof, including, without limitation, broker's
commissions, expenses of cleaning, redecorating, and further improving the
Premises and other similar costs (collectively, the "Reletting Costs"). Any and
all of the Reletting Costs shall be fully chargeable to Tenant and shall not be
prorated or otherwise amortized in relation to any new lease for the Premises or
any portion thereof. Reletting may be for a period shorter or longer than the
remaining term of this Lease. In no event shall Tenant be entitled to any excess
rent received by Landlord. No act by Landlord other than giving written notice
to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the
Premises or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession. So long as this Lease is not terminated, Landlord
shall have the right to remedy any default of Tenant, to maintain or improve the
Premises, to cause a receiver to be appointed to administer the Premises and new
or existing subleases and to add to the Rent payable hereunder all of Landlord's
reasonable costs in so doing, with interest at the maximum rate permitted by law
from the date of such expenditure.

        19.2 DAMAGES RECOVERABLE: If Tenant breaches this Lease and abandons the
Premises before the end of the Term, or if Tenant's right to possession is
terminated by Landlord because of a breach or default under this Lease, then in
either such case, Landlord may recover from Tenant all damages suffered by
Landlord as a result of Tenant's failure to perform its obligations hereunder,
including without limitation, the unamortized cost of any Tenant improvements
constructed by or on behalf of Tenant pursuant to Exhibit B hereto to the extent
Landlord has paid for such improvements, the unamortized portion of any broker's
or leasing agent's commission incurred with respect to the leasing of the
Premises to Tenant for the balance of the Term of the Lease remaining after the
date on which Tenant is in default of its obligations hereunder, and all
Reletting Costs, and the worth at the time of the award (computed in accordance
with paragraph (3) of Subdivision (a) of Section 1951.2 of the California Civil
Code) of the amount by which the Rent then unpaid hereunder for the balance of
the Lease Term exceeds the amount of such loss of Rent for the same period which
Tenant proves could be reasonably avoided by Landlord and in such case, Landlord
prior to the award, may relet the Premises for the purpose of mitigating damages
suffered by Landlord because of Tenant's failure to perform its obligations
hereunder; provided, however, that even though Tenant has abandoned the Premises
following such breach, this Lease shall nevertheless continue in full force and
effect for as long as Landlord does not terminate Tenant's right of possession,
and until such termination, Landlord shall have the remedy described in Section
1951.4 of the California Civil Code (Landlord may continue this Lease in effect
after Tenant's breach and abandonment and recover Rent as it becomes due, if
Tenant has the right to sublet or assign, subject only to reasonable
limitations) and may enforce all its rights and remedies under this Lease,
including the right to recover the Rent from Tenant as it becomes due hereunder.
The "worth at the time of the award" within the meaning of Subparagraphs (a)(1)
and (a)(2) of Section 1951.2 of the California Civil Code shall be computed by
allowing interest at the rate of ten percent (10%) per annum. Tenant waives
redemption or relief from forfeiture under California Code of Civil Procedure
Sections 1174 and 1179 (or any successor or substitute statute), or under any
other present or future law, in the event Tenant is evicted or Landlord takes
possession of the Premises by reason of any default of Tenant hereunder, Tenant
hereby waives for Tenant and for all those claiming under Tenant all rights now
or hereafter existing to redeem by order or judgment of any court or by any
legal process or writ, Tenant's right of occupancy of the Premises after any
termination of this Lease.

        19.3 RIGHTS AND REMEDIES CUMULATIVE: The foregoing rights and remedies
of Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditors' rights generally. In
addition to all remedies set forth above, if Tenant materially defaults under
this Lease, all options granted to Tenant hereunder shall automatically
terminate, unless otherwise expressly agreed to in writing by Landlord.

20.     HOLDING OVER

If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent shall be payable at a monthly
rate equal to (a) for the first month of any such holding over, one hundred
fifty percent (150%), and (b) for any subsequent such holding over, two hundred
percent (200%), in either case, of the greater of (i) the Base Rent applicable
during the last rental period of the Lease Term under this Lease or (ii) the
fair market rental rate for the Premises as of the commencement of such holdover
period. Such month-to-month tenancy shall be subject to every other term,
covenant and agreement contained herein. Landlord hereby expressly reserves the
right to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease upon the expiration or other termination of this Lease.
The provisions of this Section 20 shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided herein or at law. If
Tenant fails to surrender the Premises upon the termination or expiration of
this Lease, in addition to any other liabilities to Landlord accruing therefrom,
Tenant shall protect, defend, indemnify and hold Landlord harmless from all
Claims resulting from such failure.

21.     LANDLORD'S DEFAULT

Landlord shall not be considered in default of this Lease unless Landlord fails
within a reasonable time to perform an obligation required to be performed by
Landlord hereunder. For purposes hereof, a reasonable time shall not be less
than thirty (30) days after receipt by Landlord of written notice specifying the
nature of the obligation Landlord has not performed; provided, however, that if
the nature of Landlord's obligation is such that more than thirty (30) days,
after receipt of written notice, is reasonably necessary for its performance,
then Landlord shall not be in default of this Lease if performance of such
obligation is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.

22.     PARKING

Tenant may use the number of non-designated and non-exclusive parking spaces
specified in the Basic Lease Information. Landlord shall exercise reasonable
efforts to ensure that such spaces are available to Tenant for its use, but
Landlord shall not be required to enforce Tenant's right to use the same. In no
event shall Tenant or any of Tenant's Representatives park or permit any parking
of vehicles overnight.

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<PAGE>   28

23.     TRANSFER OF LANDLORD'S INTEREST

If there is any sale or other transfer of the Premises or any other portion of
the Project by Landlord or any of Landlord's interest therein, Landlord shall
automatically be entirely released from all liability under this Lease and
Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of such transfer provided such
transferee agrees in writing to perform the obligations of Landlord hereunder
from and after the date of such transfer. A ground lease or similar long term
lease by Landlord of the entire Building or Lot, of which the Premises are a
part, shall be deemed a sale within the meaning of this Section 23. Tenant
agrees to attorn to such new owner provided such new owner does not disturb
Tenant's use, occupancy or quiet enjoyment of the Premises so long as Tenant is
not in material default of any of the provisions of this Lease.

24.     WAIVER

No delay or omission in the exercise of any right or remedy of either party on
any default by the other party shall impair such a right or remedy or be
construed as a waiver. The subsequent acceptance of Rent by Landlord after
default by Tenant of this Lease shall not be deemed a waiver of such default,
other than a waiver of timely payment for the particular Rent payment involved,
and shall not prevent Landlord from maintaining an unlawful detainer or other
action based on such breach. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly Rent and other sums due hereunder shall be deemed
to be other than on account of the earliest Rent or other sums due, nor shall
any endorsement or statement on any check or accompanying any check or payment
be deemed an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rent or other sum or pursue any other remedy provided in this Lease. No failure,
partial exercise or delay on the part of the Landlord in exercising any right,
power or privilege hereunder shall operate as a waiver thereof.

25.     CASUALTY DAMAGE

        25.1 CASUALTY. If the Premises or any part (excluding any of Tenant's
Property, any Tenant Improvements and any Alterations installed by or for the
benefit of Tenant (collectively, the "Tenant's FF&E")] shall be damaged or
destroyed by fire or other casualty, Tenant shall give immediate written notice
thereof to Landlord. Within forty-five (45) days after receipt by Landlord of
such notice, Landlord shall notify Tenant, in writing, whether the necessary
repairs can reasonably be made, as reasonably determined by Landlord: (a) within
one hundred eighty (180) days; (b) in more than one hundred eighty (180) days
but in less than two hundred seventy (270) days; or (c) in more than two
hundred seventy (270) days, from the date of such notice.

               25.1.1 MINOR INSURED DAMAGE. If the Premises (other than the
Tenant's FF&E) are damaged only to such extent that repairs, rebuilding and/or
restoration can be reasonably completed within one hundred eighty (180) days,
this Lease shall not terminate and, provided that insurance proceeds are
available and paid to Landlord to fully repair the damage and/or Tenant
otherwise voluntarily contributes any shortfall thereof to Landlord, Landlord
shall repair the Premises to substantially the same condition that existed prior
to the occurrence of such casualty, except Landlord shall not be required to
rebuild, repair, or replace any of Tenant's FF&E. The Rent payable hereunder
shall be abated proportionately from the date of such damage until any and all
repairs required herein to be made by Landlord are substantially completed but
such abatement shall only be to the extent of the portion of the Premises which
is actually rendered unusable and unfit for occupancy and only during the time
Tenant is not actually using same for Tenants customary operations,

               25.1.2 INSURED DAMAGE REQUIRING MORE THAN 180 DAYS TO REPAIR. If
the Premises (other than the Tenant's FF&E) are damaged only to such extent that
repairs, rebuilding and/or restoration can be reasonably completed, as
reasonably determined by Landlord, in more than one hundred eighty (180) days
but in less than two hundred seventy (270) days, then Landlord shall have the
option of: (a) terminating the Lease effective upon making the determination of
the extent of such damage, in which event the Rent shall be abated from the date
of the occurrence of such damage, provided Tenant diligently proceeds to and
expeditiously vacates the Premises (but, in all events Tenant shall diligently
proceed to expeditiously vacate the Premises); or (b) electing to repair the
Premises to substantially the same condition that existed prior to the
occurrence of such casualty, provided insurance proceeds are available and paid
to Landlord and Tenant otherwise voluntarily contributes any shortfall thereof
to Landlord to fully repair the damage (except that Landlord shall not be
required to rebuild, repair, or replace any of Tenant's FF&E). The Rent payable
hereunder shall be abated proportionately from the date of such damage until any
and all repairs required herein to be made by Landlord are substantially
completed but such abatement shall only be to the extent of the portion of the
Premises which is actually rendered unusable and unfit for occupancy and only
during the time Tenant is not actually using same for Tenant's customary
operations. If Landlord fails to substantially complete such repairs within two
hundred seventy (270) days after the date on which Landlord is notified by
Tenant of the occurrence of such casualty [such 270-day period to be extended
for delays caused by Tenant or any of Tenant's Representatives ("Tenant Delays")
or any force majeure events, which events shall include, but not be limited to,
acts or events beyond Landlord's and/or its contractors' control, acts of God,
earthquakes, strikes, lockouts, riots, boycotts, casualties not caused by
landlord or Tenant, discontinuance of any utility or other service required for
performance of the work, moratoriums, governmental delays in issuing permits,
governmental agencies and weather, and the lack of availability or shortage of
materials ("Force Majeure Delays")], Tenant may within ten (10) business days
after expiration of such two hundred seventy (270) day period (as same may be
extended), terminate this Lease by delivering written notice to Landlord as
Tenant's exclusive remedy, whereupon all rights of Tenant hereunder shall cease
and terminate ten (10) business days after Landlord's receipt of such notice,
and Tenant shall diligently proceed to expeditiously vacate the Premises.

               25.1.3 MAJOR INSURED DAMAGE. If the Premises (other than the
Tenant's FF&E) are damaged to such extent that repairs, rebuilding and/or
restoration cannot be reasonably completed, as reasonably determined by
Landlord, within two hundred seventy (270) days, then either Landlord or Tenant
may terminate this Lease by giving written notice within twenty (20) days after
notice from Landlord regarding the time period of repair. If either party
notifies the other of its intention to so terminate the Lease, then this Lease
shall terminate and the Rent shall be abated from the date of the occurrence of
such damage, and Tenant shall diligently proceed to expeditiously vacate the
Premises. If neither party elects to terminate this Lease, Landlord shall
promptly commence and diligently prosecute to completion the repairs to the
Premises, provided insurance proceeds are available and paid to Landlord to
fully repair the damage or Tenant voluntarily contributes any shortfall thereof
to Landlord (except that Landlord shall not be required to rebuild, repair, or
replace any of Tenant's FF&E). During the time when Landlord is prosecuting such
repairs to substantial completion, the Rent payable hereunder shall be abated
proportionately from the date of such damage until any and all repairs required
herein to be made by Landlord are substantially completed but such abatement
shall only be to the extent of the portion of the Premises which Is actually
rendered unusable and unfit for occupancy and only during

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<PAGE>   29

the time Tenant is not actually using same for Tenant's customary operations. If
Landlord fails to substantially complete such repairs within twelve (12) months
after the date on which Landlord is notified by Tenant of the occurrence of such
casualty [such 12-month period to be extended for Tenant Delays or any Force
Majeure Delays], Tenant may within ten (10) business days after expiration of
such 12-month period (as same may be extended), terminate this Lease by
delivering written notice to Landlord as Tenant's exclusive remedy, whereupon
all rights of Tenant hereunder shall cease and terminate ten (10) business days
after Landlord's receipt of such notice and Tenant shall diligently proceed to
expeditiously vacate the Premises.

               25.1.4 DAMAGE NEAR END OF TERM. Notwithstanding anything to the
contrary contained in this Lease except for the provisions of Section 25.3
below, if the Premises are substantially damaged or destroyed during the last
year of then applicable term of this Lease, either Landlord or Tenant may, at
their option, cancel and terminate this Lease by giving written notice to the
other party of its election to do so within thirty (30) days after receipt by
Landlord of notice from Tenant of the occurrence of such casualty, unless Tenant
renews the Lease, in which case Landlord shall not have the right to terminate.
If either party so elects to terminate this Lease, all rights of Tenant
hereunder shall cease and terminate ten (10) days after Tenant's receipt or
delivery of such notice, as applicable, and Tenant shall immediately vacate the
Premises and surrender possession thereof to Landlord.

        25.2 DEDUCTIBLE AND UNINSURED CASUALTY. Tenant shall be responsible for
and shall pay to Landlord, as Additional Rent, the deductible amounts under the
insurance policies obtained by Landlord and Tenant under this Lease if the
proceeds of which are used to repair the Premises as contemplated in this
Section 25. Notwithstanding the foregoing, if other portions of the Building are
also damaged by said casualty and insurance proceeds are payable therefor, then
Tenant shall only pay Tenant's proportionate share of the deductible as
reasonably determined by Landlord. If any portion of the Premises is damaged and
is not fully covered by the aggregate of insurance proceeds received by Landlord
and any applicable deductible, and Tenant does not voluntarily contribute any
shortfall thereof to Landlord, or if the holder of any indebtedness secured by
the Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord or Tenant shall have the right to terminate this
Lease by delivering written notice of termination to the other party within
thirty (30) days after the date of notice to Tenant of any such event, whereupon
all rights and obligations of Tenant shall cease and terminate hereunder, except
for those obligations expressly provided for in this Lease to survive such
termination of the Lease.

        25.3 TENANT'S FAULT AND LENDER'S RIGHTS. Notwithstanding anything to the
contrary contained herein, but subject to the provisions of Section 12.5 above,
if the Premises (other than Tenant's FF&E) or any other portion of the Building
be damaged by fire or other casualty resulting from the intentional or negligent
acts or omissions of Tenant or any of Tenant's Representatives, (i) the Rent
shall not be diminished during the repair of such damage, (ii) Tenant shall not
have any right to terminate this Lease due to the occurrence of such casualty or
damage, and (iii) Tenant shall be liable to Landlord for the cost and expense of
the repair and restoration of all or any portion of the Budding caused thereby
(including, without limitation, any deductible) to the extent such cost and
expense is not covered by insurance proceeds. Notwithstanding anything to the
contrary contained herein, if the holder of any indebtedness secured by the
Premises or any other portion of the Project requires that the insurance
proceeds be applied to such indebtedness, then either Tenant or Landlord shall
have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of written notice
to the other of any such event, whereupon all rights and obligations of the
other shall cease and terminate hereunder, except for those obligations
expressly provided for in this Lease to survive such termination of the Lease.

        25.4 TENANT'S WAIVER. Landlord shall not be liable for any inconvenience
or annoyance to Tenant, injury to the business of Tenant, loss of use of any
part of the Premises by Tenant or loss of Tenant's Property, resulting in any
way from such damage, destruction or the repair thereof, except that, Landlord
shall allow Tenant a fair diminution of Rent during the time and to the extent
the Premises are actually unusable and unfit for occupancy as specifically
provided above in this Section 25. With respect to any damage or destruction
which Landlord is obligated to repair or may elect to repair, Tenant hereby
waives all rights to terminate this Lease or offset any amounts against Rent
pursuant to rights accorded Tenant by any law currently existing or hereafter
enacted, including but not limited to, all rights pursuant to the provisions of
Sections 1932(2.), 1933(4.), 1941 and 1942 of the California Civil Code, as the
same may be amended or supplemented from time to time.

26.     CONDEMNATION

If a substantial portion of the Premises is condemned by eminent domain,
inversely condemned or sold in lieu of condemnation for any public or
quasi-public use or purpose ("Condemned") such that Tenant reasonably determines
that it cannot use the remainder portion for the conduct of its business such
that it was prior to the event, then Tenant or Landlord may terminate this Lease
as of the date when physical possession of the Premises is taken and title vests
in such condemning authority, and Rent shall be adjusted to the date of
termination. Tenant shall not because of such condemnation assert any claim
against Landlord or the condemning authority for any compensation because of
such condemnation, and Landlord shall be entitled to receive the entire amount
of any award without deduction for any estate of interest or other interest of
Tenant; provided, however, the foregoing provisions shall not preclude Tenant,
at Tenant's sole cost and expense, from obtaining any separate award to Tenant
for loss of or damage to Tenant's Property or for damages for cessation or
interruption of Tenant's business provided such award is separate from
Landlord's award and provided further such separate award does not diminish nor
otherwise impair the award otherwise payable to Landlord. In addition to the
foregoing, Tenant shall be entitled to seek compensation for the relocation
costs recoverable by Tenant pursuant to the provisions of California Government
Code Section 7262. If neither party elects to terminate this Lease, Landlord
shall, if necessary, promptly proceed to restore the Premises or the Building,
as applicable, to substantially its same condition prior to such partial
condemnation, allowing for the reasonable effects of such partial condemnation,
and a proportionate allowance shall be made to Tenant, as solely determined by
Landlord, for the Rent corresponding to the time during which, and to the part
of the Premises of which, Tenant is deprived on account of such partial
condemnation and restoration Landlord shall not be required to spend funds for
restoration in excess of the amount received by Landlord as compensation
awarded.

27.     ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS

        27.1 HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE: Prior to executing this
Lease, Tenant has delivered to Landlord Tenant's executed initial Hazardous
Materials Disclosure Certificate (the "Initial HazMat Certificate"), a copy of
which is attached hereto as Exhibit E. Tenant covenants, represents and warrants
to Landlord that the information in the Initial HazMat Certificate is true and
correct and accurately describes the use(s) of Hazardous Materials which will be
made and/or used on the Premises by Tenant. Tenant shall, commencing with the
date which is one year from the

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<PAGE>   30

Commencement Date and continuing every year thereafter, deliver to Landlord, an
executed Hazardous Materials Disclosure Certificate ("the "HazMat Certificate")
describing Tenant's then present use of Hazardous Materials on the Premises, and
any other reasonably necessary documents as requested by Landlord. The HazMat
Certificates required hereunder shall be in substantially the form attached
hereto as Exhibit E.

        27.2 DEFINITION OF HAZARDOUS MATERIALS: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos
and asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyl's; (e) radioactive materials; (f) lead and
lead-containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Project or any
surrounding property; or poses or threatens to pose a hazard to the health and
safety of persons on the Premises, any other portion of the Project or any
surrounding property. For purposes of this Lease, the term "Hazardous Materials"
shall not include nominal amounts of ordinary household cleaners, office
supplies and janitorial supplies which are not actionable under any
Environmental Laws.

        27.3 PROHIBITION; ENVIRONMENTAL LAWS: Tenant shall not be entitled to
use or store any Hazardous Materials on, in, or about any portion of the
Premises and the Project without, in each instance, obtaining Landlord's prior
written consent thereto. If Landlord, in its sole discretion, consents to any
such usage or storage, then Tenant shall be permitted to use and/or store only
those Hazardous Materials that are necessary for Tenant's business and to the
extent disclosed in the HazMat Certificate and as expressly approved by Landlord
in writing. Any such usage and storage may only be to the extent of the
quantities of Hazardous Materials as specified in the then applicable HazMat
Certificate as expressly approved by Landlord. In all events such usage and
storage must at all times be in full compliance with any and all local, state
and federal environmental, health and/or safety-related laws, statutes, orders,
standards, courts' decisions, ordinances, rules and regulations (as interpreted
by judicial and administrative decisions), decrees, directives, guidelines,
permits or permit conditions, currently existing and as amended, enacted, issued
or adopted in the future which are or become applicable to Tenant or all or any
portion of the Premises (collectively, the "Environmental Laws"). Tenant agrees
that any changes to the type and/or quantities of Hazardous Materials specified
in the most recent HazMat Certificate may be implemented only with the prior
written consent of Landlord, which consent may be given or withheld in
Landlord's sole discretion. Tenant shall not be entitled nor permitted to
install any tanks under, on or about the Premises for the storage of Hazardous
Materials without the express written consent of Landlord, which may be given or
withheld in Landlord's sole discretion; provided, however, that Landlord hereby
approves of Tenant constructing and maintaining outdoors immediately adjacent to
the Premises, in a location to be approved by Landlord, such approval not to be
unreasonably withheld, an approximately 1000-gallon diesel fuel above-ground
storage tank for fueling of Tenant's emergency generator, such tank to be
constructed, maintained and used strictly in accordance with all terms and
provisions of this lease and in compliance with all applicable Environmental
Laws. Landlord shall have the right at all times during the Term of this Lease
to (i) inspect the Premises, (ii) conduct tests and investigations to determine
whether Tenant is in compliance with the provisions of this Section 27 or to
determine if Hazardous Materials are present in, on or about the Project, and
(iii) request lists of all Hazardous Materials used, stored or otherwise located
on, under or about any portion of the Premises and/or the Common Areas, The cost
of all such inspections, tests and investigations shall be borne by Tenant, if
Landlord reasonably determines that Tenant or any of Tenant's Representatives
are directly or indirectly responsible in any manner for any contamination
revealed by such inspections, tests and investigations. The aforementioned
rights granted herein to Landlord and its representatives shall not create (a) a
duty on Landlord's part to inspect, test, investigate, monitor or otherwise
observe the Premises or the activities of Tenant and Tenant's Representatives
with respect to Hazardous Materials, including without limitation, Tenant's
operation, use and any remediation related thereto, or (b) liability on the part
of Landlord and its representatives for Tenant's use, storage, disposal or
remediation of Hazardous Materials, it being understood that Tenant shall be
solely responsible for all liability in connection therewith.

        27.4 TENANT'S ENVIRONMENTAL OBLIGATIONS: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas; provided that Tenant has actual, implied or constructive knowledge
of such event(s). Tenant, at its sole cost and expense, covenants and warrants
to promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Project and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term effect on any portion of the Project.
Notwithstanding the foregoing, Tenant shall be entitled to respond immediately
to an emergency without first obtaining Landlord's prior written consent.
Tenant, at its sole cost and expense, shall conduct and perform, or cause to be
conducted and performed, all closures as required by any Environmental Laws or
any agencies or other governmental authorities having jurisdiction thereof. If
Tenant fails to so promptly investigate, clean up, remove, restore, provide
closure or otherwise so remediate, Landlord may, but without obligation to do
so, take any and all steps necessary to rectify the same and Tenant shall
promptly reimburse Landlord, upon demand, for all costs and expenses to Landlord
of performing investigation, clean up, removal, restoration, closure and
remediation work. All such work undertaken by Tenant, as required herein, shall
be performed in such a manner so as to enable Landlord to make full economic use
of the Premises and the other portions of the Project after the satisfactory
completion of such work.

        27.5 ENVIRONMENTAL INDEMNITY: In addition to Tenants obligations as set
forth hereinabove, Tenant agrees to, and shall, protect, indemnify, defend (with
counsel reasonably acceptable to Landlord) and hold Landlord and the other
Indemnitees harmless from and against any and all Claims (including, without
limitation, diminution in value of any portion of the Premises or the Project,
damages for the loss of or restriction an the use of rentable or usable space,
and from any adverse impact of Landlord's marketing of any space within the
Project) arising at any time during or after the Term of this Lease in
connection with or related to, directly or indirectly, the use, presence,
transportation, storage, disposal, migration, removal, spill, release or
discharge of Hazardous Materials on, in or about any portion of the Project as a
result (directly or indirectly) of the intentional or negligent acts or
omissions of Tenant or any of Tenant's Representatives. Neither the written
consent of Landlord to the presence, use or storage of Hazardous Materials in,
on, under or about any portion of the Project nor the strict compliance by
Tenant with all Environmental Laws shall excuse

                                       17
<PAGE>   31

Tenant from its obligations of indemnification pursuant hereto. Tenant shall not
be relieved of its indemnification obligations under the provisions of this
Section 27.5 due to Landlord's status as either an "owner" or "operator" under
any Environmental Laws.

        27.6 SURVIVAL: Tenant's obligations and liabilities pursuant to the
provisions of this Section 27 shall survive the expiration or earlier
termination of this Lease.

28.     FINANCIAL STATEMENTS

Tenant and any permitted Transferee, for the reliance of Landlord, any lender
holding or anticipated to acquire a lien upon any portion of the Project or any
prospective purchaser of any portion of the Project within ten (10) business
days after Landlord's request therefor, but not more often than once annually so
long as Tenant is not in material default of this Lease, shall deliver to
Landlord the then current audited financial statements of Tenant (including
interim periods following the end of the last fiscal year for which annual
statements are available). If audited financial statements have not been
prepared, Tenant and any permitted Transferee shall provide Landlord with
unaudited financial statements and such other information, the type and form of
which are acceptable to Landlord in Landlord's reasonable discretion, which
reflects the financial condition of Tenant and any permitted Transferee.

29.     GENERAL PROVISIONS:

        29.1 TIME. Time is of the essence in this Lease and with respect to each
and all of its provisions in which performance is a factor.

        29.2 SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.

        29.3 RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof.

        29.4 LANDLORD EXCULPATION. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to the actual
interest of Landlord and its present or future partners or members in the
Building, and Tenant agrees to look solely to Landlord's interest in the
Building for satisfaction of any liability and shall not look to other assets of
Landlord nor seek any recourse against the assets of the individual partners,
members, directors, officers, shareholders, agents or employees of Landlord,
including without limitation, any property management company of Landlord
(collectively, the "Landlord Parties"). It is the parties' intention that
Landlord and the Landlord Parties shall not in any event or circumstance be
personally liable, in any manner whatsoever, for any judgment or deficiency
hereunder or with respect to this Lease. The liability of Landlord under this
Lease is limited to its actual period of ownership of title to the Building.

        29.5 SEVERABILITY AND GOVERNING LAW. Any provisions of this Lease which
shall prove to be invalid, void or illegal shall in no way affect, impair or
invalidate any other provisions hereof and such other provision shall remain in
full force and effect. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.

        29.6 ATTORNEYS' FEES. In the event any dispute between the parties
results in litigation or other proceeding, the prevailing party shall be
reimbursed by the party not prevailing for all reasonable costs and expenses,
including, without limitation, reasonable attorneys' and experts' fees and costs
incurred by the prevailing party in connection with such litigation or other
proceeding, and any appeal thereof. Such costs, expenses and fees shall be
included in and made a part of the judgment recovered by the prevailing party,
if any.

        29.7 ENTIRE AGREEMENT. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto. All negotiations and oral agreements acceptable to
both parties have been merged into and are included herein. There are no other
representations or warranties between the parties, and all reliance with respect
to representations is based totally upon the representations and agreements
contained in this Lease. The parties acknowledge that (i) each party and/or its
counsel have reviewed and revised this Lease, and (ii) no rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall be employed in the interpretation or enforcement of this Lease or any
amendments or exhibits to this Lease or any document executed and delivered by
either party in connection with this Lease.

        29.8 WARRANTY OF AUTHORITY. Tenant shall deliver to Landlord an original
certificate of status for Tenant issued by the California Secretary of State or
statement of partnership for Tenant recorded in the county in which the Premises
are located, as applicable, and such other documents as Landlord may reasonably
request with regard to the lawful existence of Tenant. Each person executing
this Lease on behalf of a party represents and warrants that (1) such person is
duly and validly authorized to do so on behalf of the entity it purports to so
bind, and (2) if such party is a partnership, corporation or trustee, that such
partnership, corporation or trustee has full right and authority to enter into
this Lease and perform all of its obligations hereunder. Landlord and Tenant
each hereby warrants that this Lease is legal, valid and binding upon it and
enforceable against it in accordance with its terms.

        29.9 NOTICES. All notices, demands, statements or communications
(collectively, "Notices") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, national overnight
courier service, or delivered personally (i) to Tenant at the Tenant's Address
set forth in the Basic Lease Information, or to such other place as Tenant may
from time to time designate in a Notice to Landlord; or (ii) to Landlord at
Landlord's Address set forth in the Basic Lease Information, or to such other
firm or to such other place as Landlord may from time to time designate in a
Notice to Tenant. Any Notice will be deemed given on the date it is delivered or
delivery is rejected.

                                       18
<PAGE>   32

        29.10 JOINT AND SEVERAL; COVENANTS AND CONDITIONS. If Tenant consists of
more than one person or entity, the obligations of all such persons or entities
shall be joint and several. Each provision to be performed by Tenant hereunder
shall be deemed to be both a covenant and a condition.

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

        29.12 LANDLORD RENOVATIONS. Tenant acknowledges that Landlord may from
time to time, at Landlord's sole option, renovate, improve, develop, alter, or
modify (collectively, the "Renovations") portions of the Building, Premises,
Common Areas and the Project, including without limitation, systems and
equipment, roof, and structural portions of the same. In connection with such
Renovations, Landlord may, among other things, erect scaffolding or other
necessary structures in the Building, limit or eliminate access to portions of
the Project, including portions of the Common Areas, or perform work in the
Building, which work may create noise, dust or leave debris in the Building.
Tenant hereby agrees that such Renovations and Landlord's actions in connection
with such Renovations shall in no way constitute a constructive eviction of
Tenant nor entitle Tenant to any abatement of Rent, Landlord shall have no
responsibility, or for any reason be liable to Tenant, for any direct or
indirect injury to or interference with Tenant's business arising from the
Renovations, nor shall Tenant be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises or of
Tenant's Property, Alterations or improvements resulting from the Renovations or
Landlord's actions in connection with such Renovations, or for any inconvenience
or annoyance occasioned by such Renovations or Landlord's actions in connection
with such Renovations, except to the extent caused by the gross negligence and
willful misconduct of Landlord or Landlord's representatives. Landlord shall use
commercially reasonable efforts to minimize interference with Tenant's use of
the Premises during such renovations.

        29.13 SUBMISSION OF LEASE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.

30.     SIGNS

All signs and graphics of every kind visible in or from public view or corridors
or the exterior of the Premises shall be subject to Landlord's prior written
approval and shall be subject to and in compliance with all applicable Laws,
Development Documents, Recorded Matters, Rules and Regulations, and Landlord's
sign criteria as same may exist from time to time or as set forth in Exhibit G
hereto. Tenant shall remove all such signs and graphics prior to the expiration
or earlier termination of this Lease. Such installations and removals shall be
made in a manner as to avoid damage or defacement of the Premises. Tenant shall
repair any damage or defacement, including without limitation, discoloration
caused by such installation or removal. Landlord shall have the right, at its
option, to deduct from the Security Deposit such sums as are reasonably
necessary to remove such signs and make any repairs necessitated by such
removal. Notwithstanding the foregoing, in no event shall any: (a) neon,
flashing or moving sign(s) or (b) sign(s) which are likely to interfere with the
visibility of any sign, canopy, advertising matter, or decoration of any land of
any other business or occupant of the Building or the other portions of the
Project be permitted hereunder. Tenant further agrees to maintain each such sign
and graphics, as may be approved, in good condition and repair at all times. Any
exterior signage planned by Tenant is subject to the prior written approval by
Landlord and approval by the City of San Jose or the applicable governmental
agency. Any approved exterior signage must be installed by a State of California
licensed contractor that adequately meets Landlord's bonding and insurance
requirements. Landlord's consent to Tenant's exterior signage consistent with
Landlord's signage program for the Project and meeting the foregoing
requirements shall not be unreasonably withheld.

31.     MORTGAGEE PROTECTION

Upon any default on the part of Landlord, Tenant will give written Notice by
registered or certified mail to any beneficiary of a deed of trust or mortgagee
of a mortgage covering the Premises who has provided Tenant with notice of their
interest together with an address for receiving Notice, and shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure. If such default
cannot be cured within such time period, then such additional time as may be
necessary will be given to such beneficiary or mortgagee to effect such cure so
long as such beneficiary or mortgagee has commenced the cure within the original
time period and thereafter diligently pursues such cure to completion, in which
event this Lease shall not be terminated while such cure is being diligently
pursued. Tenant agrees that each lender to whom this tease has teen assigned by
landlord is an express third party beneficiary hereof. Tenant shall not make any
prepayment of Rent more than one (1) month in advance without the prior written
consent of each such lender, except if Tenant is required to make quarterly
payments of Rent in advance pursuant to the provisions of Section 8 above.
Tenant waives the collection of any deposit from such lender(s) or any purchaser
at a foreclosure sale of such lender(s)' deed of trust unless the lender(s) or
such purchaser shall have actually received and not refunded the deposit. Tenant
agrees to make all payments under this Lease to the lender with the most senior
encumbrance upon receiving a direction, in writing, to pay said amounts to such
lender. Tenant shall comply with such written direction to pay without
determining whether an event of default exists under such lender's loan to
Landlord, and Landlord hereby releases Tenant from any claims for having done
so. If, in connection with obtaining financing for the Premises or any other
portion of the Project, Landlord's lender shall request reasonable
modifications) to this Lease as a condition to such financing, Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially and adversely affect Tenant's rights hereunder
or the use, occupancy or quiet enjoyment of Tenant hereunder.

32.     WARRANTIES OF TENANT

Tenant hereby warrants and represents to Landlord, for the express benefit of
Landlord, that Tenant has undertaken a complete and independent evaluation of
the risks inherent in the execution of this Lease and the operation of the
Premises for the use permitted hereby, and that, based upon said independent
evaluation, Tenant has elected to enter into this Lease and hereby assumes all
risks with respect thereto. Tenant hereby further warrants and represents to
Landlord, for the express benefit of Landlord, that in entering into this Lease,
Tenant has not relied upon any statement, fact, promise or representation
(whether express or implied, written or oral) not specifically set forth herein
in writing and that any statement, fact, promise or representation (whether
express or implied, written or oral) made at any time to Tenant, which is not
expressly incorporated herein in writing, is hereby waived by Tenant.

                                       19
<PAGE>   33

33.     BROKERAGE COMMISSION

Landlord and Tenant each represents and warrants for the benefit of the other
that it has had no dealings with any real estate broker, agent or finder in
connection with the Premises and/or the negotiation of this Lease, except for
the Broker(s) specified in the Basic Lease Information, and that it knows of no
other real estate broker, agent or finder who is or might be entitled to a real
estate brokerage commission or finder's fee in connection with this Lease or
otherwise based upon contacts between the claimant and Tenant. Each party shall
indemnify and hold harmless the other from and against any and all liabilities
or expenses arising out of claims made for a fee or commission by any real
estate broker, agent or finder in connection with the Premises and this Lease
other than Broker(s), if any, resulting from the actions of the indemnifying
party. Unless expressly agreed to in writing by Landlord and Broker(s), no real
estate brokerage commission or finder's fee shall be owed to, or otherwise
payable to, the Broker(s) for any renewals or other extensions of the initial
Term of this Lease or for any additional space leased by Tenant other than the
Premises as same exists as of the Lease Date. Tenant further represents and
warrants to Landlord that Tenant will not receive (i) any portion of any
brokerage commission or finder's fee payable to the Broker(s) in connection with
this Lease or (ii) any other form of compensation or incentive from the
Broker(s) with respect to this Lease.

34.     QUIET ENJOYMENT

Landlord covenants with Tenant, upon the paying of Rent and observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, and during the periods that Tenant is not otherwise in default of any of
the terms or provisions of this Lease beyond any applicable notice and cure
periods, and subject to the rights of any of Landlord's lenders, (i) that Tenant
shall and may peaceably and quietly have, hold, occupy and enjoy the Premises
and the Common Areas during the Term of this Lease, and (ii) neither Landlord,
nor any successor or assign of Landlord, shall disturb Tenant's occupancy or
enjoyment of the Premises and the Common Areas. The foregoing covenant is in
lieu of any other covenant express or implied.

35.     COLLATERAL FOR PERFORMANCE OF LEASE OBLIGATIONS

Simultaneously with Tenant's delivery to Landlord of this Lease and the first
month's Base Rent in accordance with the provisions of Section 3 above, Tenant
shall deliver to Landlord, as collateral for the full and faithful performance
by Tenant of all of its obligations under this Lease and for all losses and
damages Landlord may suffer as a result of any default by Tenant under this
Lease, an irrevocable and unconditional negotiable letter of credit, in the form
and containing the terms required herein, payable in the City of Foster City,
California (or in addition you may state "payable in the County of San Mateo)
running in favor of Landlord issued by a solvent nationally recognized bank with
a long term rating of BBB- or higher, under the supervision of the
Superintendent of Banks of the State of California, or a National Banking
Association, in the amount of Four Million and 00/100 Dollars ($4,000,000.00)
(the "Letter of Credit"). The Letter of Credit shall be (a) at sight and
irrevocable and unconditional, (b) maintained in effect, whether through
replacement, renewal or extension, for the entire Lease Term (the "Letter of
Credit Expiration Date") and Tenant shall deliver a new Letter of Credit or
certificate of renewal or extension to Landlord at least thirty (30) days prior
to the expiration of the Letter of Credit, without any action whatsoever on the
part of Landlord, (c) subject to the Uniform Customs and Practices for
Documentary Credits (1993-Rev) International Chamber of Commerce Publication
#500, (d) acceptable to Landlord in its sole discretion, and (e) fully
assignable by Landlord and permit partial draws. In addition to the foregoing,
the form and terms of the Letter of Credit (and the bank issuing the same) shall
be acceptable to Landlord, in Landlord's sole discretion, and shall provide,
among other things, in effect that; (1) Landlord, or its then managing agent,
shall have the right to draw down an amount up to the face amount of the Letter
of Credit upon the presentation to the issuing bank of Landlord's (or Landlord's
then managing agent's) statement that such amount is due to Landlord under the
terms and conditions of this Lease, it being understood that if Landlord or its
managing agent be a limited liability company, corporation, partnership or other
entity, then such statement shall be signed by a managing member (if a limited
liability company) an officer (if a corporation), a general partner (if a
partnership), or any authorized party (if another entity); (2) the Letter of
Credit will be honored by the issuing bank without inquiry as to the accuracy
thereof and regardless of whether the Tenant disputes the content of such
statement; and (3) in the event of a transfer of Landlord's interest in the
Building, Landlord shall transfer the Letter of Credit, in whole or in part (or
cause a substitute letter of credit to be delivered, as applicable), to the
transferee and thereupon the Landlord shall, without any further agreement
between the parties, be released by Tenant from all liability therefor, and it
is agreed that the provisions hereof shall apply to every transfer or assignment
of the whole or any portion of said Letter of Credit to a new Landlord. Tenant
hereby acknowledges and agrees that Landlord is entering into this Lease in
material reliance upon the ability of Landlord to draw upon the Letter of Credit
upon the occurrence of any default on the part of Tenant hereunder which
continues beyond any applicable notice and cure periods. Tenant further
acknowledges and agrees that if Landlord cannot draw upon the Letter of Credit
within the times and in the manner as anticipated by Landlord herein, Landlord
shall suffer irreparable damage, harm and injury. From time to time during the
Term of this Lease it is anticipated by the parties that the Letter of Credit
will need to be amended, modified and, possibly reissued. Landlord and Tenant
hereby covenant and agree to cooperate with one another to promptly effectuate
any such amendments, modifications and new issuances, including without
limitation, executing and submitting to the Issuer any and all documents or
instruments as may be reasonably required to effectuate same. Each and every
time during the Term of this Lease there is a change in the identity or address
of the parties, including without limitation, any change in the identity of
Landlord due to the sale, transfer or other conveyance by Landlord of its rights
and interests in, to and under this Lease to any other party, person or entity,
the Letter of Credit shall immediately be amended or reissued to reflect such
changes and the parties hereby agree to execute and submit to the issuer such
further applications, documents and instruments as may be necessary to
effectuate same, it is the intention of the parties that each and every
successor and assign of both Landlord and Tenant be bound by and subject to the
terms and provisions of this Section 35. Landlord may, at any time and without
notice to Tenant and without first obtaining Tenant's consent thereto, assign
all or any portion of its Interest in and to the Letter of Credit to another
party, person or entity, regardless of whether or not such assignment is
separate from or as a part of the assignment by Landlord of its rights and
interests in and to this Lease. If, as a result of any such application of all
or any part of the Letter of Credit, the amount of the Letter of Credit shall be
less than Four Million and 00/100 Dollars ($4,000,000.00), Tenant shall within
five (5) days thereafter provide Landlord with additional letter(s) of credit in
an amount equal to the deficiency (or a replacement letter of credit in the
total amount of Four Million and 00/100 Dollars ($4,000,000.00) and each such
additional (or replacement) letter of credit shall comply with all of the
provisions of this Section 35, and if Tenant fails to do so, notwithstanding
anything to the contrary contained in Section 18 (reference the Tenant Default
Section of the Lease) hereof, the same shall constitute an incurable default by
Tenant. Tenant further covenants and warrants that it will neither assign nor
encumber the Letter of Credit or any part thereof and that neither Landlord nor
its successors or assigns will be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. Without limiting the generality
of the foregoing, if the Letter of Credit expires earlier than the Letter of
Credit Expiration Date, Landlord will accept a renewal thereof or substitute
letter of credit (such renewal or

                                       20
<PAGE>   34
substitute letter of credit to be In effect not later than thirty (30) days
prior to the expiration thereof), which shall be irrevocable and automatically
renewable as above provided through the Letter of Credit Expiration Date upon
the same terms as the expiring letter of credit or such other terms as may be
acceptable to Landlord in its sole discretion. However, if the Letter of Credit
is not timely renewed or a substitute letter of credit is not timely received,
or if Tenant fails to maintain the Letter of Credit in the amount and terms set
forth in this Section 35, Landlord shall have the right to present such Letter
of Credit to the bank in accordance with the terms of this Section 35, and the
entire sum evidenced thereby shall be paid to and held by Landlord as collateral
for performance of all of Tenant's obligations under this Lease and for all
losses and damages Landlord may suffer as a result of any default by Tenant
under this Lease. If there shall occur a default under this Lease as set forth
in Section 18 (reference Tenant Default Section of the Lease) of this Lease,
Landlord may, but without obligation to do so, draw upon the Letter of Credit,
in part or in whole, to cure any default of Tenant and/or to compensate Landlord
for any and all damages of any kind or nature sustained or which may be
sustained by Landlord resulting from Tenant's default. Tenant agrees not to
interfere in any way with payment to Landlord of the proceeds of the Letter of
Credit, either prior to or following a "draw" by Landlord of any portion of the
Letter of Credit, regardless of whether any dispute exists between Tenant and
Landlord as to landlord's right to draw from the Letter of Credit. No condition
or term of this Lease shall be deemed to render the Letter of Credit conditional
to justify the issuer of the Letter of Credit in failing to honor a drawing upon
such Letter of Credit in a timely manner. Landlord and Tenant acknowledge and
agree that in no event or circumstance shall the Letter of Credit or any renewal
thereof or substitute therefor be (i) deemed to be or treated as a "security
deposit" within the meaning of California Civil Code Section 1950.7 (as
supplemented, amended, replaced and substituted from time to time), (ii) subject
to the terms of such Section 1950.7 (as supplemented, amended, replaced and
substituted from time to time), or (iii) intended to serve as a "security
deposit" within the meaning of such Section 1950.7 (as supplemented, amended,
replaced and substituted from time to time). The parties hereto recite that with
respect to the Letter of Credit, (x) the Letter of Credit is not intended to
serve as a security deposit and such Section 1950.7 (as supplemented, amended,
replaced and substituted from time to time), and any and all other laws, rules
and regulations applicable to security deposits in the commercial context
("Security Deposit Laws") shall have no applicability or relevancy to the Letter
of Credit and (y) Tenant waives any and all rights, duties and obligations it
may now or, in the future, will have relating to or arising from the Security
Deposit Laws. Notwithstanding the above, such Letter of Credit shall be subject
to termination, however in no event earlier than the end of the thirty-sixth
(36th) month of the Lease, upon Tenant achieving a tangible net worth of One
Hundred Million and 00/100 Dollars ($100,000,000.00) and upon Tenant achieving a
net profit of at least Five Million and 00/100 Dollars ($5,000,000.00) for two
(2) consecutive quarters. However, such Letter of Credit may be reduced to
$2,000,000.00 if Tenant achieves and maintains a tangible net worth of
$100,000,000.00 and achieves a net profit of at least $5,000,000.00 for two (2)
consecutive quarters at any point prior to the end of the thirty sixth (36th)
month of the Lease Term so long as Tenant maintains such net worth through the
end of the thirty sixth (36th) month of the Lease Term. For purposes herein, the
net worth measurement shall not include non-cash charges such as deferred
compensation and acquisition charges.

36.     CAFETERIA

So long as Landlord shall maintain and operate in the Park a cafeteria for the
use of the tenants of the Park and their employees and invitees, Tenant and its
employees and invitees shall have the right, in common with the other tenants of
the Park and their employees and invitees, to use the same during its normal
hours of operation.

        IN WITNESS WHEREOF, this Lease is executed by the parties as of the
Lease Date referenced on Page 1 of this Lease.

TENANT:

NEW FOCUS, INC.,
a California corporation

BY: /s/ WILLIAM L. POTTS, JR.
   -----------------------------------
Its: CFO
    ----------------------------------
Date: 5/17/00
     ---------------------------------

By: /s/ NICOLA PIGNATI
   -----------------------------------
Its: COO
    ----------------------------------
Date: 5/17/00
     ---------------------------------

LANDLORD:

LINCOLN-RECP HELLYER OPCO, L.L.C.,
a Delaware limited liability company

By:     LEGACY PARTNERS COMMERCIAL, INC.,
        as manager and agent for Lincoln RECP Hellyer OPCO, L.L.C.

        By: /s/ [Signature Illegible]
           ----------------------------
           Senior Vice President

Date:
     ---------------------------

If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
secretary, unless the bylaws or a resolution of the board of directors shall
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.

                                       21

<PAGE>   35

                                    EXHIBIT A
                                    PREMISES

This exhibit, entitled "Premises", is and shall constitute Exhibit A to that
certain Lease Agreement dated May 15, 2000 (the "Lease"), by and between
LINCOLN-RECP HELLYER OPCO, L.L.C., a Delaware limited liability company
("Landlord") and NEW FOCUS, INC., a California corporation ("Tenant") for the
leasing of certain premises located in the Hellyer Oaks Technology Park at 4747
Hellyer Avenue, San Jose, California (the "Premises").

The Premises consist of the rentable square footage of space specified in the
Basic Lease Information and has the address specified in the Basic Lease
Information. The Premises are a part of and are contained in the Building
specified in the Basic Lease Information. The cross-hatched area depicts the
Premises within the [Building, Project]:

                                     [MAP]

                                     [MAP]

                                       1
<PAGE>   36

                          EXHIBIT B TO LEASE AGREEMENT
                               TENANT IMPROVEMENTS

This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
to that certain Lease Agreement dated May 15, 2000 (the "Lease"), by and between
LINCOLN-RECP HELLYER OPCO, LLC., a Delaware limited liability company
("Landlord") and NEW FOCUS, INC., a California corporation ("Tenant") for the
leasing of certain premises located in the Hellyer Oaks Technology Park at 4747
Hellyer Avenue, San Jose, California (the "Premises"). The terms, conditions and
provisions of this EXHIBIT B are hereby incorporated into and are made a part of
the Lease. Any capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such terms as set forth in the Lease.

1. TENANT IMPROVEMENTS. Subject to the conditions set forth below, Landlord
agrees to construct and install certain improvements ("Tenant Improvements") in
the Building of which the Premises are a part in accordance with the Approved
Final Drawings (defined below) and pursuant to the terms of this EXHIBIT B.

2. DEFINITION, "Tenant Improvements" as used in this lease shall include only
those interior improvements to be made to the Premises as specified in the
Approved Final Drawings (defined below) and agreed to by Tenant and Landlord in
accordance with the provisions hereof. "Tenant Improvements" shall specifically
not include (i) any alterations, additions or improvements installed or
constructed by Tenant, (ii) any of Tenants trade fixtures, racking, security
equipment, equipment, furniture, furnishings, telephone and/or data equipment,
telephone and/or data lines or other personal property, and (iii) any
supplemental fire protection improvements or equipment, including without
limitation, inrack fire sprinklers, hose racks, reels, smoke vents, and draft
curtains (collectively, "Tenant's Installations").

3. TENANTS INITIAL PLANS: THE WORK. Tenant desires Landlord to perform certain
Tenant Improvements in the Premises. The Tenant Improvements shall be in
substantial accordance with the plan(s) and scope of work (collectively, the
"Initial Plans") which will be prepared by Landlord's architect after the
parties meet and confer to agree upon a scope of work immediately after
execution of this Lease. Within fifteen (15) business days from the date
Landlord and Tenant meet to discuss the scope of work, Landlord shall deliver to
Tenant the Initial Plans. A copy of the Initial Plans shall be attached hereto
as Schedule 1, as soon as practicable thereafter. Such work, as shown in the
Initial Plans and as more fully detailed in the Approved Final Drawings (as
defined and described in Section 4 below), shall be hereinafter referred to as
the "Work". Tenant or Tenant's Representatives shall furnish to Landlord such
additional plans, drawings, specifications and finish details as Landlord may
reasonably request to enable Landlord's architects and engineers, as applicable,
to prepare mechanical, electrical and plumbing plans and to prepare the Final
Drawings, including, but not limited to, a final telephone layout and special
electrical connections, if any, as such plans, drawings, specifications and
details are made available, but not later than thirty (30) days after the
Initial Plans are prepared and delivered to Tenant. All plans, drawings,
specifications and other details describing the Work which have been, or are
hereafter, furnished by or on behalf of Tenant shall be subject to Landlord's
approval, which approval shall not be unreasonably withheld. Landlord shall not
be deemed to have acted unreasonably if it withholds its approval of any plans,
specifications, drawings or other details or of any Change Request (hereafter
defined in Section 11 below) because, in Landlord's reasonable opinion, the work
as described in any such item, or any Change Request, as the case may be: (a) is
likely to adversely affect Building systems, the structure of the Building or
the safety of the Building or its occupants; (b) might impair Landlord's ability
to furnish services to Tenant (unless Tenant waives such requirement or pays for
the increased cost thereof) or other tenants in the Building; (c) would increase
the cost of operating the Building or the Park (unless Tenant pays the increased
cost thereof); (d) would violate any applicable governmental, administrative
body's or agencies' laws, rules, regulations, ordinances, codes or similar
requirements (or interpretations thereof); (e) contains or uses Hazardous
Materials in violation of law; (f) would adversely affect the appearance of the
Building or the Park; (g) might adversely affect another tenant's premises or
such other tenant's use and enjoyment of such premises; (h) is prohibited by any
ground lease affecting the Building, the Lot and/or the Park, any Recorded
Matters or any mortgage, trust deed or other instrument encumbering the
Building, the Lot and/or the Park; (1) is likely to be substantially delayed
because of unavailability or shortage of labor or materials necessary to perform
such work (beyond the current state of the materials and labor market) or the
difficult or unusual nature of such work; (j) is not, at a minimum, in
accordance with Landlord's Building Standards (defined below); or (k) would
increase the Tenant Improvement Costs (defined in Section 9 below) by more than
ten percent (10%) from the cost originally estimated and anticipated by the
parties unless Tenant agrees to pay for such increased cost to the extent it
exceeds the Allowance. The foregoing reasons, however, shall not be the only
reasons for which Landlord may reasonably withhold its approval, whether or not
such other reasons are similar or dissimilar to the foregoing. Neither the
approval by Landlord of the Work or the Initial Plans or any other plans,
specifications, drawings or other items associated with the Work nor Landlord's
performance, supervision or monitoring of the Work shall constitute any warranty
or covenant by Landlord to Tenant of the adequacy of the design for Tenants
intended use of the Premises. Tenant agrees to, and does hereby, assume full and
complete responsibility to ensure that the Work and the Approved Final Drawings
are adequate to fully meet the needs and requirements of Tenant's intended
operations of its business within the Premises and Tenant's use of the Premises.
However, Landlord shall assume responsibility for the workmanship of such work.

4. FINAL DRAWINGS AND APPROVED FINAL DRAWINGS. If necessary for the performance
of the Work, and to the extent not already included as part of the Initial Plans
attached hereto, Landlord shall prepare or cause to be prepared final working
drawings and specifications for the Work (the "Final Drawings") based on and
consistent with the Initial Plans and the other plans, specifications, drawings,
finish details or other information furnished by Tenant or Tenant's
Representatives to Landlord and approved by Landlord pursuant to Section 3
above. Tenant shall cooperate diligently with Landlord and Landlord's architect,
engineer and other representatives and Tenant shall furnish within five (5)
business days after any request therefor, all information required by Landlord
or Landlord's architect, engineer or other representatives for completion of the
Final Drawings. So long as the Final Drawings are substantially consistent with
the Initial Plans and all other information provided by Tenant and its
Representatives, Tenant shall approve the Final Drawings within five (5)
business days after receipt of same from Landlord. If Tenant reasonably
disapproves of any matters included in the Final Drawings because such items are
not substantially consistent with the Initial Plans and all other information
provided by Tenant and its Representatives, Tenant shall, within the
aforementioned five (5) business day period, deliver to Landlord written notice
of its disapproval and Tenant shall specify in such written notice, in
sufficient detail as Landlord may reasonably require, the matters disapproved,
the reasons for such disapproval, and the specific changes or revisions
necessary to be made to the Final Drawings to cause such drawings to
substantially conform to the Initial Plans. Any additional costs associated with
such requested changes or revisions shall be included as part of

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<PAGE>   37
the Tenant Improvement Costs (defined below). The foregoing procedure shall be
followed by the parties until the Final Drawings are acceptable to both Landlord
and Tenant. Landlord and Tenant shall indicate their approval of the Final
Drawings by initialing each sheet of the Final Drawings and delivering to one
another a true and complete copy of such initialed Final Drawings (the "Approved
Final Drawings"). A true and complete copy of the Approved Final Drawings shall
be attached to the Lease as Exhibit B-1 and shall be made a part thereof. Any
changes or revisions to the Approved Final Drawings requested by Tenant must
first be approved by Landlord, which approval shall not be unreasonably
withheld, subject to the provisions of Section 3 above, If Landlord approves
such requested changes or revisions, Landlord shall cause the Approved Final
Drawings to be revised accordingly and Landlord and Tenant shall initial each
sheet of the Approved Final Drawings as revised and replace and attach a true
and complete copy thereof to the Lease as Exhibit B-1. Landlord and Tenant
hereby covenant to each other to cooperate with each other and to act reasonably
in the preparation and approval of the final Drawings and the Approved Final
Drawings.

5. PERFORMANCE OF WORK. As soon as practicable after Tenant and Landlord initial
and attach to the Lease as EXHIBIT B-1 a true and complete copy of the Approved
Final Drawings, Landlord shall submit the Approved Final Drawings to the
governmental authorities having rights of approval over the Work and shall apply
for the necessary approvals and building permits. Subject to the satisfaction of
all conditions precedent and subsequent to its obligations under this EXHIBIT B,
and further subject to the provisions of Section 10 hereof, as soon as
practicable after Landlord or its representatives have received all necessary
approvals and building permits, Landlord will put the Approved Final Drawings
out for bid to at least three (3) licensed, bonded and insured mutually
acceptable general contractors. The Tenant Improvements shall be constructed by
a general contractor selected by Landlord (the "General Contractor"). In lieu of
the foregoing, Tenant may agree to negotiate with one general contractor and
such contractor shall bid all trades to at least three (3) mutually approved
subcontractors. Landlord shall commence construction, or cause the commencement
of construction by the General Contractor, of the Tenant Improvements, as soon
as practicable after selection of the General Contractor. Except as hereinafter
expressly provided to the contrary, Landlord shall cause the performance of the
Work using (except as may be stated or otherwise shown in the Approved Final
Drawings) building standard materials, quantities and procedures then in use by
Landlord ("Building Standards"). Tenant shall be permitted to receive copies of
all bids and the schedule of values.

6. SUBSTANTIAL COMPLETION. Landlord and Tenant shall cause the General
Contractor to Substantially Complete (defined below) the Tenant Improvements in
accordance with the Approved Final Drawings by the Commencement Date of the
Lease as set forth in Section 2 of the Lease (the "Completion Date"), subject to
delays due to (a) acts or events beyond its control including, but not limited
to, acts of God, earthquakes, strikes, lockouts, boycotts, casualties,
discontinuance of any utility or other service required for performance of the
Work, moratoriums, governmental agencies, delays on the part of governmental
agencies and weather, (b) the lack of availability or shortage of specialized
materials used in the construction of the Tenant Improvements, (c) any matters
beyond the control of Landlord, the General Contractor or any subcontractors,
(d) any changes required by the fire department, building and/or planning
department, building inspectors or any other agency having jurisdiction over the
Building, the Work and/or the Tenant Improvements (except to the extent such
changes are Tenant Delays, as defined in Section 7 below) (the events and
matters set forth in Subsections (a), (b), (c) and (d) are collectively referred
to as "Force Majeure Delays"), or (e) any Tenant Delays (defined in Section 7
below). The Tenant Improvements shall be deemed substantially complete on the
date that (i) the General Contractor issues to Landlord a notice of substantial
completion stating that the Tenant Improvements and all work required to be done
by Landlord are complete, including, but not limited to, the submetering and the
lobby, or (ii) the date that the building officials of the applicable
governmental agency(s) issues its final approval of the construction of the
Tenant Improvements whether in the form of the issuance of a final permit,
certificate of occupancy or the written approval evidencing its final inspection
on the building permit(s), or (iii) the date on which Tenant first takes
occupancy of the Premises for the conduct of business, whichever first occurs,
provided that in any case the Building systems serving the Premises are
operational to the extent necessary for the conduct of Tenant's business
("Substantial Completion", or "Substantially Completed", or "Substantially
Complete"). Tenant hereby acknowledges and agrees that the term "Substantial
Completion" of the Tenant Improvements as used herein will not include the
completion of any work associated with Tenant's Installations, including without
limitation, Tenant's high-pile storage requirements, Tenant's racking systems,
and work related to any requirements of governmental and regulatory agencies
with respect to any of Tenant's Installations. If the Work is not deemed to be
Substantially Completed on or before the scheduled Completion Date, (i) Landlord
agrees to use reasonable efforts to Substantially Complete the Work as soon as
practicable thereafter, (ii) the Lease shall remain in full force and effect,
(iii) Landlord shall not be deemed to be in breach or default of the Lease or
this EXHIBIT B as a result thereof and Landlord shall have no liability to
Tenant as a result of any delay in occupancy (whether for damages, abatement of
all or any portion of the Rent, or otherwise), and (iv) except in the event of
any Tenant Delays, which will not affect the Commencement Date but will extend
the Completion Date without any penalty or liability to Landlord, and
notwithstanding anything to the contrary contained in the Lease, the
Commencement Date and the Expiration Date of the term of the Lease (as defined
in Section 2 of the Lease) shall be extended commensurately by the amount of
time attributable to such Force Majeure Delays, and Landlord and Tenant shall
execute a written amendment to the Lease evidencing such extensions of time,
substantially in the form of Exhibit F to the Lease. Subject to the provisions
of Section 10.2 of the Lease, the Tenant Improvements shall belong to Landlord
and shall be deemed to be incorporated into the Premises for all purposes of the
Lease, unless Landlord, in writing, indicates otherwise to Tenant provided,
however, Tenant shall be entitled to the tax depredation benefits accruing
thereto during the term of the Lease to the extent of Tenant's cost therein.

7. TENANT DELAYS. There shall be no extension of the scheduled Commencement Date
or Expiration Date of the term of the Lease (as otherwise permissibly extended
in accordance with the provisions of Section 6 above) if the Work has not been
Substantially Completed by the scheduled Commencement Date due to any delay
attributable to Tenant and/or any of Tenant's Representatives or Tenant's
intended use of the Premises (collectively, "Tenant Delays"), including, but not
limited to, any of the following described events or occurrences that delay the
scheduled Commencement Date: (a) delays related to changes made or requested by
Tenant to the Work and/or the Approved Final Drawings; (b) the failure of Tenant
to furnish all or any plans, drawings, specifications, finish details or other
information required under Sections 3 and 4 above; (c) the failure of Tenant to
comply with the requirements of Section 10 below; (d) Tenant's requirements for
special work or materials, finishes, or installations other than the Building
Standards (unless such materials are regularly used in construction) or Tenant's
requirements for special construction or phasing (and Tenant is so notified by
Landlord that such will delay the scheduled Commencement Date); (e) any changes
required by the fire department, building or planning department, building
inspectors or any other agency having jurisdiction over the Building, the Work
and/or the Tenant Improvements if such changes are directly attributable to
Tenant's use or Tenant's specialized tenant improvements; (f) the completion of
any work associated with Tenant's Installations, including without limitation,
Tenant's high-pile storage requirements, Tenant's racking systems, and work

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<PAGE>   38
related to any requirements of governmental and regulatory agencies with respect
to any of Tenant's Installations; (g) the performance of any additional work
pursuant to a Change Request that is requested by Tenant; (h) the performance of
work in or about the Premises by any person, firm or corporation employed by or
on behalf of Tenant, including, without limitation, any failure to complete or
any delay in the completion of such work; and/or (i) any and all delays caused
by or arising from acts or omissions of Tenant and/or Tenant's Representatives,
in any manner whatsoever, including, but not limited to, any and all revisions
to the Approved Final Drawings. Any delays in the construction of the Tenant
Improvements due to any of the events described above, shall in no way extend or
affect the date on which Tenant is required to commence paying Rent under the
terms of the Lease. It is the intention of the parties that all of such delays
will be considered Tenant Delays for which Tenant shall be wholly and completely
responsible for any and all consequences related to such delays, including,
without limitation, any costs and expenses attributable to increases in labor or
materials.

8. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide an allowance for the
planning and construction of the Tenant Improvements for the Work to be
performed in the Premises, as described in the Initial Plans and the Approved
Final Drawings, in the amount of One Million Three Hundred Four Thousand Three
Hundred Sixty and 00/100 Dollars ($1,304,360.00) (the "Tenant Improvement
Allowance") based upon an allowance of Ten and 00/100 Dollars ($10.00) per
rentable square foot for 130,436 rentable square feet of the Premises to be
improved, as described in the Initial Plans and the Approved Final Drawings.
Tenant shall not be entitled to any credit, abatement or payment from Landlord
in the event that the amount of the Tenant Improvement Allowance specified above
exceeds the actual Tenant Improvement Costs. The Tenant Improvement Allowance
shall only be used for tenant improvements typically installed by Landlord in
research and development buildings. The Tenant Improvement Allowance shall be
the maximum contribution by Landlord for the Tenant Improvement Costs and shall
be subject to the provisions of Section 10 below.

9. TENANT IMPROVEMENT COSTS. The Tenant Improvements' cost (the "Tenant
Improvement Costs") shall mean and include any and all costs and expenses of the
Work, including, without limitation, all of the following:

        (a) All costs of preliminary space planning and final architectural and
engineering plans and specifications (including, without limitation, the scope
of work, all plans and specifications, the Initial Plans, the Final Drawings and
the Approved Final Drawings) for the Tenant Improvements, and architectural
fees, engineering costs and fees, and other costs associated with completion of
said plans;

        (b) All costs of obtaining building permits and other necessary
authorizations and approvals from the City of San Jose and other applicable
agencies and jurisdictions;

        (c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;

        (d) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit, the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord's consultants and the General Contractor in connection with
construction of the Tenant Improvements, and all labor (including overtime) and
materials constituting the Work;

        (e) All fees payable to the General Contractor, architect and Landlord's
engineering firm if they are required by Tenant to redesign any portion of the
Tenant Improvements following Tenant's approval of the Approved Final Drawings;
and

        (f) A construction management fee payable to Landlord in the amount of
five percent (5%) of the Tenant Improvement Allowance not to exceed $65,000.00
of all direct and indirect costs of procuring, constructing and installing the
Tenant Improvements in the Premises and the Building. Such fee shall be based
upon Tenant also providing construction supervision services in addition to
Landlord to complete the Tenant Improvements.

10. EXCESS TENANT IMPROVEMENT COSTS. The term "Excess Tenant Improvement Costs"
as used herein shall mean and refer to the aggregate of (i) all costs related to
any and all Change Requests/Change Orders, and (ii) the amount by which the
actual Tenant Improvement Costs (exclusive of all costs referred to in item (i)
above) (the "Actual TI Costs") exceed the Tenant Improvement Allowance, subject
to the remaining provisions of this Section 10. Tenant shall pay to Landlord the
Excess Tenant Improvement Costs within ten (10) days of Landlord's delivery to
Tenant of a written demand therefor together with a reconciliation of such
costs. No Work shall be commenced until Tenant has fully complied with the
preceding provisions of this Section 10. If Tenant fails to remit the sums so
demanded by Landlord pursuant to this Section 10 within the time period
required, Landlord may, at its option, declare Tenant in default under the
Lease.

11. CHANCE REQUESTS. No changes or revisions to the Approved Final Drawings
shall be made by either Landlord or Tenant unless approved in writing by both
parties. Upon Tenant's request and submission by Tenant (at Tenant's sole cost
and expense) of the necessary information and/or plans and specifications for
any changes or revisions to the Approved Final Drawings and/or for any work
other than the Work described in the Approved Final Drawings ("Change Requests")
and the approval by Landlord of such Change Request(s), which approval Landlord
agrees shall not be unreasonably withheld, Landlord shall perform the additional
work associated with the approved Change Request(s), at Tenant's sole cost and
expense (to the extent the Allowance has been used in full), subject, however,
to the following provisions of this Section 11. Prior to commencing any
additional work related to the approved Change Request(s), Landlord shall submit
to Tenant a written statement of the cost of such additional work and a proposed
tenant change order therefor ("Change Order") in the standard form then in use
by Landlord. Tenant shall execute and deliver to Landlord such Change Order and
shall pay the entire cost of such additional work in the following described
manner. Any costs related to such approved Change Request(s), Change Order and
any delays associated therewith, shall be added to the Tenant Improvement Costs
and shall be paid for by Tenant as and with any Excess Tenant Improvement Costs
as set forth in Section 10 above. The billing for such additional costs to
Tenant shall be accompanied by evidence of the amounts billed as is customarily
used in the business. Costs related to approved Change Requests and Change
Orders shall include without limitation, any architectural or design fees,
Landlord's construction fee for overhead and profit, the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord and/or Landlord's consultants, and the General Contractor's
price for effecting the change. If Tenant fails to execute or

                                       3
<PAGE>   39

deliver such Change Order, or to pay the costs related thereto, then Landlord
shall not be obligated to do any additional work related to such approved Change
Request(s) and/or Change Orders, and Landlord may proceed to perform only the
Work, as specified in the Approved Final Drawings. Landlord shall equitably
adjust the amount of the Tenant Improvement Costs for any deletions in the scope
of the Work.

12. TERMINATION. If the Lease is terminated prior to the Completion Date, for
any reason due to the default of Tenant hereunder, in addition to any other
remedies available to Landlord under the Lease, Tenant shall pay to Landlord as
Additional Rent under the Lease, within five (5) days of receipt of a statement
therefor, any and all costs Incurred by Landlord and not reimbursed or otherwise
paid by Tenant through the date of termination in connection with the Tenant
Improvements to the extent planned, installed and/or constructed as of such date
of termination, including, but not limited to, any costs related to the removal
of all or any portion of the Tenant Improvements and restoration costs related
thereto. Subject to the provisions of Section 10.2 of the Lease, upon the
expiration or earlier termination of the Lease, Tenant shall not be required to
remove the Tenant Improvements it being the intention of the parties that the
Tenant Improvements are to be considered incorporated into the Building.
Notwithstanding anything to the contrary contained herein, Landlord shall have
the right to terminate the Lease, upon written notice to Tenant, if Landlord is
unable to obtain a building permit for the Tenant Improvements within two
hundred seventy (270) days from the date the Lease is signed by Tenant.

13. TENANT ACCESS. Landlord hereby grants Tenant a license to have access to the
Premises prior to the Completion Date to allow Tenant to do other work required
by Tenant to make the Premises ready for Tenant's use and (the "Tenant's
Pre-Occupancy Work"). It shall be a condition to the grant by Landlord and
continued effectiveness of such license that:

        (a) Tenant shall give to Landlord a written request to have such access
not less than five (5) business days prior to the date on which such proposed
access will commence (the "Access Notice"). The Access Notice shall contain or
be accompanied by each of the following items, all in form and substance
reasonably acceptable to Landlord: (i) a detailed description of and schedule
for Tenant's Pre-Occupancy Work; (ii) the names and addresses of all
contractors, subcontractors and material suppliers and all other representatives
of Tenant who or which will be entering the Premises on behalf of Tenant to
perform Tenant's Pre-Occupancy Work or will be supplying materials for such
work, and the approximate number of individuals, itemized by trade, who will be
present in the Premises; (iii) copies of all contracts, subcontracts, material
purchase orders, plans and specifications pertaining to Tenant's Pre-Occupancy
Work; (iv) copies of all licenses and permits required in connection with the
performance of Tenant's Pre-Occupancy Work; (v) certificates of insurance (in
amounts reasonably satisfactory to Landlord and with the parties identified in,
or required by, the Lease named as additional insureds) and instruments of
indemnification against all claims, costs, expenses, penalties, fines, and
damages which may arise in connection with Tenant's Pre-Occupancy Work; and (vi)
if requested by Landlord, assurances of the ability of Tenant to pay for all of
Tenant's Pre-Occupancy Work and/or a letter of credit or other security deemed
appropriate by Landlord securing Tenant's lien-free completion of Tenant's
Pre-Occupancy Work.

        (b) Such pre-term access by Tenant and Tenant's employees, agents,
contractors, consultants, workmen, mechanics, suppliers and invitees shall be
subject to scheduling by Landlord.

        (c) Tenant's employees, agents, contractors, consultants, workmen,
mechanics, suppliers and invitees shall fully cooperate, work in harmony and
not, in any manner, interfere with Landlord or Landlord's agents or
representatives in performing the Work and any additional work pursuant to
approved Change Orders, Landlord's work in other areas of the Building or the
Park, or the general operation of the Building. If at any time any such person
representing Tenant shall not be cooperative or shall otherwise cause or
threaten to cause any such disharmony or interference, including, without
limitation, labor disharmony, and Tenant fails to immediately institute and
maintain corrective actions as directed by Landlord, then Landlord may revoke
such license upon twenty-four (24) hours' prior written notice to Tenant.

        (d) Any such entry into and occupancy of the Premises or any portion
thereof by Tenant or any person or entity working for or on behalf of Tenant
shall be deemed to be subject to all of the terms, covenants, conditions and
provisions of the Lease, excluding only the covenant to pay Rent. Landlord shall
not be liable for any injury, loss or damage that may occur to any of Tenant's
Pre-Occupancy Work made in or about the Premises or to any property placed
therein prior to the commencement of the term of the Lease, the same being at
Tenant's sole risk and liability. Tenant shall be liable to Landlord for any
damage to any portion of the Premises, the Work or the additional work related
to any approved Change Orders caused by Tenant or any of Tenant's employees,
agents, contractors, consultants, workmen, mechanics, suppliers and invitees. In
the event that the performance of Tenant's Pre-Occupancy Work causes extra costs
to be incurred by Landlord or requires the use of other Building services,
Tenant shall promptly reimburse Landlord for such extra costs and/or shall pay
Landlord for such other Building services at Landlord's standard rates then in
effect.

14. LEASE PROVISIONS; CONFLICT. The terms and provisions of the Lease, insofar
as they are applicable, in whole or in part, to this EXHIBIT B, are hereby
incorporated herein by reference, and specifically including all of the
provisions of Section 29 of the Lease. In the event of any conflict between the
terms of the Lease and this EXHIBIT B, the terms of this EXHIBIT B shall
prevail. Any amounts payable by Tenant to Landlord hereunder shall be deemed to
be Additional Rent under the Lease and, upon any default in the payment of same,
Landlord shall have all rights and remedies available to it as provided for in
the Lease.

                                       4
<PAGE>   40

                          EXHIBIT C TO LEASE AGREEMENT
                               RULES & REGULATIONS

This exhibit, entitled "Rules & Regulations", is and shall constitute Exhibit C
to that certain Lease Agreement dated May 15, 2000 (the "Lease"), by and between
LINCOLN-RECP HELLYER OPCO, L.L.C., a Delaware limited liability company
("Landlord") and NEW FOCUS, INC., a California corporation ("Tenant") for the
leasing of certain premises located In the Hellyer Oaks Technology Park at 4747
Hellyer Avenue, San Jose, California (the "Premises"). The terms, conditions and
provisions of this Exhibit C are hereby incorporated into and are made a part of
the Lease. Any capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such terms as set forth in the Lease:

1. No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. Landlord
shall have the right to remove any such unapproved item without notice and at
Tenant's expense.

2. Tenant shall not regularly park motor vehicles in designated parking areas
after the conclusion of Tenant's normal business activity.

3. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.

4. All window coverings installed by Tenant and visible from the outside of the
Building require the prior written approval of Landlord.

5. Subject to approved items on the HazMat list, Tenant shall not use, keep or
permit to be used or kept any foul or noxious gas or substance or any flammable
or combustible materials on or around the Premises, the Building or the Park.

6. Tenant shall not alter any lock or install any new locks or bolts on any door
at the Premises without the prior consent of landlord, which consent shall not
be unreasonably withheld or delayed.

7. Tenant agrees not to make any duplicate keys without the prior consent of
Landlord, which consent shall not be unreasonably withheld or delayed.

8. Tenant shall park motor vehicles in those general parking areas as designated
by Landlord except for loading and unloading. During those periods of loading
and unloading, Tenant shall not unreasonably interfere with traffic flow within
the Park and loading and unloading areas of other Tenants.

9. Tenant shall not disturb, solicit or canvas any occupant of the Building or
Park and shall cooperate to prevent same.

10. No person shall go on the roof without Landlord's permission.

11. Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building, to
such a degree as to be objectionable to Landlord or other Tenants, shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate noise or vibration.

12. All goods, including material used to store goods, delivered to the Premises
of Tenant shall be immediately moved into the Premises and shall not be left In
parking or receiving areas overnight.

13. Tractor trailers which must be unhooked or parked with dolly wheels beyond
the concrete loading areas must use steel plates or wood blocks under the dolly
wheels to prevent damage to the asphalt paving surfaces. No parking or storing
of such trailers will be permitted in the auto parking areas of the Park or on
streets adjacent thereto.

14. Forklifts which operate on asphalt paving areas shall not have solid rubber
tires and shall only use tires that do not damage the asphalt.

15. Tenant is responsible for the storage and removal of all trash and refuse.
All such trash and refuse shall be contained in suitable receptacles stored
behind screened enclosures at locations approved by Landlord.

16. Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort outside of the Premises nor in
or around the Building, the Park or any of the Common Areas of the foregoing. No
displays or sales of merchandise shall be allowed in the parking lots or other
Common Areas.

17. Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the Building,
the Park or any of the Common Areas of the foregoing.

18. Tenant shall not permit any motor vehicles to be washed on any portion of
the Premises or in the Common Areas of the Park, nor shall Tenant permit
mechanical work or maintenance of motor vehicles to be performed on any portion
of the Premises or in the Common Areas of the Park.

                                       1
<PAGE>   41

                                    EXHIBIT E
                   HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE

Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:

Landlord:
          ----------------------------------------------------------------------

          ----------------------------------------------------------------------
          c/o Legacy Partners Commercial, Inc.
          101 Lincoln Centre Drive, Fourth Floor
          Foster City, California 94404
          Attn:
                --------------------------------
          Phone: (650)571-2200

Name of (Prospective) Tenant:
                              --------------------------------------------------

Mailing Address:
                 ---------------------------------------------------------------

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

Contact Person, Title and Telephone Number(s):
                                               ---------------------------------

Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):

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

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

Address of (Prospective) Premises:
                                   ---------------------------------------------

Length of (Prospective) Initial Term:
                                      ------------------------------------------

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

1.      GENERAL INFORMATION:

        Describe the initial proposed operations to take place in, on, or about
        the Premises, including, without limitation, principal products
        processed, manufactured or assembled services and activities to be
        provided or otherwise conducted. Existing Tenants should describe any
        proposed changes to on-going operations.

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

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

2.      USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS

        2.1     Will any Hazardous Materials be used, generated, stored or
                disposed of in, on or about the Premises? Existing Tenants
                should describe any Hazardous Materials which continue to be
                used, generated, stored or disposed of in, on or about the
                Premises.

                Wastes             Yes [ ]        No [ ]

                Chemical Products  Yes [ ]        No [ ]

                Other              Yes [ ]        No [ ]

                If Yes is marked, please explain:
                                                  ------------------------------

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

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

        2.2     If Yes is marked in Section 2.1, attach a list of any Hazardous
                Materials to be used, generated, stored or disposed of in, on or
                about the Premises, including the applicable hazard class and an
                estimate of the quantities of such Hazardous Materials at any
                given time; estimated annual throughput; the proposed
                location(s) and method of storage (excluding nominal amounts of
                ordinary household cleaners and janitorial supplies which are
                not regulated by any Environmental Laws); and the proposed
                location(s) and method of disposal for each Hazardous Material,
                including, the estimated frequency, and the proposed contractors
                or subcontractors. Existing Tenants should attach a list setting
                forth the information requested above and such list should
                include actual data from on-going operations and the
                identification of any variations in such information from the
                prior year's certificate.

3.      STORAGE TANKS AND SUMPS

        3.1     Is any above or below ground storage of gasoline, diesel,
                petroleum, or other Hazardous Materials in tanks or sumps
                proposed in, on or about the Premises? Existing Tenants should
                describe any such actual or proposed activities.

                Yes [ ]       No [ ]

                If yes, please explain:
                                        ----------------------------------------

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

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

                                       1
<PAGE>   42

4.      WASTE MANAGEMENT

        4.1     Has your company been issued an EPA Hazardous Waste Generator
                I.D. Number? Existing Tenants should describe any additional
                identification numbers issued since the previous certificate.

                Yes [ ]       No [ ]

        4.2     Has your company filed a biennial or quarterly reports as a
                hazardous waste generator? Existing Tenants should describe any
                new reports filed.

                Yes [ ]       No [ ]

                If yes, attach a copy of the most recent report filed.

5.      WASTEWATER TREATMENT AND DISCHARGE

        5.1     Will your company discharge wastewater or other wastes to:

                _______ storm drain?    _______ sewer?

                _______ surface water?  _______ no wastewater or other wastes
                                                discharged.

                Existing Tenants should indicate any actual discharges. If so,
                describe the nature of any proposed or actual discharge(s).

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

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

        5.2     Will any such wastewater or waste be treated before discharge?

                Yes [ ]       No [ ]

                If yes, describe the type of treatment proposed to be conducted.
                Existing Tenants should describe the actual treatment conducted.

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

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

6.      AIR DISCHARGES

        6.1     Do you plan for any air filtration systems or stacks to be used
                in your company's operations in, on or about the Premises that
                will discharge into the air; and will such air emissions be
                monitored? Existing Tenants should indicate whether or not there
                are any such air filtration systems or stacks in use in, on or
                about the Premises which discharge into the air and whether such
                air emissions are being monitored.

                Yes [ ]       No [ ]

                If yes, please describe:
                                         ---------------------------------------

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

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

        6.2     Do you propose to operate any of the following types of
                equipment, or any other equipment requiring an air emissions
                permit? Existing Tenants should specify any such equipment being
                operated in, on or about the Premises.

                _______ spray booth(s)       _______ Incinerator(s)
                _______ Dip tank(s)          _______ Other (Please describe)
                _______ Drying oven(s)       _______ No Equipment Requiring Air
                                                     Permits

                If yes, please describe:
                                         ---------------------------------------

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

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

7.      HAZARDOUS MATERIALS DISCLOSURES

        7.1     Has your company prepared or will it be required to prepare a
                Hazardous Materials management plan ("Management Plan") pursuant
                to Fire Department or other governmental or regulatory agencies'
                requirements? Existing Tenants should indicate whether or not a
                Management Plan is required and has been prepared.

                Yes [ ]       No [ ]

                If yes, attach a copy of the Management Plan. Existing Tenants
                should attach a copy of any required updates to the Management
                Plan.

        7.2     Are any of the Hazardous Materials, and in particular chemicals,
                proposed to be used in your operations in, on or about the
                Premises regulated under Proposition 65? Existing Tenants should
                indicate whether or not there are any new Hazardous Materials
                being so used which are regulated under Proposition 65.

                Yes [ ]       No [ ]

                If yes, please explain:
                                        ----------------------------------------

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

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

                                       2
<PAGE>   43

8.      ENFORCEMENT ACTIONS AND COMPLAINTS

        8.1     With respect to Hazardous Materials or Environmental Laws, has
                your company ever been subject to any agency enforcement
                actions, administrative orders, or consent decrees or has your
                company received requests for information, notice or demand
                letters, or any other inquiries regarding its operations?
                Existing Tenants should indicate whether or not any such
                actions, orders or decrees have been, or are in the process of
                being, undertaken or if any such requests have been received.

                Yes [ ]       No [ ]

                If yes, describe the actions, orders or decrees and any
                continuing compliance obligations Imposed as a result of these
                actions, orders or decrees and also describe any requests,
                notices or demands, and attach a copy of all such documents.
                Existing Tenants should describe and attach a copy of any new
                actions, orders, decrees, requests, notices or demands not
                already delivered to Landlord pursuant to the provisions of
                Section 29 of the signed Lease Agreement

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

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

        8.2     Have there ever been, or are there now pending, any lawsuits
                against your company regarding any environmental or health and
                safety concerns?

                Yes [ ]       No [ ]

                If yes, describe any such lawsuits and attach copies of the
                complaint(s), cross-complaint(s), pleadings and all other
                documents related thereto as requested by Landlord. Existing
                Tenants should describe and attach a copy of any new
                complaint(s), cross-complaint(s), pleadings and other related
                documents not already delivered to Landlord pursuant to the
                provisions of Section 29 of the signed Lease Agreement

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

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

        8.3     Have there been any problems or complaints from adjacent
                Tenants, owners or other neighbors at your company's current
                facility with regard to environmental or health and safety
                concerns? Existing Tenants should indicate whether or not there
                have been any such problems or complaints from adjacent Tenants,
                owners or other neighbors at, about or near the Premises.

                Yes [ ]       No [ ]

                If yes, please describe. Existing Tenants should describe any
                such problems or complaints not already disclosed to Landlord
                under the provisions of the signed Lease Agreement

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

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

9.      PERMITS AND LICENSES

        9.1     Attach copies of all Hazardous Materials permits and licenses
                including a Transporter Permit number issued to your company
                with respect to its proposed operations in, on or about the
                Premises, including, without limitation, any wastewater
                discharge permits, air emissions permits, and use permits or
                approvals. Existing Tenants should attach copies of any new
                permits and licenses as well as any renewals of permits or
                licenses previously issued.

The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenants indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenants Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.

I (print name) ________________________, acting with full authority to bind the
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and
warrant that the information contained in this certificate is true and correct.

(PROSPECTIVE) TENANT:

By:
       ------------------------------
Title:
       ------------------------------
Date:
       ------------------------------

                                       3
<PAGE>   44

                                    EXHIBIT F
                       FIRST AMENDMENT TO LEASE AGREEMENT
                           CHANGE OF COMMENCEMENT DATE

This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of ________________, by and between ________________
("Landlord"), and ________________ ("Tenant"), with reference to the following
facts:

                                    RECITALS

A. Landlord and Tenant have entered into that certain Lease Agreement dated
_____ (the "Lease"), for the leasing of certain premises containing
approximately _____ rentable square feet of space located at __________,
California (the "Premises") as such Premises are more fully described in the
Lease.

B. Landlord and Tenant wish to amend the Commencement Date of the Lease.

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:

        1. Recitals: Landlord and Tenant agree that the above recitals are true
           and correct.

        2. The Commencement Date of the Lease shall be _______________________.

        3. The last day of the Term of the Lease (the "Expiration Date") shall
           be __________.

        4. The dates on which the Base Rent will be adjusted are:

           for the period ______ to ______ the monthly Base Rent shall be
           $______;

           for the period ______ to ______ the monthly Base Rent shall be
           $______; and

           for the period ______ to ______ the monthly Base Rent shall be
           $______.

        5. Effect of Amendment: Except as modified herein, the terms and
conditions of the Lease shall remain unmodified and continue in full force and
effect. In the event of any conflict between the terms and conditions of the
Lease and this Amendment, the terms and conditions of this Amendment shall
prevail.

        6. Definitions: Unless otherwise defined in this Amendment, all terms
not defined in this Amendment shall have the meaning set forth in the Lease.

        7. Authority: Subject to the provisions of the Lease, this Amendment
shall be binding upon and inure to the benefit of the parties hereto, their
respective heirs, legal representatives, successors and assigns. Each party
hereto and the persons signing below warrant that the person signing below on
such party's behalf is authorized to do so and to bind such party to the terms
of this Amendment.

        8. The terms and provisions of the Lease are hereby incorporated in this
Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.

[PROPERTY MANAGER: Please provide Tenant information and Word Processing will
complete the signature block]

                                       1
<PAGE>   45

any improvements to the Premises. Tenant further agrees with Lender that Tenant
will not voluntarily subordinate the Lease to any lien or encumbrance without
Lender's consent.

        5. Tenant shall provide Lender with a copy of any written notice that
Tenant sends to or receives from Landlord no later than 10 days after
transmission or receipt. In the event that the Landlord shall default in the
performance or observance of any of the terms, conditions or agreements in the
Lease, Tenant shall give written notice thereof to the Lender and the Lender
shall have the right (but not the obligation) to cure such default. Tenant shall
not take any action with respect to such default under the Lease, including and
without limitation, any action in order to terminate, rescind or void the Lease
or to withhold any rental thereunder for a period of ten (10) days after receipt
of such written notice thereof by the Lender with respect to any such default
capable of being cured by the payment of money and for a period of thirty (30)
days after receipt of such written notice thereof by the Lender with respect to
any other such default (provided, that in the case of any default which cannot
be cured by the payment of money and cannot with diligence by cured within such
thirty (30) day period because of the nature of such default or because Lender
requires time to obtain possession of the Premises in order to cure the default,
if Lender shall proceed promptly to attempt to obtain possession of the
Premises, where possession is required, and to cure the same and thereafter
shall prosecute the curing of such default with diligence and continuity, then
the time within which such default may be cured shall be extended for such
period as may be necessary to complete the curing of the same with diligence and
continuity).

        6. Tenant agrees with Lender that Tenant's estate in the Premises shall
not be conveyed or encumbered without the written consent of the Lender so long
as the Lease is in effect.

        7. This Agreement shall bind and inure to the benefit of all parties
hereto, their successors and assigns. As used herein the term "Tenant" shall
include the Tenant, its successors and assigns; the words "foreclosure and
"foreclosure sale: as used herein shall be deemed to include the acquisition of
Landlords' estate in the Premises by voluntary deed (or assignment) in lieu of
foreclosure, and the word "Lender" shall include the Lender herein specifically
named and any of its successors and assigns, including anyone who shall succeed
to Landlord' interest in the Premises by, through or under foreclosure of the
mortgage.

        8. This Agreement shall not be modified or amended except in writing
signed by the parties hereto.

        9. The use of the neuter gender in this Agreement shall be deemed to
include any other gender, and words in the singular number shall be held to
include the plural, when the sense requires.

        10. Notwithstanding any of the other provisions hereof, this Agreement
is not intended to create and shall not be deemed to create any personal
liability on the part of tenant for repayment of the loan secured by the
mortgage.

        IN WITNESS WHEREOF the parties hereto have placed their hands and seals
the day and year first above written.

LANDLORD:                              TENANT:

*                                      *
----------------------------------     -----------------------------------------

By: *                                  By: *
    ------------------------------         -------------------------------------
Its: *                                 Its: *
     -----------------------------          ------------------------------------

By:                                    By:
    ------------------------------         -------------------------------------
Its:                                   Its:
     -----------------------------          ------------------------------------

LENDER:

U.S. BANK NATIONAL ASSOCIATION

By: *
    ------------------------------
Its: *
     -----------------------------

                                       2
<PAGE>   46

State of California    )
                       )ss.
County of Contra Costa )

On ________, before me, ___________________________________, personally appeared
__________, personally known to me - OR - proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.

                                       WITNESS my hand and official seal.

                                       -----------------------------------------
                                              SIGNATURE OF NOTARY

State of California    )
                       )ss.
County of Contra Costa )

On ________, before me, ___________________________________, personally appeared
_______, personally known to me - OR - proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.

                                       WITNESS my hand and official seal.

                                       -----------------------------------------
                                              SIGNATURE OF NOTARY

State of California    )
                       )ss.
County of Contra Costa )

On ________, before me, ___________________________________, personally appeared
_______, personally known to me - OR - proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.

                                       WITNESS my hand and official seal.

                                       -----------------------------------------
                                              SIGNATURE OF NOTARY

                                       3
<PAGE>   47

                                   ADDENDUM 1
                         OPTION TO EXTEND THE LEASE TERM

This Addendum 1 ("Addendum 1") is incorporated as a part of that certain Lease
Agreement dated May 15, 2000 (the "Lease"), by and between NEW FOCUS, INC., a
California corporation ("Tenant"), and LINCOLN-RECP HELLYER OPCO, L.L.C., a
Delaware limited liability company ("Landlord"), for the leasing of those
certain premises located at 4747 Hellyer Avenue, San Jose, California as more
particularly described in Exhibit A to the Lease (the "Premises"). Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease.

1. GRANT OF EXTENSION OPTION. Subject to the provisions, limitations and
conditions set forth in Paragraph 5 below, Tenant shall have an Option
("Option") to extend the initial term of the Lease for five (5) years, (the
"Extended Term").

2. TENANT'S OPTION NOTICE. Tenant shall have the right to deliver written notice
to Landlord of its intent to exercise this Option (the "Option Notice"). If
Landlord does not receive the Option Notice from Tenant on a date which is
neither more than three hundred sixty-five (365) days nor less than two hundred
seventy (270) days prior to the end of the initial term of the Lease, all rights
under this Option shall automatically terminate and shall be of no further force
or effect. Upon the proper exercise of this Option, subject to the provisions,
limitations and conditions set forth in Paragraph 5 below, the initial term of
the Lease shall be extended for the Extended Term.

3. ESTABLISHING THE INITIAL MONTHLY BASE RENT FOR THE EXTENDED TERM.

        (a) The initial monthly Base Rent for the Extended Term shall be the
then current market rent for the highest and best use for similar space within
the competitive market area of the Premises (the "Fair Rental Value"). "Fair
Rental Value" of the Premises means the current market rental value of the
Premises as of the commencement of the Extended Term, taking into consideration
all relevant factors, including length of term, the uses permitted under the
Lease, the quality, size, design and location of the Premises, including the
condition and value of existing tenant improvements, and the monthly base rent
paid by tenants for premises comparable to the Premises, and located within the
competitive market area of the Premises, as reasonably determined by Landlord.

        (b) Neither Landlord nor Tenant shall have the right to have a court or
any other third party entity establish the Fair Rental Value. If Landlord and
Tenant are unable to agree on the Fair Rental Value for the Extended Term within
ten (10) days of receipt by Landlord of the Option Notice, such Base Rent shall
be determined by appraisal in the manner provided in subsection (c) below.

        (c) If Landlord and Tenant are unable to agree upon the amount of Base
Rent payable during the Extended Term, as provided above, they each shall, not
later than ten (10) days after the end of the period for attempting to agree
upon Base Rent, appoint an independent broker who shall have at least ten (10)
years' experience in the commercial real estate market in which the Premises is
located and shall be familiar with the valuation of comparable property in such
area and otherwise qualified to act as an expert witness over objection to give
opinion testimony addressed to the issue in a court of competent jurisdiction.
Within said ten (10) day period, each party shall notify the other party in
writing of the name, address, telephone number and qualifications of its broker
so appointed. If either party shall fail to notify the other party of its named
broker within said ten (10) day period, the determination of Base Rent by the
single broker appointed shall be conclusive and binding upon both Landlord and
Tenant.

                (i) The brokers appointed pursuant to this subsection (c) shall
determine the "Fair Rental Value" for the Premises as of the date of calculation
thereof.

                (ii) The brokers shall, not later than two (2) months prior to
the expiration of the Term, report in writing to the party appointing him/her
their opinion as to the Fair Rental Value. Each party shall, promptly upon
receipt of the valuation report from its broker, provide the other party with a
copy thereof. Not later than one and one-half (1 1/2) months prior to the
expiration of the Term, Landlord and Tenant shall meet at such times as they
shall mutually agree and endeavor in good faith to agree upon the Base Rent
based upon the reports of the brokers. If Landlord and Tenant are unable to
agree on the Base Rent within the time specified above, the brokers shall
appoint a third broker, qualified as aforesaid, who shall, not later than one
(1) month prior to the expiration of the Term, determine the Fair Rental Value
on the basis of the two valuation reports previously prepared and consultation
with such brokers and/or other experts and competent authorities as such third
broker shall deem relevant or appropriate in his/her discretion. So long as it
is not inconsistent with any of the express provisions of this Lease and is not
arbitrary and capricious, the written report and determination of Fair Rental
Value by the third broker shall be accepted by Landlord and Tenant as the Base
Rent, which determination shall be final and binding and enforceable in a court
of competent jurisdiction with the same force and effect as if the same were a
judgment duly entered by such court. In the event that the two originally
appointed brokers cannot for any reason agree on a third broker, then either
Landlord or Tenant, on behalf of both, may request appointment of such third
broker by the then Chief Judge of the United States District Court having
jurisdiction over the Premises, and neither party shall raise any question as to
such Judge's full power and jurisdiction to entertain the application for and
make such appointment hereunder.

                (iii) In the use of brokers hereunder, each party shall pay the
fees and expenses of its own broker and shall share equally the fees and
expenses of any third broker appointed hereunder.

        (d) Upon determination of the initial monthly Base Rent for the Extended
Term pursuant to the terms outlined above, Landlord and Tenant shall immediately
execute an amendment to the Lease. Such amendment shall set forth among other
things, the initial monthly Base Rent for the Extended Term. Tenant shall have
no other right to further extend the term of the Lease under this Addendum 1
unless Landlord and Tenant otherwise agree in writing. In no event shall the
monthly Base Rent for any period of the Extended Term be less than the highest
monthly Base Rent charged during the initial term of the Lease. Upon
determination of the initial monthly Base Rent for the Extended Term in
accordance with the terms outlined above, Landlord and Tenant shall immediately
execute, at Landlord's sole option, either the standard lease agreement then in
use by Landlord, or an amendment to this Lease. Such new lease

                                       1
<PAGE>   48

agreement or amendment, as the case may be, shall set forth among other things,
the initial monthly Base Rent for the Extended Term and the actual commencement
date and expiration date of the Extended Term. Tenant shall have no other right
to extend the term of the Lease under this Addendum 1 unless Landlord and Tenant
otherwise agree in writing.

4. CONDITION OF PREMISES AND BROKERAGE COMMISSIONS FOR THE EXTENDED TERM. If
Tenant timely and properly exercises this Option, in strict accordance with the
terms contained herein: (1) Tenant shall accept the Premises in its then "As-Is"
condition and, accordingly, Landlord shall not be required to perform any
additional improvements to the Premises; and (2) Tenant hereby agrees that it
will be solely responsible for any and all brokerage commissions and finder's
fees payable to any broker now or hereafter procured or hired by Tenant or who
otherwise claims a commission based on any act or statement of Tenant ("Tenant's
Broker") in connection with the Option. Tenant hereby further agrees that
Landlord shall in no event or circumstance be responsible for the payment of any
such commissions and fees to Tenant's Broker.

5. LIMITATIONS ON, AND CONDITIONS TO EXTENSION OPTION. This Option is personal
to Tenant and may not be assigned, voluntarily or involuntarily, separate from
or as part of the Lease, except for permitted transfers to Affiliates. At
Landlord's option, all rights of Tenant under this Option shall terminate and be
of no force or effect if any of the following individual events occur or any
combination thereof occur: (1) Tenant is in default of any provision of the
Lease on the date Landlord receives the Option Notice; and/or (2) Tenant has
assigned its rights and obligations under all or part of the Lease or Tenant has
subleased all or part of the Premises; and/or (3) Tenant's financial condition
is unacceptable to Landlord at the time the Option Notice is delivered to
Landlord; and/or (4) Tenant has failed to exercise properly this Option in a
timely manner in strict accordance with the provisions of this Addendum 1;
and/or (5) Tenant no longer has possession of all or any part of the Premises
under the Lease, or if the Lease has been terminated earlier, pursuant to the
terms and provisions of the Lease.

6. TIME IS OF THE ESSENCE. Time is of the essence with respect to each and every
time period described in this Addendum 1.

                                       2
<PAGE>   49

                                   ADDENDUM 2
                              RIGHT OF FIRST OFFER

This Addendum 2 ("Addendum 2") is incorporated as a part of that certain Lease
Agreement dated May 15, 2000 (the "Lease"), by and between NEW FOCUS, INC., a
California corporation ("Tenant"), and LINCOLN-RECP HELLYER OPCO, L.L.C., a
Delaware limited liability company ("Landlord") for the leasing of those certain
premises located at 4747 Hellyer Avenue, San Jose, California as more
particularly described in Exhibit A to the Lease (the "Premises"). Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease.

During only the initial term of the Lease, Tenant shall have a one-time (not
continuing) right to make a first offer to lease (the "Right of First Offer")
from Landlord all of the contiguous 25,000 square foot premises Immediately
adjoining the Premises, as such expansion space is specified in Exhibit H
attached hereto and made a part hereof (the "Expansion Space"). Tenant's Right
of First Offer, as granted herein, is subject to the following conditions:

        i. The Right of First Offer for the Expansion Space shall be subject to
the rights and options of the existing tenant of the Expansion Space (together
with their successors and assigns) presently occupying said Expansion Space
pursuant to the terms and provisions of such existing tenant's lease, as such
lease may be later modified, amended or extended;

        ii. The Right of First Offer for the Expansion Space shall be void if
Tenant has been more than twice during the twelve (12) month period immediately
preceding the date of Landlord's Availability Notice (defined below), or at the
time of exercise of the Right of First Offer is then presently in default in the
performance of any of its obligations under the Lease beyond any applicable cure
periods; and

        iii. The Right of First Offer for the Expansion Space shall be subject
to Landlord's review and approval of Tenant's then current financial condition
[which financial condition shall be deemed to be acceptable to Landlord so long
as (a) Tenant, at the time of exercise of the Right of First Offer and for the
prior twelve month period of time prior to Tenant's exercise of this Right of
First Offer, has a tangible net worth of One Hundred Million and 00/100 Dollars
($100,000,000.00) and has achieved a net profit of at least Five Million and
00/100 Dollars ($5,000,000.00) for two (2) consecutive quarters, or (b) the
Letter of Credit shall still be in effect in the amount required by Section 35
of the Lease, and in the possession of and available for use by Landlord,
provided that the amount of such Letter of Credit shall, prior to the delivery
of possession of the Expansion Premises to Tenant, be increased such that the
proportion of the increased Letter of Credit to the prior amount of the Letter
of Credit is the same as the proportion of the area of the entire Premises,
including the Expansion Premises, to the prior area of the Premises].

Provided the foregoing conditions are satisfied when the Expansion Space becomes
available, then if the Expansion Space becomes vacant, and Landlord desires to
lease the Expansion Space, Landlord shall give Tenant written notice, by
facsimile and by mail describing the estimated date upon which Landlord can
deliver the Expansion Space to Tenant, and the terms and conditions upon which
Landlord is willing to lease the Expansion Space (a "Landlord's Availability
Notice"). Tenant shall notify Landlord within three (3) business days following
receipt of Landlord's Availability Notice of Tenant's election to lease the
Expansion Space upon all of the terms specified in the Landlord's Availability
Notice by written acceptance delivered to Landlord without any deviation in such
offered terns (an "Election Notice"). If Tenant fails to notify Landlord of
Tenant's election to lease the Expansion Space within the time specified herein,
it shall be deemed that: (a) Tenant has elected not to lease said Expansion
Space; (b) Landlord may thereafter enter into a lease agreement with a third
party for the Expansion Space; and (c) all rights under this Right of First
Offer with respect to the Expansion Space shall terminate and be of no further
force or effect. Time is of the essence herein,

If Tenant duly and timely exercises this Right of First Offer as herein provided
with respect to the Expansion Space, Tenant shall deliver to Landlord a
refundable deposit of Fifty Thousand Dollars ($50,000.00) for the Expansion
Space. The parties shall have ten (10) business days after Landlord receives the
Election Notice for the Expansion Space and the non-refundable deposit therefor
from Tenant in which to execute an amendment to the Lease setting forth the
agreed-upon terms for such Expansion Space. Upon full execution of an amendment
for the Expansion Space, the non-refundable deposit shall be credited toward the
first month's Base Rent for the Expansion Space, as agreed between the parties.

This Right of First Offer shall terminate and be of no force or effect if the
Premises are being subleased to a party other than an Affiliate or party who
occupies more than 50% of the Premises for the remaining Term of the Lease at
the time that this Right of First Offer for the Expansion Space is offered to
Tenant.

Except to an Affiliate in accordance with the provisions of Section 14.8 of the
Lease, this Right of First Offer is personal to Tenant and may not be assigned,
voluntarily or involuntarily, separate from or as a part of the Lease. If Tenant
duly and timely exercises this Right of First Offer for the Expansion Space,
Landlord and Tenant shall execute an amendment to this Lease, adding the
Expansion Space to the Premises and adjusting the Base Rent and Tenant's
proportionate share of the items set forth in Sections 6 and 7 of this Lease. If
Tenant does not elect to exercise the Right of First Offer granted herein for
the Expansion Space (or it is deemed that Tenant has not elected to exercise
this Right of First Offer due to the lapse of time or any other failure of
Tenant to strictly comply with the provisions of this Addendum 2), based upon
the material terms proposed by Landlord in the applicable Landlord's
Availability Notice, all rights of Tenant under, in or to this Right of First
Offer for the Expansion Space shall terminate and be of no further force or
effect.

                                       1
<PAGE>   50

                                    EXHIBIT I
         FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

When recorded mail to:

U.S. Bank National Association
2890 North Main Street
Walnut Creek, CA 94596

ATTN:

Date:  *

From:  *

                                   ("Tenant")

       *

                                  ("Landlord")

To: U.S. BANK NATIONAL ASSOCIATION                               ("Lender")
    Commercial Real Estate Loan Administration
    *                                                             (Address)
*          (City, State, Zip)
    Attn:*

Lease Dated:  *
Lease Term:   *

                                  WITNESSETH:

        WHEREAS, the Tenant has entered into a lease dated *, 199 (the "Lease"),
whose interest is held by Landlord, covering premises (the "Premises") described
in Exhibit "A" attached hereto and incorporated herein by reference; and

        WHEREAS, the Lender has agreed to make a loan of * ($*) to the Landlord
secured by a Deed of Trust, hereinafter referred to as "mortgage" (which
mortgage also secures any future advances made by Lender); provided, however,
that said lease is subordinate to the lien of the mortgage; and

        WHEREAS, Lender has been requested by Tenant and by Landlord to enter
into a non-disturbance agreement with Tenant;

        NOW THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, the parties hereto mutually covenant and agree as
follows:

        1. The Lease and any extensions, renewals, replacements or modifications
thereof, and all of the right, title and interest of the Tenant in and to said
Premises, including but not limited to any option or right of first refusal to
purchase Premises, or any acquisition of title to the Premises by Tenant during
the term of the mortgage, are and shall be subject and subordinate to the
mortgage and to all of the terms and conditions contained herein, and to any
renewals, modifications, replacements, consolidations and extensions thereof.

        2. Lender consents to the Lease and, in the event of foreclosure of said
mortgage, or in the event Lender comes into possession or acquires title to the
premises as a result of the enforcement or foreclosure of the mortgage or
mortgage note, or as a result of any other means, Lender agrees to recognize
Tenant and further agrees that Tenant shall not be disturbed in its possession
of the Premises for any reason other than one which would entitle the Landlord
to terminate the Lease under its terms or would cause, without further action by
such Landlord, the termination of the Lease or would entitle such Landlord to
dispossess the Tenant from the Premises.

        3. Tenant agrees with Lender that if the interest of Landlord in the
Premises shall be transferred to and owned by Lender by reason of foreclosure or
other proceedings brought by it, or by any other manner, Tenant shall be bound
to Lender under all of the terms, covenants and conditions of the Lease for the
balance of the term thereof remaining and any extensions or renewals thereof
which may be affected in accordance with any option therefor in the Lease, with
the same force and effect as if Lender were the Landlord under the Lease, and
Tenant does hereby attorn to Lender as its Landlord, said attornment to be
effective and self-operative without the execution of any further instruments on
the part of any of the parties hereto immediately upon Lender succeeding to the
interest of the Landlord in the Premises. Tenant agrees, however, upon the
election of and written demand by Lender after Lender receives title to the
Premises, to promptly execute an instrument in confirmation of the foregoing
provisions, satisfactory to Lender, in which Tenant shall acknowledge such
attornment and shall set forth the terms and conditions of its tenancy.

        4. Tenant agrees with Lender that if Lender shall succeed to the
interest of Landlord under the Lease, Lender shall not be (a) liable for any
action or omission of any prior landlord under the Lease, or (b) subject to any
offsets or defenses which Tenant might have against any prior landlord, or (c)
bound by any rent or additional rent which Tenant might have paid for more than
the current month to any prior landlord, or (d) bound by any security deposit
which Tenant may have paid to any prior landlord, unless such deposit is in an
escrow fund available to Lender, or (e) bound by any amendment or modification
of the Lease made without Lender's consent, or (f) bound by any provision in the
Lease which obligates the Landlord to erect or complete any building or to
perform any construction work or to make

                                       1

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