Document:

<PAGE>   1
                                                                   EXHIBIT 10.18

                           NEW FOCUS PACIFIC CO., LTD.

                                       AND

                        FUZHOU CONET COMMUNICATION, INC.

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

                                 SUPPLY CONTRACT

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

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

<PAGE>   2
                                TABLE OF CONTENTS

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

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

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

ANNEX

1       PRODUCTS TO BE SUPPLIED

<PAGE>   3
                                 SUPPLY CONTRACT

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

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

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

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

                              PRELIMINARY STATEMENT

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

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

NOW, THEREFORE, the Parties agree as follows:

                   ARTICLE 1 - DEFINITIONS AND INTERPRETATION

1.1     Definitions

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

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

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

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

        "COMMENCEMENT DATE" means 1 June 2000.

                                       1

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

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

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

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

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

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

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

        "USA" means the United States of America.

1.2     Interpretation

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

                                ARTICLE 2 - TERM

2.1     Term

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

                                       2

<PAGE>   5
                         ARTICLE 3 - SUPPLY OF PRODUCTS

3.1     Supply

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

3.2     Annual Budget

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

3.3     Quarterly Budget

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

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

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

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

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

       Provided that:

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

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

                                       3

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

3.4     Third Party Purchases

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

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

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

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

3.5     Purchase Order

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

3.6     No Resale

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

                        ARTICLE 4 - PRICING AND PAYMENTS

4.1     Prices

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

                                       4

<PAGE>   7
4.2     Payments

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

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

4.3     Advanced Payment

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

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

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

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

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

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

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

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

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

                                       5

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

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

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

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

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

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

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

                         ARTICLE 5 - DELIVERY AND TITLE

5.1     Delivery

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

5.2     Title

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

                                       6

<PAGE>   9
                   ARTICLE 6 - SUPERVISION AND QUALITY CONTROL

6.1     Standards and Specifications

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

6.2     Inspection

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

6.3     Sampling

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

6.4     Product Responsibility

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

               ARTICLE 7 - REPRESENTATIONS, WARRANTIES AND BREACH

7.1     Representations

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

                                       7

<PAGE>   10
7.2     Breach of Article 7.1

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

        (a)     promptly replace the Products in question; or

        (b)     promptly repay the price of the Products.

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

              ARTICLE 8 - INVESTIGATION RIGHT AND RIGHT OF SET-OFF

8.1     Right to Audit

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

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

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

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

8.2     Right of Refund or Set-off

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

                                       8

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

                           ARTICLE 9 - NF COMMITMENTS

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

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

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

                            ARTICLE 10 - TERMINATION

10.1    Termination

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

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

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

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

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

                                       9

<PAGE>   12
                           ARTICLE 11 - FORCE MAJEURE

11.1    Definition of Force Majeure

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

11.2    Consequences of Force Majeure

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

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

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

                       ARTICLE 12 - SETTLEMENT OF DISPUTES

12.1    Consultations

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

12.2    Arbitration

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

                                       10

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

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

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

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

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

12.3    Effect of Arbitration Award

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

12.4    Costs

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

12.5    Continuing Rights and Obligations

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

                         ARTICLE 13 - BREACH OF CONTRACT

13.1    General Breach and Indemnity

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

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

                                       11

<PAGE>   14
13.2    Liability for Breach of Contract

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

                         ARTICLE 14 - GENERAL PROVISIONS

14.1    Governing Law

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

14.2    Assignability

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

14.3    Entire Agreement

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

14.4    Severability of Terms

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

14.5    No Waiver

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

14.6    Language

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

                                       12

<PAGE>   15
14.7    Notices

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

        NF:

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

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

        Supplier:

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

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

                                       13

<PAGE>   16
IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be executed
by their duly authorized representatives on the date first written above.

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

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

                                       14

<PAGE>   17
                                     ANNEX 1

                             PRODUCTS TO BE SUPPLIED

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

                                       15<PAGE>   1
                                                                   EXHIBIT 10.19

                                    SUBLEASE

        THIS SUBLEASE (this "Sublease") is dated for reference purposes as of
May 16, 2000, and is made by and between Komag Incorporated, a Delaware
corporation ("Sublessor"), and New Focus, Inc. a Delaware corporation
("Sublessee"). Sublessor and Sublessee agree as follows:

                                    RECITALS:

        Western Digital Corporation, a Delaware Corporation, as lessee, and Enzo
Drive, LLC, a California limited liability company ("Master Lessor"), as lessor,
entered into that certain lease ("Lease") dated September 15, 1997 with respect
to approximately 10.658 acres of land with that certain approximately 58,785
square foot building located thereon known as 300 Enzo Drive, San Jose, CA
("Project"), which Lease was amended by that certain First Amendment to Lease
Agreement dated as of January 1998 ("First Amendment") and Second Amendment to
Lease Agreement dated July 30, 1999 ("Second Amendment"). Under the terms of
that certain Assignment and Assumption of Lease dated as of April 5, 1999
("Assignment"), Western Digital Corporation assigned the Lease and First
Amendment to Sublessor. Sublessee also acknowledges that Sublessor intends to
execute that certain Subordination Agreement ("Subordination Agreement") under
the terms of which Sublessor agrees that the Lease, First Amendment and Second
Amendment (and therefore this Sublease) shall be subject and subordinate to the
terms of that certain Declaration of Reciprocal Easements and Covenants,
Conditions and Restrictions ("CC&Rs"). A copy of the Lease, First Amendment,
Second Amendment, Assignment and Master Lessor's consent thereto and
Subordination Agreement (collectively "Master Lease") and the CC&Rs are attached
hereto as Exhibit A. Sublessor desires to lease to Sublessee and Sublessee
desires to lease from Sublessor that portion of the Project depicted on Exhibit
B to this Sublease ("Subleased Premises").

                                   AGREEMENT:

        1. Subleased Premises: Subject to the terms and conditions set forth
herein, Sublessor subleases to Sublessee, and Sublessee subleases from
Sublessor, the Subleased Premises consisting of that certain Building containing
approximately 58,785 square feet and adjacent parking areas shown on Exhibit B.
The parties hereto acknowledge that the Subleased Premises as identified on
Exhibit B is subject to change pursuant to the Second Amendment, and that in the
event of such a change, Sublessor shall provide Sublessee with a new Exhibit B
and the Subleased Premises shall be redefined as set forth on such new Exhibit
B. Sublessee shall also have the right to use at least 215 parking spaces on or
about the Subleased Premises (21 of which Sublessee may reserve and designate
for the use of its visitors, employees and vendors).

        2. Master Lessor's Development of Adjacent Property: Sublessee
acknowledges that Master Lessor intends to develop a certain portion of the land
adjacent to the Subleased Premises which will include construction of additional
building(s) ("Master Lessor Development"). Sublessee acknowledges that Master
Lessor has covenanted not to unreasonably interfere with Sublessee's operations
on, or occupancy of the Subleased Premises ("Master

<PAGE>   2
Lessor Interference"). Sublessor shall not be held liable or responsible to
Sublessee for any Master Lessor Interference.

        3. Use: The Subleased Premises shall be used for general office,
software development, sales, research, development, light manufacturing,
shipping, receiving, storage and any other related and legally permitted uses
and for no other purpose without Master Lessor's and Sublessor's prior written
consent.

        4. Term: The term ("Term") of this Sublease shall commence on July 1,
2000 ("Commencement Date"), and, subject to Sublessee's right to an Extension
Term (as defined in Paragraph 5 hereof), shall terminate on the earliest to
occur of: (a) the eighth anniversary of the Commencement Date of the Sublease,
(b) the date this Sublease is sooner terminated pursuant to its terms, or (c)
the date the Master Lease is sooner terminated pursuant to its terms.
Notwithstanding the foregoing, Sublessee shall be permitted access to the
Subleased Premises thirty (30) days prior to the Commencement Date to install
furniture, fixtures and equipment. Such access shall be on all of the terms and
conditions of this Sublease with the exception of the Base Rent obligations set
forth in Paragraph 7.A. hereof.

        5. Extension of Term: No later than One Hundred and Twenty (120) days
prior to the end of the Term, Sublessee shall deliver written notice to
Sublessor as to whether Sublessee desires to extend the Term of this Sublease
for an additional period commencing on the expiration of the initial Term and
terminating on May 31, 2013 ("Extension Term"). The "Term" of this Sublease
shall include the Extension Term, once exercised. The monthly rent payable for
the Extension Term shall be the greater of the Base Rent during the final full
month of the initial Term or the then current market rate which shall be
determined in accordance with the terms attached hereto as Exhibit D. Sublessee
shall give Sublessor access to the Subleased Premises during the last ninety
(90) days before the end of the Extension Term so that Sublessor can plan for
and cooperate with Sublessee to perform any required surrender obligations.
During such access, Sublessor shall not unreasonably interefere with any ongoing
operations of Sublessee.

        6. Delivery and Acceptance/Condition of Premises: Sublessor, at
Sublessor's sole cost and expense, shall deliver the Subleased Premises to
Sublessee on the Commencement Date with all building systems and subsystems,
including, but not limited to, HVAC, roof membrane, electrical, plumbing and
parking lot in good working order and condition. Sublessor represents that on
June 1, 2000, the clean rooms at the Subleased Premises shall meet federal clean
room classification standard 209e "as built." Sublessor also represents and
warrants that the Premises currently comply with: (i) all municipal, state and
federal statutes, rules, regulations, ordinances, requirements, or orders
("Laws"), including those requiring installation of fire sprinkler systems,
seismic reinforcement and asbestos removal; and (ii) the Americans With
Disabilities Act, and Sublessor shall promptly pay for and perform any action
required to address any non-compliance with respect to the foregoing subsections
(i) and (ii); provided; however, that Sublessor makes no representation or
warranty regarding compliance with Laws that might be triggered as a result of
Sublessee's construction of alterations or improvements in the Subleased
Premises and Sublessee shall pay for, and perform any actions required to remedy
any non-compliance with Laws triggered by Sublessee's performance of such
alterations or improvements. Except as

                                      -2-
<PAGE>   3
specifically set forth in this Paragraph 6, Sublessor makes no representations
or warranties of any kind or nature, express or implied, with respect to the
Subleased Premises and Sublessee accepts the Subleased Premises "as is."

        7. Rent:

               (a) Base Rent. During the Term, Sublessee shall pay to Sublessor
as base monthly rent ("Base Rent") the following:

<TABLE>
<CAPTION>
Months                             Rent Per Square Foot           Total Base Rent
------                             --------------------           ---------------
<S>                                <C>                            <C>
Commencement Date to 6/30/01            $1.55                        $ 91,116.75
7/1/01 to 6/30/02                       $1.612                       $ 94,761.42
7/1/02 to 6/30/03                       $1.67648                     $ 98,551.88
7/1/03 to 6/30/04                       $1.7435392                   $102,493.95
7/1/04 to 6/30/05                       $1.8132808                   $106,593.71
7/1/05 to 6/30/06                       $1.885812                    $110,857.46
7/1/06 to 6/30/07                       $1.9612445                   $115,291.76
7/1/07 to 6/30/08                       $2.0396943                   $119,903.43
</TABLE>

The parties (including Master Lessor by its initials set forth below)
acknowledge that included as part of the Base Rent amounts set forth above is
$.20 per square foot per month paid as reimbursement to Sublessor for amounts
spent to construct the existing improvements in the Subleased Premises. Thus,
for the purpose of determining the amount of Base Rent allocable as bonus rent
payable to Master Lessor pursuant to Paragraph 24.B.(2) of the Master Lease, the
"Rent Per Square Foot" amounts set forth above shall be reduced by $.20 per
square foot before determining the amount of Base Rent used for the calculation
of the bonus rent amount.

-------
Master Lessor's Initials

               (b) Base Rent and Additional Rent (as defined in subparagraph
7(c) hereof), except as otherwise set forth in subparagraph 7(c) hereof, shall
be paid to Sublessor on or before the first (1st) day of each month during the
Term. Base Rent and Additional Rent (as defined in subsection (c) below)
(collectively, "Rent") for any period during the Term hereof which is for less
than one month of the Term shall be a pro rata portion of the monthly
installment based on the actual number of days in such month. Rent shall be
payable without notice or demand and without any deduction, offset, or abatement
except as expressly set forth herein, in lawful money of the United States of
America. Rent shall be paid directly to Sublessor at 1710 Automation Parkway,
San Jose, CA 95131, Attention: Accounts Receivable, or such other address as may
be designated in writing by Sublessor at least five (5) days in advance.
Notwithstanding the foregoing, upon execution of this Sublease by Sublessee,
Sublessee shall pay to Sublessor the sum of Ninety-One Thousand One Hundred and
Sixteen Dollars and Seventy-Five Cents ($91,116.75) as prepayment of rent for
credit against the first installment of Base Rent due hereunder with any
resulting excess being applied to the second installment of Base Rent due

                                      -3-
<PAGE>   4
hereunder, and shall deposit with Sublessor Ninety One Thousand Dollars
($91,000.00) as a security deposit.

               (c) Additional Rent. All monies other than Base Rent required to
be paid by Sublessee under this Sublease with respect to the Subleased Premises
(including, without limitation, Additional Rent as defined in the Master Lease
and all other payments to be made by Sublessor to Master Lessor which are the
obligation of Sublessee by virtue of the incorporation provision of Paragraph 13
of this Sublease) shall be deemed additional rent ("Additional Rent"). Sublessee
shall pay such amounts of Additional Rent to Sublessor on the following basis:
(i) For any estimated payments owed by Sublessor to Master Lessor in connection
with the Subleased Premises which Sublessor is required to pay at the same time
as the Monthly Installment (as defined in the Master Lease) ("Estimated
Payments") and for any monthly payment made by Sublessor pursuant to any ongoing
maintenance or landscaping contracts ("Contract Payments") - within ten (10)
days following the date upon which Sublessor delivers an invoice to Sublessee
for such Estimated Payments or Contract Payments, but in any event no earlier
than the date such Estimated Payments or Contract Payments are due to be paid by
Sublessor; and (ii) For any payments required to be paid by Sublessor in
connection with the Subleased Premises which are not Estimated Payments pursuant
to the Master Lease - pursuant to the terms of the Master Lease, provided that
Sublessee shall not be obligated to pay any late fees or penalties due to Master
Lessor as a result of Sublessor's failure to deliver any Additional Rent to
Master Lessor, except to the extent such failure is caused by Sublessee.

        8. Enforcement of Master Lessor's Obligations: In enforcing performance
of all such obligations of Master Lessor, Sublessor shall (a) upon Sublessee's
written request, promptly notify Master Lessor of its nonperformance under the
Master Lease and request that Master Lessor perform its obligations under the
Master Lease, and (b) permit Sublessee to commence a lawsuit or other action in
Sublessee's name (and assign to Sublessee any rights of Sublessor required in
connection therewith), or commence a lawsuit or other action in Sublessor's
name, to obtain the performance required from Master Lessor under the Master
Lease, provided that (i) Sublessee pays any and all costs, expenses, liabilities
or damages of any kind or nature incurred in connection with or arising out of
any such lawsuit or other action; and (ii) uses counsel reasonably acceptable to
Sublessor in the pursuit of such lawsuit. Sublessee shall promptly provide
Sublessor a copy of any and all pleadings to be filed in any such lawsuit.

        9. Release and Waiver of Subrogation: The waivers of rights of recovery
and subrogation set forth in Paragraph 9.E. of the Master Lease incorporated
herein pursuant to Paragraph 13 hereof shall be deemed a three-party agreement
binding among and inuring to the benefit of Sublessor, Sublessee and Master
Lessor (by reason of its consent hereto).

        10. Surrender: Sublessee shall not be permitted to make any alterations,
improvements or additions, ("Alterations") to the Subleased Premises without the
advance written consent of Master Lessor (pursuant to the terms of the Master
Lease) and Sublessor. Sublessor's consent to an Alteration shall not be
unreasonably withheld or delayed and Sublessor may: (i) require that Sublessee
remove the Alterations from the Subleased Premises at the end of the Term.; and
(ii) place such conditions on its consent as it determines, in the reasonable
exercise of its discretion, including, without limitation, such financial
assurance as Sublessor

                                      -4-
<PAGE>   5
determines will protect Sublessor with respect to the completion of such
Alterations and the satisfaction of Sublessee's surrender requirements
hereunder. Sublessor must reply to any request of Sublessee for consent to
Alterations within ten (10) days following receipt by Sublessor of Sublessee's
request for consent and if Sublessor's response is not so provided, Sublessor's
consent shall be deemed granted. If Master Lessor or Sublessor does not consent
to the surrender of such Alterations at the expiration or earlier termination of
the Term, then prior to expiration or earlier termination of this Sublease,
Sublessee shall remove from the Subleased Premises, at Sublessee's sole cost and
expense, such Alterations, along with all of its trade fixtures and personal
property (provided, that in no event shall Sublessee be required to remove any
Alterations made to the Subleased Premises by Sublessor), and shall surrender
the Subleased Premises to Sublessor in good condition and repair, free of
Hazardous Materials (defined below) brought on to the Subleased Premises by
Sublessee, its agents, employees, subtenants or invitees or otherwise resulting
from Tenant Contamination (defined below), reasonable wear and tear, casualties
and condemnation, and damage caused by Master Lessor or Sublessor excepted. If
the Subleased Premises are not so surrendered, then Sublessee shall be liable to
Sublessor for all costs incurred by Sublessor (including any charges by Master
Lessor under the Master Lease) in returning the Subleased Premises to such
required condition, plus interest thereon at the lesser of twelve (12) percent
per annum or the maximum rate allowable by law. Sublessor shall provide, at no
charge to Sublessee, as-built architectural and engineering drawings including
the master background, and any other plans of areas outside of the Subleased
Premises for the planning and construction of the Sublessee's improvements in
the Subleased Premises.

        11. Subordination: Sublessor agrees to use commercially reasonable
efforts to obtain through Master Lessor and for the benefit of Sublessee, in
form reasonably acceptable to Sublessee, a Subordination and Non-Disturbance
Agreement from any existing lenders with a security interest in the ownership of
the Subleased Premises.

        12. Holdover: If Sublessee remains in possession of the Subleased
Premises after the expiration or earlier termination of this Sublease,
Sublessee's continued possession shall be as a sublessee from month to month of
Sublessor and Sublessee shall continue to comply with and perform all the terms
and obligations of the Sublessee under this Sublease and pay Sublessor holdover
Base Rent equal to one hundred and twenty-five percent (125%) of the Base Rent
payable immediately preceding the termination of this Sublease plus actual
Additional Rent. Sublessee shall indemnify, protect, defend and hold harmless
Sublessor, its officers, directors, employees, agents and assigns, from and
against all loss and liability resulting from Sublessee's delay in surrendering
the Subleased Premises.

        13. Other Sublease Terms:

               (a) Incorporation By Reference. Except as otherwise provided in
or modified by this Sublease, the terms, provisions and conditions contained in
the Master Lease are incorporated herein by reference, and are made a part
hereof as if set forth herein at length; provided, however, that: (i) each
reference in such incorporated sections to "Lease" shall be deemed a reference
to "Sublease"; (ii) each reference to the "Premises," "Project" and "Total
Project" shall be deemed a reference to the "Subleased Premises" as defined
herein; (iii) each reference to "Landlord" and "Tenant" shall be deemed a
reference to "Sublessor" and

                                      -5-
<PAGE>   6
"Sublessee", respectively; (iv) with respect to work, services, repairs,
restoration, insurance, capital improvements, or the performance of any other
obligation of Master Lessor under the Master Lease, the sole obligations of
Sublessor shall be as set forth in Paragraph 8 hereof; (v) with respect to any
obligation of Sublessee the non-performance of which would constitute a default
under Paragraph 14.A.2 of the Master Lease as incorporated into this Sublease,
Sublessee shall have twenty-eight (28) days to perform the obligation; provided
that it would reasonably take longer than twenty-eight (28) days to perform the
obligation, Sublessee shall commence such obligation within such twenty-eight
day period and diligently prosecute such obligation to completion; (vi)
Sublessor shall have no liability to Sublessee with respect to (a)
representations and warranties made by Master Lessor under the Master Lease, (b)
any indemnification obligations of Master Lessor under the Master Lease or other
obligations or liabilities of Master Lessor with respect to compliance with laws
or condition of the Premises, and (c) Master Lessor's repair, maintenance,
restoration, upkeep, insurance and similar obligations under the Master Lease,
regardless of whether the incorporation of one or more provisions of the Master
Lease into the Sublease might otherwise operate to make Sublessor liable
therefor other than to use reasonable efforts to obtain Master Lessor's
compliance with the same as set forth in subparagraph 13(a)(iv) hereof; and
provided further that nothing in the foregoing shall abrogate, modify, detract
from or diminish any obligation of Master Lessor under the Master Lease or any
obligation of Sublessor to Master Lessor; (vii) with respect to any approval or
consent required to be obtained from the "Landlord" under the Master Lease,
Sublessee shall be required to obtain such approval or consent from Master
Lessor and Sublessor, and the approval or consent of Sublessor may be withheld
if Master Lessor's approval or consent is not obtained, provided, however,
Sublessor's consent may not be unreasonably withheld if Master Lessor provides
its consent; (viii) all references to "Expansion Project", "Expansion Building"
"Improvement Agreement" and "Leasehold Improvements" shall be deleted and all
provisions to the extent applicable to those terms (including, without
limitation, language regarding amortization and recovery of amortized amounts)
shall not apply to Sublessee and shall not be incorporated herein; (ix) all
references to "Tenant Improvements" shall refer only to Sublessee Improvements
and any and all alterations or other improvements installed by, or at the
direction of Sublessee; and (x) the following provisions of the Master Lease are
expressly not incorporated herein by reference: Paragraphs 1, 2, 3, 4, 5.A.,
5.B., 5.E., 5.F., 5.G., 6, the last paragraph of Paragraph 13, 20A, 22, 33, 36,
37, 38.C, Exhibit A, Exhibit B, Exhibit C, Exhibit D and Exhibit F, and
Paragraphs 3, 5(d), 6(l), 8 and 9 of the Second Amendment. Notwithstanding
anything to the contrary in this Sublease, for the purposes of the Second
Amendment as incorporated herein, all references to Landlord shall mean Master
Lessor and not Sublessor.

               (b) Structural Repairs: In the event Sublessee is required to pay
for and perform any repairs to or maintenance or replacement of the "structural
elements of the Building" as defined in Section 11.A of the Master Lease, and
such repair, maintenance or replacement would constitute a capital expense under
generally accepted accounting principles as reasonably determined by Sublessor,
Sublessee shall perform such repair or maintenance (with the plan for such
repair or maintenance work reviewed and approved by Sublessor in the reasonable
exercise of its discretion) and Sublessor shall pay for and be reimbursed by
Sublessee for such capital expense on the following basis: (i) The cost of such
capital expense shall be amortized over the remainder of the term of the Master
Lease with interest on the unamortized balance at the then prevailing market
rate Sublessor would pay if it borrowed funds to construct

                                      -6-
<PAGE>   7
such capital expenses from an institutional lender, and Sublessor shall inform
Sublessee of the monthly amortization payment required to so amortize such
costs, and shall also provide Sublessee with the information upon which such
determination is made; and (ii) Sublessee shall pay such amortization payment
for each month after such capital expense is completed until the first to occur
of (i) the expiration of the Term (including the Extension Term if exercised by
Sublessee) or (ii) the end of the term over which such costs were amortized,
which amount shall be due at the same time the Base Rent is due hereunder.

               (c) Assumption of Obligations. This Sublease is and at all times
shall be subject and subordinate to the Master Lease and the rights of Master
Lessor thereunder. Sublessor shall not commit or permit an of its employees or
agents to commit on the Subleased Premises any act or omission which shall
violate any term or condition of the Master Lease. Sublessee hereby expressly
assumes and agrees during the Term of this Sublease: (i) to comply with all
provisions of the Master Lease which are required to be performed by Sublessee
hereunder; and (ii) to perform all the obligations on the part of the "Tenant"
to be performed under the terms of the Master Lease during the term of this
Sublease which are required to be performed by Sublessee hereunder. Sublessee
shall not commit (or permit to be committed by any subtenant, invitee, agent,
representative or contractor of Sublessee) on the Subleased Premises any act or
omission which shall violate any term or condition of the Master Lease. In the
event of termination of Sublessor's interest as "Tenant" under the Master Lease
for any reason, this Sublease shall terminate simultaneously (subject to any
other agreement which may exist between Sublessee and Master Lessor) with such
termination of Sublessor's interest. Sublessor shall not be permitted to
terminate the Master Lease in accordance with paragraphs 15 and 16 of the Master
Lease (or otherwise arising out of Master Lessor's uncured default under the
Master Lease) without the advance written consent of Sublessee; provided,
however, that no such consent shall be required if Sublessor determines, in the
reasonable exercise of its discretion, that Sublessee would not be able to
continue to satisfy the financial obligations of Sublessee under the Sublease.
If Sublessee denies such consent: (i) Sublessee shall be required to exercise
its option for the Extension Term; and (ii) Sublessee shall pay all costs and
expenses directly incurred in connection with Sublessor's actions to maintain
the Master Lease in full force and effect (after Sublessee's denial of consent
to terminate) including, without limitation, reasonable attorney's fees or other
related costs ("Master Lease Maintenance Costs"); provided, however, that such
Master Lease Maintenance Costs shall not include any costs and expenses that
Sublessor would otherwise incur under the Master Lease absent the termination
(i.e. ongoing rent, operating expense, tax and related financial obligations).
Sublessor shall provide notice to Sublessee before incurring any Master Lease
Maintenance Costs, and shall permit Sublessee the opportunity to perform such
actions and incur such costs in place of Sublessor. In the event of a conflict
between the provisions of this Sublease and the Master Lease, as between
Sublessor and Sublessee, the provisions of this Sublease shall control.
Sublessor shall have no liability to Sublessee for Sublessor's termination of
the Master Lease unless Sublessor violates the provisions of this Paragraph
13(c). Nothing contained in this Sublease shall limit Sublessor's liability to
Sublessee in the event this Sublease terminates as a result of the default of
Sublessor under the Master Lease (except that Sublessor shall not be liable to
Sublessee to the extent such default is caused by Sublessee).

                                      -7-
<PAGE>   8
               (d) Sublessor's Obligations under Master Lease. Sublessor shall
pay as and when due the Monthly Installment, Additional Rent (as such terms are
defined in the Master Lease) and all other sums due under the Master Lease
(except for costs, late charges or interest under the Master Lease resulting
from Sublessor's failure to perform its obligations thereunder, except to the
extent such failure is caused by Sublessee), and if Sublessor shall fail to do
so, then, no earlier than two (2) days after delivery of written notice from
Sublessee to Sublessor that such sum is due, if such sum is still not paid by
Sublessor to Master Lessor, Sublessee shall be entitled to make all payments of
Rent due under this Sublease directly to Master Lessor and set off such amounts
against Rent due or coming due under this Sublease. Sublessor shall perform all
other agreements, covenants and obligations of "Tenant" under the Master Lease
not required to be performed by Sublease hereunder, and shall not amend, modify
or alter the terms of the Master Lease without the prior written consent of
Sublessee.

        14. Quiet Enjoyment. The Sublessor covenants that, upon the Sublessee
paying Rent in a timely manner and observing in a timely fashion all of the
Sublessee's other obligations hereunder, the Sublessee may peaceably and quietly
have, hold and enjoy the Subleased Premises throughout the term, free from any
interference from Sublessor, subject to the terms and conditions provided
elsewhere in this Sublease.

        15. Notices: The address of each party shall be that address set forth
below their signatures at the end of this Sublease. Any party hereto may change
its address for the purposes of this Paragraph 15 by delivery of at least five
(5) days prior written notice of such change to the other party in the manner
set forth in this Paragraph. All notices, demands or communications in
connection with this Sublease shall be (i) in writing, (ii) properly addressed,
and (iii) either (a) sent by prepaid, certified mail, return receipt requested,
or (b) sent by recognized overnight courier service. In the event a party
refuses to accept delivery of a notice mailed in accordance herewith, such
notice shall be deemed received on the date such party refuses to accept
delivery. If a notice is received or deemed received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day. All notices
given to Master Lessor under the Master Lease shall be considered received only
when delivered in accordance with the Master Lease.

        16. Hazardous Materials: Sublessee shall use no Hazardous Materials in,
on, under or about the Subleased Premises or the building, except in accordance
with the terms and conditions of the Master Lease, and except for the types and
quantities of Hazardous Materials set forth on Exhibit C attached hereto, and
Sublessee shall indemnify, defend with counsel reasonably acceptable to
Sublessor, protect, and hold harmless Sublessor, its employees, agents,
contractors, stockholders, officers, directors, successors, personal
representatives, and assigns from and against all claims, actions, suits,
proceedings, judgments, losses, costs, personal injuries, damages, liabilities,
deficiencies, fines, penalties, damages, reasonable attorneys' fees, reasonable
consultants' fees, investigations, detoxifications, remediations, removals, and
expenses of every type and nature, to the extent caused by the use, release,
disposal, discharge or emission of Hazardous Materials on or about the Subleased
Premises during the Term of this Sublease by Sublessee or Sublessee's employees,
subtenants, agents or invitees other than Sublessor, Master Lessor or their
agents or employees ("Sublessee Contamination"). Sublessor shall indemnify,
defend and hold harmless Sublessee from and against all claims, suits,
judgments, losses, costs, personal injuries, damages, and expenses of every type
and nature directly or indirectly arising

                                      -8-
<PAGE>   9
out of or in connection with any Hazardous Material present at any time on or
about the Premises, or the violation of any environmental law relating to any
such Hazardous Material expect to the extent that any of the forgoing
constitutes Sublessee Contamination. "Hazardous Material" shall mean any
material or substance that is now or hereafter prohibited or regulated by any
statute, law, rule, regulation or ordinance or that is now or hereafter
designated by any governmental authority to be radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment (excluding,
however, Hazardous Material contained in office or janitorial products properly
and safely maintained by Sublessee).

        17. Conditions Precedent: It shall be an express condition precedent to
Sublessor's and Sublessee's obligations hereunder that, and this Sublease shall
not be effective unless and until Master Lessor has consented in writing to this
Sublease. If Master Lessor does not consent in writing to this Sublease within
ten (10) days after the full execution and delivery of this Sublease, then
either party may, at any time thereafter until such consent and non-disturbance
are obtained, terminate this Sublease upon written notice to the other,
whereupon any monies previously paid by Sublessee to Sublessor shall be
reimbursed to Sublessee.

        18. Assignment and Subletting: Subject to the approval of the Master
Lessor in accordance with the terms of the Master Lease, Sublessee shall have
the right to assign this Sublease or sub-sublet all or any part of the Subleased
Premises to any subsidiary or affiliate in which Sublessee has an ownership
interest, to any parent of Sublessee, to any subsidiary or affiliate in which
Sublessee's parent owns by means of an ownership interest, or to any entity into
which Sublessee may be merged or consolidated or which acquires all or
substantially all of Sublessee's assets or stock . Any other assignment or
sublease shall be made with the prior written consent of Sublessor, whose
consent shall not be unreasonably withheld, conditioned or delayed, and Master
Lessor, under the terms of the Master Lease. Any excess rent obtained through a
sub-sublease or assignment shall be shared equally between Sublessor and
Sublessee after first deducting Sublessee's costs for real estate commissions,
legal fees, and tenant improvements made specifically for such subtenant.

        19. Indemnity: Sublessee shall indemnify, defend, protect, and hold
Sublessor and its officers, agents, employees, successors and assigns
(collectively, "Sublessor's Agents") and Master Lessor harmless from and against
all claims, demands, actions, causes of action, losses and expenses
(collectively "Claims") which may be brought against Sublessor, Sublessor's
Agents or Master Lessor or which Sublessor, Sublessor's Agents or Master Lessor
may pay or incur by reason of any breach or default of this Sublease by
Sublessee, an intentional misrepresentation by Sublessee of the matters set
forth herein, or the negligence or willful misconduct of Sublessee or
Sublessee's employees, agents, contractors, or invitees in or about the
Subleased Premises during the Term to the extent that the Claims are not caused
by the negligence or willful misconduct of Sublessor or Sublessor's Agents.
Without limiting the generality of the foregoing, Sublessee shall indemnify,
defend, protect and hold Sublessor, Sublessor's Agents and Master Lessor
harmless from and against any Claims which may be brought against Sublessor,
Sublessor's Agents or Master Lessor or which Sublessor, Sublessor's Agents or
Master Lessor may pay or incur by reason of any violation of any laws by
Sublessee or its employees, agents or contractors.

                                      -9-
<PAGE>   10
        Sublessor shall indemnify, defend, protect, and hold Sublessee and its
officers, agents, employees, successors and assigns (collectively, "Sublessee's
Agents") harmless from and against all Claims which may be brought against
Sublessee or Sublessee's Agents or which Sublessee or Sublessee's Agents or may
pay or incur by reason of any breach or default of this Sublease by Sublessor,
an intentional misrepresentation by Sublessor of the matters set forth herein,
or the negligence or willful misconduct of Sublessor or Sublessor's employees,
agents, contractors, or invitees in or about the Subleased Premises during the
Term to the extent that the Claims are caused by the negligence or willful
misconduct of Sublessee or Sublessee's Agents. Without limiting the generality
of the foregoing, Sublessor shall indemnify, defend, protect and hold Sublessee
and Sublessee's Agents harmless from and against any Claims which may be brought
against Sublessee or Sublessee's Agents or which Sublessee or Sublessee's Agents
may pay or incur by reason of any violation of any laws by Sublessor or its
employees, agents or contractors.

        20. Signage: Sublessee shall be entitled to install an illuminated sign
on the exterior of the Premises and to use the monument signage in front of the
Building and on the Building, subject to Sublessor's consent which shall not be
unreasonably withheld (and shall be deemed granted if Master Lessor's consent is
obtained), subject to Master Lessor's consent under the terms of the Master
Lease and subject to applicable restrictions of Bayside Business Park and the
City of San Jose.

        21. Successors: This Sublease shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.

        22. Broker: Sublessor and Sublessee represent, warrant and agree that
they have not dealt with any brokers with a right to a commission arising out of
this Sublease except for CB Richard Ellis representing both Sublessee and
Sublessor. Each party agrees to hold the other party harmless from and against
all claims for brokerage commissions, finder's fees or other compensation made
by any other agent, broker, salesman or finder as a consequence of said party's
actions or dealings with such agent, broker, salesman, or finder. Sublessor
acknowledges and agrees that it will pay a Brokerage fee in accordance with its
listing agreement with Broker.

        23. Counterparts: This Sublease may be executed in one or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument. Signature copies may be detached
from the counterparts and attached to a single copy of this Sublease physically
to form one document. A facsimile counterpart signature delivered to each party
shall be deemed an original for the purpose of the execution of this Sublease.

        24. Entire Agreement: This Sublease and the provisions of the Master
Lease incorporated herein by the express terms of this Sublease constitute the
complete and exclusive agreement among the parties with respect to the matters
contained herein and supersede all prior written or oral agreements or
statements by and among the parties hereto regarding the same, provided that
this Sublease shall be at all times subject to all of the terms and conditions
of the Master Lease.

                                      -10-
<PAGE>   11
IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and
year first above written.

SUBLESSEE:                                SUBLESSOR:

NEW FOCUS, INC.                           KOMAG INCORPORATED

By:     /s/ Nicola Pignati                         By: /s/ Edward H. Siegler
        ------------------------------             -----------------------------
Printed                                   Printed

Name:   Nicola Pignati                             Name: Edward H. Siegler
        ------------------------------             -----------------------------

Its:    Chief Operating Officer                    Its: Chief Financial Officer
        ------------------------------             -----------------------------

Date:   5/16/00                           Date:    5/17/00
        ------------------------------             -----------------------------

Address:                                  Address:  1710 Automation Parkway
                                                    San Jose, CA 95131

Attention:                                Attention:

FAX:                                      FAX:

                                      -11-
<PAGE>   12
                                    EXHIBIT A

                                  Master Lease

                                (To be inserted)

<PAGE>   13
                                    EXHIBIT B

                               Subleased Premises

                                (To be inserted)

<PAGE>   14
                                    EXHIBIT C

                               Hazardous Materials

                                (To be inserted)

<PAGE>   15
                                    EXHIBIT D

                          Determination Of Market Rent

        If the option for the Extension Term is properly exercised by Sublessee,
the basic rent for the Subleased Premises shall become the then current fair
market monthly rent ("Fair Market Rent") for the Subleased Premises as of the
commencement date of the Extension Term, as determined by the agreement of the
parties or, if the parties cannot agree within sixty (60) days prior to the
commencement of such Extension Term, then by an appraisal. All other terms and
conditions contained in the Sublease, as the same may be amended from time to
time by the parties in accordance with the provisions of the Sublease, shall
remain in full force and effect and shall apply during the Extension Term.

        APPRAISAL. If it becomes necessary to determine the fair market rental
value for the Subleased Premises by appraisal, real estate appraiser(s), all of
whom shall be members of the American Institute of Real Estate Appraisers and
who have at least five (5) years experience appraising office space located in
the vicinity of the Subleased Premises shall be appointed and shall act in
accordance with the following procedures:

        (i) If the parties are unable to agree on the Fair Market Rent within
the allowed time, either party may demand an appraisal by giving written notice
to the other party, which demand to be effective must state the name, address
and qualifications of an appraiser selected by the party demanding an appraisal
(the "Notifying Party"). Within ten (10) days following the Notifying Party's
appraisal demand, the other party (the "Non-Notifying Party") shall either
approve the appraiser selected by the notifying party or select a second
properly qualified appraiser by giving written notice of the name, address and
qualification of said appraiser to the Notifying Party. If the Non-Notifying
Party fails to select an appraiser within the ten-(10) day period, the appraiser
selected by the Notifying Party shall be deemed selected by both parties and no
other appraiser shall be selected. If two appraisers are selected, they shall
select a third appropriately qualified appraiser. If the two appraisers fail to
select a third qualified appraiser, the third appraiser shall be appointed by
the then presiding judge of the county where the Premises are located upon
application by either party.

        (ii) If only one appraiser is selected, that appraiser shall notify the
parties in simple letter form of its determination of the Fair Market Rent for
the Subleased Premises within fifteen (15) days following his selection, which
appraisal shall be conclusively determinative and binding on the parties as the
appraised Fair Market Rent.

        (iii) If multiple appraisers are selected, the appraisers shall meet not
later than ten (10) days following the selection of the last appraiser. At such
meeting the appraisers shall attempt to determine the Fair Market Rent for the
Subleased Premises as of the commencement date of the extended term by the
agreement of at least two (2) of the appraisers.

        (iv) If two (2) or more of the appraisers agree on the Fair Market Rent
for the Subleased Premises at the initial meeting, such agreement shall be
determinative and binding upon the parties hereto and the agreeing appraisers
shall, in simple letter form executed by the agreeing

<PAGE>   16
appraisers, forthwith notify both Landlord and Tenant of the amount set by such
agreement. If multiple appraisers are selected and two (2) appraisers are unable
to agree on the Fair Market Rent for the Subleased Premises, all appraisers
shall submit to Landlord and Tenant an independent appraisal of the Fair Market
Rent for the Subleased Premises in simple letter form within twenty (20) days
following appointment of the final appraiser. The parties shall then determine
the Fair Market Rent for the Subleased Premises by averaging the appraisals;
provided that any high or low appraisal, differing from the middle appraisal by
more than ten percent (10%) of the middle appraisal, shall be disregarded in
calculating the average.

        (v) The appraisers' determination of Fair Market Rent shall be based on
rental of space of the same age, construction, size and location as the
Subleased Premises with the improvements installed therein and shall take into
account Tenant's obligations to pay additional rent under this Lease.

        (vi) If only one appraiser is selected, then each party shall pay
one-half of the fees and expenses of that appraiser. If three appraisers are
selected, each party shall bear the fees and expenses of the appraiser it
selects and one-half of the fees and expenses of the third appraiser.

<PAGE>   17
                                    EXHIBIT E

                             MASTER LESSOR'S CONSENT

(The capitalized terms used herein shall have the same meaning as those
given in the Sublease between Komag Incorporated. and New Focus, Inc.
dated May 16, 2000 for leased space in the building located at 300 Enzo
Drive, San Jose, California)

        The undersigned, as Master Lessor under the Sublease, hereby consents to
the Sublease on the terms set forth therein. This consent does not constitute
consent to any further sublease of the Subleased Premises; Master Lessor
reserves the right to approve or disapprove any such further sublease.

Dated:                                  "Master Lessor"

                                         ENZO Drive LLC, a California limited
                                         liability company

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

<PAGE>   18
                       SECOND AMENDMENT TO LEASE AGREEMENT

        This Second Amendment to Lease Agreement ("Second Amendment") is entered
into as of this 30th day of July, 1999 (the "Effective Date"), by and between
ENZO DRIVE, LLC, a California limited liability company ("Landlord") and KOMAG
INCORPORATED, a Delaware corporation ("Tenant"), successor-in-interest to
WESTERN DIGITAL CORPORATION, a Delaware corporation ("WDC").

                                    RECITALS

        A. Landlord and WDC entered into that certain Lease Agreement dated
September 15, 1997 (the "Original Lease"), pursuant to which Landlord leased to
WDC and WDC leased from Landlord that certain real property, consisting of
approximately 10.658 acres, more or less, located in the City of San Jose as
more particularly described in the Original Lease, together with that certain
R&D building containing approximately fifty-eight thousand seven hundred
eighty-five (58,785) square feet to be constructed on the Land by Landlord in
accordance with the terms of an Improvement Agreement attached to the Original
Lease.

        B. The Original Lease was amended by that certain First Amendment to
Lease Agreement dated January, 1998 (the "First Amendment"), to reflect the
transfer of the "Site" (as defined in the First Amendment) by Landlord to Great
Oaks Water Company. The Original Lease as amended by the First Amendment is
referred to herein as the "Lease". Unless otherwise defined herein, capitalized
terms used herein shall have the meanings given to them in the Lease.

        C. Pursuant to that certain Assignment and Assumption of Lease dated
April 5, 1999, WDC, as assignor, assigned all of its right, title and interest
in and to the Lease to Tenant, as assignee, however WDC was not released or
relieved of any of its obligations or duties under the Lease.

        D. Pursuant to the terms of the Lease, Tenant has the right to
construct, or cause to be constructed, the Expansion Project on the Land,
subject to the terms and conditions of the Lease. Tenant does not desire to
construct the Expansion Project, and Landlord desires to pursue the development
and construction of an expansion project or a second building on that portion of
the Land not occupied by the Building. Tenant is willing to waive and relinquish
its rights to construct the Expansion Project in consideration for a reduction
in the Monthly Installment of rent, and Landlord is willing to accept such
waiver and relinquishment and to agree to a reduction in the Monthly Installment
of rent, in the event Landlord requests and obtains (and subject to Landlord's
ability to obtain) site development approval from the City of San Jose for the
construction of a second building on the Land, on terms and conditions
acceptable to Landlord.

        E. Landlord and Tenant now desire to amend the Lease as more
particularly stated below

<PAGE>   19

             NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows;

        1. Waiver and Relinquishment of Right to Construct the Expansion
Project. Subject to the terms and conditions of Paragraph 8 hereof, Tenant
hereby waives and relinquishes the right provided to Tenant in Paragraph 2 of
the Lease to construct, or cause to be constructed, the Expansion Project on the
Land. From and after the Effective Date, but subject to the reinstatement of the
Lease terms pursuant to Section 8 below, Tenant shall have no right to construct
the Expansion Project or any portion thereof, and Tenant's rights in and to the
Land shall be as hereinafter set forth, and all references in the Lease to the
"Expansion Building(s)" and the "Expansion Project" shall be of no further
force or effect.

        2. Landlord's Right to Pursue Site Development and Related Approvals.
Landlord intends to pursue (and shall have the right to pursue) site development
approval from the City of San Jose for the development and construction on the
Land of an additional building consisting of approximately 100,186 square feet,
and related sitework, in the approximate location shown on the Conceptual Site
Plan attached as Exhibit A (the "Site Plan"). In conjunction with seeking such
site development approval, Landlord shall have the right, but not the
obligation, to seek approval of the City of San Jose of the parcelization of the
Land into two (2) parcels, having the approximate configuration shown on the
Site Plan. Tenant acknowledges that the Site Plan is preliminary only, and that
Landlord may pursue development of a building larger or smaller than that shown
on the Site Plan, and may seek to parcelize the Land in a manner other than as
shown on the Site Plan; provided, however, that Tenant's rights with respect to
the use of the Building and 200 parking spaces on the Premises shall not be
diminished thereby, and any and all of Tenant's obligations under the Lease
shall not be increased thereby.

        For purposes of this Second Amendment, the following terms shall have
the following meanings:

             (a) "Approval Date" shall mean the date on which Landlord obtains
the final approval of the City of San Jose of the Site Development Permit, and
all appeal periods applicable to such final approval having lapsed or expired
without any appeal or challenge then pending.

             (b) "Commencement of Construction" shall mean the date on which
Landlord commences construction of the foundation of the Second Building.

             (c) "Parcel 1" shall mean that portion of the Land on which the
Building is located.

             (d) "Parcel 2" shall mean that portion of the Land on which
Landlord proposes to construct the Second Building.

             (e) "Parcel Map" shall mean a parcel map parcelizing the Land into
Parcel 1 and Parcel 2, on terms and conditions acceptable to Landlord in its
sole and absolute discretion, with the parcel line between Parcel 1 and Parcel 2
being in the approximate location shown on the Site Plan, but subject to
adjustment in the sole and absolute discretion of Landlord; provided,

                                      -2-
<PAGE>   20

however, that Tenant's rights with respect to the use of the Building and 200
parking spaces on the Premises shall not be diminished thereby, and any and all
of Tenant's obligations under the Lease shall note be increased thereby.

             (f) "Second Building" shall mean the additional building Landlord
proposes to construct on the Land.

             (g) "Site Development Permit" shall mean a site development permit
approved by the City of San Jose for the construction of the Second Building, on
terms and conditions acceptable to Landlord in its sole and absolute discretion.

        In connection with Landlord's obtaining of the Parcel Map, Tenant
acknowledges that it may be necessary for Landlord to impose conditions,
covenants and restrictions and/or reciprocal easement agreements ("CC&Rs") on
the Land to provide for the operation and management of improvements to be used
in common and/or on a non-exclusive basis by the owners, tenants and occupants
of Parcel 1 and Parcel 2 (e.g., common driveways, parking spaces, storm drains
and utilities). Tenant hereby agrees to subordinate the Lease to such CC&Rs,
provided that the CC&Rs do not materially interfere with the rights of Tenant to
use and operate the Premises under the Lease or materially increase any or all
obligations of Tenant under the Lease.

        Among other things, the CC&Rs shall provide that (i) each owner will be
responsible for the repair and maintenance of its parcel, including any shared
or jointly used facilities, and (ii) the owner of Parcel 2 shall be obligated to
pay the owner of Parcel 1 a portion of the total costs of the maintenance,
repair and resurfacing of the parking areas on Parcel 1, in the same proportion
that the number of parking spaces located on Parcel 1 which the owner of Parcel
2 is entitled to use under the CC&Rs bears to the total number of parking spaces
located on Parcel 1.

        Landlord shall notify Tenant in writing of the Approval Date if Landlord
obtains the final approval of the City of San Jose of the Site Development
Permit Tenant acknowledges that Landlord makes no representation or warranty of
Landlord's ability to obtain the Site Development Permit or the Parcel Map, or
the time period within which Landlord may obtain the Site Development Permit or
the Parcel Map, and further acknowledges that Landlord may at any time elect not
to proceed with seeking any of such approvals. If Landlord elects to discontinue
its efforts obtain to the Site Development Permit, Landlord shall so notify
Tenant in writing, and the provisions of Section 8 below shall apply.

        3. Adjustment in Monthly. If Landlord obtains the approval of the City
of San Jose of the Site Development Permit; then effective on the Approval Date,
the Monthly Installment in effect as of the Approval Date shall be reduced to
Seventy-six Thousand Four Hundred Twenty Dollars and Fifty Cents ($76,420.50).
The Monthly Installment shall continue to be adjusted thereafter pursuant to
Paragraph 5.B.(2) of the Lease.

        4. Adjustment in Additional Rent. If Landlord obtains the approval of
the City of San Jose of the Site Development Permit, then effective on
Commencement of Construction, Tenant's obligation to pay those elements of
Additional Rent which relate to the Land (e.g., Real Property Taxes, maintenance
costs) shall be adjusted in a manner which depends on whether or

                                      -3-
<PAGE>   21

not the Parcel Map is obtained, and as more particularly set forth in Section 5
or Section 6 below, as applicable.

        5. Additional Amendment of Lease Terms - Parcelization of the Land. In
the event Landlord elects to, and is able to obtain the Parcel Map in connection
with (or at any time following) the approval of the Site Development Permit
and/or the construction of the Second Building, then effective on Commencement
of Construction, the Lease shall be further amended as follows:

             (a) Land. The definition of the term "Land" as set forth Paragraph
2(a) of the Lease shall be amended to refer to Parcel 1, and Exhibit A attached
to the Lease shall be deleted and replaced with the legal description of Parcel
1.

             (b) Total Project. The term "Total Project" shall mean and refer to
the Project.

             (c) Parking. In the event the number of parking spaces located on
the Land (i.e., Parcel 1) and the number of parking spaces located on Parcel 2,
respectively, satisfy the code requirements of the City of San Jose, Tenant
shall be entitled to use only those parking spaces located on the Land (with
such use being Tenant's exclusive use), and the owner of Parcel 2 shall not be
entitled to use parking spaces located on Parcel 1. Notwithstanding the
foregoing sentence, in no event shall Tenant be provided less than 200 parking
spaces on Parcel 1 (and if applicable, Parcel 2) for Tenant's use.

             In the event either the number of parking spaces located on the
Land (i.e., Parcel 1) or the number of parking spaces located on Parcel 2 does
not satisfy the code requirements of the City of San Jose, then the CC&Rs shall
provide the owner and tenant of Parcel 1 or Parcel 2 (as the case may be) the
right to use, on a non-exclusive basis, a sufficient number of parking spaces
located on the other parcel to satisfy the code requirements of the City of San
Jose. Tenant shall have the parking rights granted to the owner of Parcel 1
under the CC&Rs, and Tenant's use of Parcel 1 shall be subject to the rights to
the owner of Parcel 2 under the CC&Rs.

             (d) Maximum Secured Borrowings. Paragraph 20.A. of the Lease shall
be deleted.

        6. Additional Amendment of Lease Terms - No Parcelization of the Land.
In the event Landlord does not elect to, or is not able to obtain the
parcelization of the Land on terms and conditions acceptable to Landlord in
connection with approval of the Site Development Permit and/or construction of
the Second Building, then the terms and conditions of Section 5. shall not apply
and, effective as of the Commencement of Construction, the Lease shall instead
be further amended as follows:

             (a) Premises. The term "Premises" shall mean the Building, together
with certain rights in the Land appurtenant thereto, as more particularly set
forth below.

             (b) Land. In addition to the real property described in Paragraph
2(a) of the Lease, the term "Land" shall mean and include the site improvements
constructed or to be constructed by Landlord outside the exterior of the
Building and the Second Building, consisting

                                      -4-
<PAGE>   22

of parking areas, sidewalks, access driveways, landscaping and other site
improvements shown on the Site Plan or as constructed in accordance with the
Site Development Permit.

             Tenant shall have the following rights with respect to the Land:
(i) the nonexclusive right to use not more than two hundred (200) parking spaces
on the Land not allocated for the exclusive use of another tenant of Landlord;
and (ii) such other rights as are necessary and convenient to Tenant's
possession of the Premises or performance of Tenant's obligations under this
Lease. In addition, Landlord grants to Tenant a non-exclusive easement for
vehicular ingress and egress in and over the paved roadways on the Land and
pedestrian ingress and egress in and over the Land.

             Landlord reserves the right to grant to tenants of the other
building which now exists or may hereafter be constructed upon the Land, and to
the agents, employees, servants, invitees, contractors, guests, employees,
savants, invitees, contractors, guests, customers and representatives of such
tenants or to any other user authorized by Landlord, the non-exclusive right to
use the Land for pedestrian and vehicular ingress and egress and vehicular
parking and the exclusive right to use parking spaces on the Land.

             (c) Total Project. The term "Total Project" shall mean and refer to
the Project.

             (d) Rent During Extended Term. Paragraph 5.G. of the Lease shall be
amended as follows:

                    (i) In the fourth line, the word "Project" shall be deleted
and replaced with the word "Premises".

                    (ii) In the eleventh through the thirteenth lines, the words
"and without taking into consideration the value of the Expansion Project
constructed or installed by Tenant at Tenant's sole cost" shall be deleted.

                    (iii) The last sentence of Paragraph 5.G. shall be deleted.

             (e) Prorata Share. The term "Prorate Share" shall mean the
percentage determined by dividing the square footage of gross leasable area in
the Building by the total of square footage of gross leasable area of the
Building and the Second Building. In the event the Second Building is comprised
of 100,186 gross square feet, then Tenant's Prorata Share shall be thirty-seven
percent (37%).

             (f) Property Taxes. The first sentence of Paragraph 8.B. of the
Lease shall be deleted and replaced with the following sentence:

             "Tenant shall pay, as additional rent, (i) Tenant's Prorata, Share
of all Property Taxes levied or assessed with respect to the Land and (ii) all
Property Taxes levied or assessed with respect to the Building and Tenant
Improvements referred to in Paragraph 2 above which become due or accrue during
the Term of this Lease."

                                      -5-
<PAGE>   23

             In addition, the portion of the last sentence of the first
paragraph of paragraph 8.B. reading "however, the amount of Property Taxes
allocable to the entire Land shall not be prorated based on the fact that the
Expansion Building(s), if applicable, may be completed after the Building" shall
be deleted.

             (g) Insurance . The first sentence of Paragraph 9.B. of the Lease
shall be deleted and replaced with the following sentence:

             "Tenant shall, at Tenant's expense, obtain and keep in force during
the term of this Lease a policy of commercial general liability insurance
insuring Landlord and Tenant against (i) claims and liabilities arising out of
the operation, use, or occupancy of the Building, and (ii) claims and
liabilities arising out of the operation, use, or occupancy of the Land and all
areas appurtenant thereto, including parking areas, by Tenant sad Tenant's
agents, employees, contractors and invitees."

             (h) Utilities. The first paragraph of Paragraph 10 of the Lease
shall be deleted and replaced with the following:

             Tenant shall pay for (i) all water, gas, light, heat, power,
electricity, telephone, trash pick-up, sewer charges and all other services
supplied to or consumed in the Building, and all taxes and surcharges thereon,
and (ii) Tenant's Prorata Share of all water, gas, light, power, electricity,
trash pick-up, sewer charges and all other services supplied to or consumed on
the Land or in connection with the site improvements (comprising part of the
Land as defined in Section 6(b) above), and all taxes and surcharges thereon.

             Tenant shall reimburse Landlord for its Prorata Share of utilities
provided to the Land and Site Improvements in the same manner as set forth in.
Section 6(i)(i) below.

             (i) Repairs and Maintenance. -

                    (i) Landlord's Repairs. Paragraph 11.A shall be amended by
adding the following paragraphs:

                    Landlord shall keep and maintain the Land in good order and
repair. The manner in which the Land shall be maintained and the expenditures
for such maintenance shall be at the reasonable discretion of Landlord. The term
"repair" shall include replacements, restorations and/or renewals when
necessary. Tenant shall reimburse Landlord for Tenant's Prorata Share of the
cost of maintenance and repairs of the Land, unless such maintenance or repair
is required because of the negligence or willful misconduct of Tenant or its
employees, agents or invitees, in which event Tenant shall reimburse Landlord
for the entire cost thereof. To the extent any costs incurred by Landlord to
maintain or repair (as defined above in this paragraph) the Land shall
constitute a capital expenditure(s), such capital expenditure(s) shall be
amortized at ten percent (l0%) per annum over the reasonably estimated useful
life of the repair or maintenance item, and Tenant shall reimburse Landlord
monthly for Tenant's Prorata Share of such amortized cost commencing on the date
such maintenance or repair item is completed through the earlier of (i) Lease
termination, or (ii) the expiration of the amortization period. Landlord shall
notify Tenant of the amount of such reimbursement promptly following the date
such capitalized maintenance or repair item is completed.

                                      -6-
<PAGE>   24

                    Landlord shall have no obligation to make repairs to the
Land under this Subparagraph until a reasonable time after receipt of written
notice from Tenant of the need for such repairs. However, in the event of
circumstances posing imminent risk of personal injury or property damage,
Tenant, upon notice to Landlord, shall have the right, but not the obligation,
to make such repairs and Landlord shall reimburse Tenant the reasonable cost
thereof within thirty (30) days after presentation of Tenant's invoice.

                    Tenant shall pay Tenant's Prorata Share of the cost of
maintenance and repairs of the Land to Landlord as Additional Rent and without
deduction or offset. Payment of Tenant's Prorata Share of the cost of
maintenance and repairs of the Land by Tenant shall be made by whichever of the
following methods is from time to time designated by Landlord, and Landlord may
change the method of payment at any time. Tenant's Prorata Share of the cost of
maintenance and repairs of the Land actually incurred or paid by Landlord but
not theretofore billed to Tenant, as invoiced by Landlord, shall be payable by
Tenant within ten (10) days after receipt of Landlord's invoice, but not more
often than once each calendar month. Alternatively, Tenant's payment of Tenant's
Prorata Share of the cost of maintenance and repairs of the Land shall be based
upon Landlord's estimate thereof and shall be payable in equal monthly
installments in advance on the first day of each calendar month commencing with
the month following receipt of Landlord's estimate (and subject to Landlord's
right to change the method of payment). Within one hundred twenty (120) days
after the end of each calendar year (or at Lease termination), Landlord shall
furnish Tenant a statement showing the actual costs of maintenance and repair of
the Land for the period to which Landlord's estimate pertains and shall
concurrently either bill Tenant for the balance due (payable upon demand by
Landlord) or credit Tenant's account for the excess previously paid.

                    (ii) Tenant's Repairs. Paragraph 11.B. shall be amended by
deleting the words "parking areas, exterior landscaping". Landlord, and not
Tenant, shall maintain and repair the Land (including, without limitation, the
site improvements comprising part of the Land).

             (j) Alterations. Paragraph 12 of the Lease shall be amended to
provide that Tenant shall make no alterations to the Land (including, without
limitation, the site improvements comprising part of the Land).

             (k) Condemnation. Paragraph 16.A of the Lease shall be amended to
provide that the reference to "parking areas" shall mean and refer to the number
of parking spaces allocated for Tenant's use in Section 6(b) above.

             (1) Maximum Secured Borrowings. Paragraph 20.A of the Lease shall
be deleted. Any Security Instrument may encumber the Land, the Building and the
Second Building.

             (m) Landlord Loan or Sale. Paragraph 27 of the Lease shall be
amended to provide that any deed of trust or mortgage may cover the Land, the
Building and the Second Building.

        7. Additional Amendment of Lease Terms - Subsequent Parcelization. If
the Land is parcelized at any time after the initial approval of the Site
Development Permit and/or

                                      -7-
<PAGE>   25

construction of the Second Building, then effective as of the date of such
parcelization, the Lease shall be amended as provided in Section 5 above.

        8. Reinstatement of Lease Terms. In the event Landlord determines, at
any time prior to Landlord's receipt of the Site Development Permit, to abandon
its efforts to obtain the Site Development Permit, Landlord shall so notify
Tenant in writing (the "Reinstatement Notice"). Effective on the date of the
Reinstatement Notice, this Second Amendment shall be of no further force or
effect, and the terms and conditions of the Lease (including, without
limitation, Tenant's right to construct, or cause to be constructed, the
Expansion Project) shall be reinstated in full. Notwithstanding the foregoing,
or anything to the contrary in this Second Amendment, in the event that the
Approval Date (as defined in Section 2(a) above) has not occurred on or before
July 31, 2000, this Second Amendment shall be of no further force or effect, and
the terms and conditions of the Lease (including, without limitation, Tenant's
right to construct, or cause to be constructed the Expansion Project) shall be
reinstated in full.

        9. Consents. The effectiveness of this Second Amendment is expressly
subject to and conditioned upon (i) Landlord's obtaining the approval of its
lender, Comerica-Bank California ("Lender"), to the terms and conditions hereof,
and (ii) Tenant obtaining the approval of WDC to the terms and conditions
hereof. Landlord and Tenant, respectively, agree to use reasonable efforts to
obtain the consent of Lender and WDC, respectively, to this Second Amendment as
soon as reasonably possible, and prior to the execution hereof if so required.

        10. No Increase in Tenant Obligations/Decrease in Rights: Except as
otherwise expressly provided in this Second Amendment, in no event shall:

             (i) Tenant's obligations under the Lease (financial or otherwise)
be increased in any material manner by virtue of Landlord's development of
Parcel 2 (and in no event shall any Additional Rent obligations of Tenant under
the Lease be increased by virtue of Landlord's development of Parcel 2); and

             (ii) Tenant pay, or be responsible for in any respect, any costs,
charges, losses or expenses, of any kind or nature, associated with Landlord's
development of Parcel 2 (except to the extent such costs, charges, losses or
expenses are caused by, result from or are related to the acts, omissions,
negligence or willful misconduct of Tenant or any of its agents, employees,
contractors, guests, invitees, licensees or other representatives); and

             (iii) Tenant's rights under the Lease (other than Tenant's right to
use Parcel 2 for other than parking purposes as set forth herein, and Tenant's
rights to the Expansion Project as set forth herein) be in any material manner
diminished by Landlord's development of Parcel 2.

        11. Landlord's Indemnity: Landlord shall defend, indemnify and hold
harmless Tenant and its officers, directors, employees, agents, assignees and
sublessees under the Lease, invitees and representatives, from and against any
and all claims, damages, losses, costs and expenses, including attorneys' fees,
and any other losses of any kind or nature, whether direct or indirect, relating
in any way to or arising out of the negligence or willful misconduct of
Landlord, its officers, directors, employees, agents, representatives,
contractors or subcontractors

                                      -8-
<PAGE>   26

relating in any way to the development of Parcel 2 by Landlord; provided,
however, in no event shall Landlord be liable under this Section 11 for any
claims of lost profits, loss of business or loss of income.

        12. Landlord's Insurance: From Commencement of Construction to the
completion of the development of Parcel 2, Landlord (or if the development is to
be performed by a general contractor, the general contractor) shall be required
to maintain the following insurance at its own cost and expense and shall
provide Tenant certificates demonstrating proof of such insurance:

             (i) Worker's Compensation and Employer's Liability Insurance in an
amount not less than the amount prescribed by law;

             (ii) Comprehensive Automobile Liability Insurance (owned,
non-owned, and hired) with limits of not less than One Million Dollars
($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the
aggregate; and

             (iii) Commercial General Liability Insurance with limits of not
less than One Million Dollars ($1,000,000) per occurrence and Two Million
Dollars ($2,000,000) in the aggregate which policy shall have broad-form
contractual liability coverage and umbrella and excess coverage also having
broad-form contractual liability coverage with a limit of not less than Five
Million Dollars ($5,000,000) each occurrence and in the aggregate.

Tenant, any future assignee of the Lease or sublessee under the Lease (of whom
Landlord has received written notice) and WDC shall be named additional insureds
on the policies set forth in Paragraph 12(ii) and (iii) above. All
subcontractors shall maintain the same insurance as provided in 12(i) through
(iii) above except to the extent the subcontractor would already be covered
under the insurance to be maintained under Paragraph 12(i) through (iii) by
Landlord or its general contractor, as applicable. The insurance to be
maintained by Landlord (if applicable) hereunder is subject to the waiver of
subrogation provisions of Paragraph 9E of the Lease (but only to the extent of
property damage covered by such insurance). The insurance policies provided in
Paragraph 12(i) through (iii) shall provide that Tenant shall be notified thirty
(30) days in advance of the cancellation date of such policies. In the event
that the parties required to maintain insurance hereunder fail to maintain such
insurance, Tenant shall have the right to acquire such insurance and bring an
action against Landlord for reimbursement of such insurance premium reasonably
paid by Tenant in curing Landlord's default.

        13. Non-Interference With Tenant's Operations. In no event shall
Landlord's development of Parcel 2 unreasonably interfere with Tenant's (or its
assignee's or sublessee's) operations on, occupancy or use of the Premises.
After Commencement of Construction and during the course of construction until
completion of the development of Parcel 2, Landlord shall provide Tenant, on a
monthly basis, a schedule of planned development activities.

        14. Subordination. Notwithstanding anything to the contrary in the
Lease, the Lease and this Second Amendment shall not be subject to or
subordinate to any future ground or underlying lease or to any future lien,
mortgage, deed of trust, or security interest hereafter

                                      -9-
<PAGE>   27

affecting the Premises (a "Future Security Interest"), nor shall Tenant be
required to execute any documents subordinating the Lease and this Second
Amendment to any such Future Security Interest, unless the ground lessor, lender
or other holder of the interest to which the Lease and this Second Amendment
shall be subordinated contemporaneously executes a recognition and
non-disturbance agreement which (i) provides, inter alia, that the Lease and
this Second Amendment shall not be terminated so long as Tenant is not in
default under the Lease, as amended by this Second Amendment, and (ii)
recognizes all of Tenant's rights under the Lease, as amended by this Second
Amendment.

        15. Effect of Amendment. Except as otherwise modified by this Second
Amendment, the terms of the Lease shall remain unmodified and in full force and
effect. In the event of any conflict or inconsistency between the terms of this
Second Amendment and the Lease, the terms of this Second Amendment shall
control.

        16. Counterparts. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original, and which together shall constitute
one instrument.

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

                                       LANDLORD:

                                       ENZO DRIVE, LLC,
                                       a California limited liability company

                                       By:  /s/ SCOTT R. TROBBE
                                          ------------------------------------

                                       Name:  Scott R. Trobbe
                                            ----------------------------------

                                       Its:  Member
                                           -----------------------------------

                                       TENANT:

                                       KOMAG INCORPORATED,
                                       a Delaware corporation

                                       By:  /s/ WILLIAM L. POTTS JR.
                                          ------------------------------------

                                       Name: William L. Potts, Jr.
                                            ----------------------------------

                                       Its: SVP., CFO.
                                           -----------------------------------

                                      -10-
<PAGE>   28

The terms and conditions of the foregoing Second Amendment to Lease Agreement
are accepted and agreed to:

WDC:

WESTERN DIGITAL CORPORATION,
a Delaware corporation

By:  /s/ CINDY M. CAMPOS
   ------------------------------------

Name: Cindy M. Campos
     ----------------------------------

Its: Real Estate Specialist
    -----------------------------------

                                      -11-
<PAGE>   29

                                   EXHIBIT A

                                   Site Plan

                                [to be attached}

                                      -1-
<PAGE>   30

                       FIRST AMENDMENT TO LEASE AGREEMENT

        This First Amendment to Lease Agreement is entered into as of this day
of January, 1998, by and between ENZO DRIVE, LLC, a California limited liability
company ("Landlord") and WESTERN DIGITAL CORPORATION, a Delaware corporation
("Tenant").

                                    RECITALS

        A. Landlord and Tenant have entered into that certain Lease Agreement
dated September 15, 1997 (the "Lease") pursuant to which Landlord leased to
Tenant and Tenant leased from Landlord that certain real property, consisting of
approximately 10.658 acres, more or less, located in the City of San Jose as
more particularly described in the aforementioned Lease (the "Land") together
with that certain R&D building containing approximately fifty-eight thousand
seven hundred eighty-five (58,785) square feet to be constructed on the Land by
Landlord in accordance with the terms of an Improvement Agreement attached to
the Lease (collectively, the "Premises").

        B. Landlord and Tenant now desire to modify or amend the Lease as more
particularly stated below.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

        1. Tenant hereby acknowledges that Landlord intends to enter into that
certain Agreement for Purchase and Sale of Property attached hereto as Exhibit
"A" and made a part hereof (the "Water Company Agreement"), and that Tenant has
no objection to Landlord executing the same. Tenant acknowledges and agrees that
in the event escrow closes under the Water Company Agreement, the Site described
therein shall no longer comprise part of the Land described in the Lease and
that Tenant shall no longer have any rights or interest in, or obligations with
respect to, the Site (including, without limitation, any right to possess the
Site). Following the close of escrow under the Water Company Agreement, the
Premises described in the Lease shall no longer include the Site.

        2. Following the close of escrow under the Water Company Agreement,
Tenant acknowledges and agrees that its rights and interests under the Lease
shall be subject and subordinate to the Permanent Easement described in the
Water Company Agreement. Tenant has no objection to Landlord selling the Site to
the Great Oaks Water Company, nor does it have any objection to Landlord
granting the Great Oaks Water Company the Permanent Easement described in the
Water Company Agreement.

        3. Nothing stated herein should be construed or interpreted as a
representation or warranty by Landlord that Great Oaks Water Company will
provide, sell or deliver water to the Premises described in the Lease.

        4. Except as otherwise modified by this First Amendment, the terms of
the original Lease shall remain unmodified and in full force and effect. In the
event of any conflict or inconsistency between the terms of this First Amendment
and the original Lease, the terms of this First Amendment shall control.

        5. This First Amendment may be executed in counterparts, each of which
shall be deemed an original, and which together shall constitute one instrument.

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

                                       ENZO DRIVE, LLC, a California limited
                                       liability company

                                       By:

                                       Its:

                                       WESTERN DIGITAL CORPORATION, a Delaware
                                       corporation

                                       By:

                                       Its:

<PAGE>   31

                   AGREEMENT FOR PURCHASE AND SALE OF PROPERTY

        This Purchase and Sale Agreement ("Agreement") is entered into as of the
Agreement Date by and between ENZO DRIVE, LLC, a California limited liability
company ("Seller") having an address of 511 Division Street, Campbell, CA 95008,
and GREAT OAKS WATER COMPANY, a California corporation ("Buyer") having an
office at 23 Great Oaks Boulevard, Suite L, San Jose, California, 95119.

                                    RECITALS

        A. These Recitals refer to and utilize certain capitalized terms which
are defined in Article I of this Agreement. The parties intend to refer to those
definitions in conjunction with the use of capitalized terms in these Recitals.

        B. Seller owns the Property, a portion of which will be purchased by the
Buyer.

        C. The Property is located within Buyer's water service area so Buyer is
required to provide necessary water services in the surrounding area which will
require Buyer to install and operate the Well.

        D. Buyer will access the Well by the Permanent Easement.

        E. During the installation of the Well, Buyer will store any resulting
debris on Property adjacent to the Site by means of a temporary right of entry
granted to Buyer by Seller.

        F. Seller desires to sell the Site and grant the Permanent Easement to
Buyer and Buyer desires to buy the Site and to accept the Permanent Easement.

        G. Seller currently leases the Property to Western Digital Corporation,
a Delaware corporation, ("Lessee").

        H. It is the intent of the parties to convey the Site by separate grant
deed.

        NOW THEREFORE, in consideration of the covenants and conditions set out
hereinabove and hereinafter the parties agree to the following:

                                    AGREEMENT

                                    ARTICLE 1

                            DEFINITIONS AND EXHIBITS

        Section 1.1. Definitions. The following defined terms used in this
Agreement shall have the following meaning and definition:

        (a) "Agreement" means this Agreement.

        (b) "City" means the City of San Jose, California.

<PAGE>   32

        (c) "Close of Escrow" or "COE" shall be the date the Site is conveyed
from Seller to Buyer presently anticipated to be not later than December 31,
1998, unless extended by written agreement of the parties, provided, however,
that either Buyer or Seller shall have the right, on written notice to and
approval of the other, to extend COE in order to provide sufficient time for
completion and establishment of the Site and related easements.

        (d) "Date of Execution" is the latest date that this Agreement is
executed by the Seller or the Buyer.

        (e) "Escrow Holder" and "Title Company" shall mean Santa Clara Land and
Title Company.

        (f) "Permanent Easement" shall mean and refer to a Permanent Easement to
be granted by Seller across a portion of the Property, the Permanent Easement
being more particularly described in Exhibit C, attached and incorporated herein
by this reference. The easement will be used for the various purposes of
vehicular ingress and egress, installment and maintenance of Well and other
activities incident or appurtenant to the Site and other purposes as necessary
for Buyer's full and complete utilization of the Site for installation of the
Well and the sale and delivery of water and other purposes reasonably related
thereto.

        (g) "Property" means property owned by Seller located at the comer of
Enzo Drive and Ru Ferrari Drive in the City of San Jose, more particularly shown
by Assessor Map APN 678-06-021 and 678-06-008 attached hereto as Exhibit A.

        (h) "Purchase Price" means as set in Section 2.1.

        (i) "Site" means the property to be conveyed from Seller to Buyer for
the installation and operation of the Well referenced in Section 2.6 more
particularly described in Exhibit B, attached and incorporated herein by this
reference.

        (j) "Well" means the water well to be built on the Site by Buyer.

        Section 1.2. Exhibits. The following exhibits are attached to and
incorporated by reference in this Agreement:

        Exhibit A Legal Description of the Property

        Exhibit B Legal Description of the Site

        Exhibit C Legal Description of the Permanent Easement

<PAGE>   33

                                   ARTICLE II

                                PURCHASE AND SALE

        Section 2.1. Purchase and Sale. For one dollar ($1.00) and other good
and valuable consideration the receipt of which is hereby acknowledged, Seller
agrees to sell and Buyer agrees to buy the Site in fee simple, by a duly
executed and recorded grant deed and Seller agrees to sell and Buyer agrees to
buy the Permanent Easement.

        Section 2.2. Purpose. The purpose of this purchase and sale is to enable
Buyer to purchase and own the Site and to install and operate the Well to
collect water for sale and general usage and to provide for Buyer and its
successors, assigns, designees or licensees sufficient and permanent access for
utilization of the Site (by way of the Permanent Easement). The Site shall be
maintained, at all times, by Buyer, at its sole cost and expense, in good
condition and repair. This Agreement shall also enable Buyer to store any debris
collected resulting from the installation of the Well on the Property,
recognizing that upon completion of the Well, Buyer will remove, at its sole
cost and expense, any debris stored on the Property resulting from the
construction. The obligations of Buyer under this Section 2.2 shall survive the
Close of Escrow hereunder.

        Section 2.3. Payment of Purchase Price. The Purchase Price shall be paid
to Seller in cash at Close of Escrow.

        Section 2.4. Permanent Easement. Seller acknowledges that the purpose of
the Permanent Easement is to provide Buyer access for vehicular ingress and
egress, installment and maintenance of Well and other activities incident or
appurtenant to the Site and other purposes as necessary for Buyer's full and
complete utilization of the Site for installation of the Well and the sale and
delivery of water and other purposes reasonably related thereto. Buyer hereby
agrees to repair any damage to the Permanent Easement caused directly by Buyer,
its agents, consultants or contractors at its sole cost and expense both before
and after COE. Upon discovery of any damage to the Permanent Easement, Seller
shall notify Buyer in writing of the damage. The obligations of Buyer under this
Section 2.4 shall survive the Close of Escrow hereunder.

        Section 2.5. Placement of a Fence Surrounding the Site. Buyer shall, at
its sole cost and expense, build and maintain a permanent fence around the Well
in the manner determined acceptable to the City and Seller (and Lessee if it is
a tenant of Seller possessing or occupying any portion of the Property adjacent
to the Site). Under no circumstances shall the fence be a chain link fence.
Buyer shall, at its sole cost and expense, provide or furnish landscaping around
the perimeter of the fence so as to screen the well site from the balance of the
Property. If City requires other permitted improvements to the Site and directly
related to the Site only, Buyer shall be responsible, at its sole cost, for the
costs of such improvements. The obligations of Buyer under this Section 2.5
shall survive the Close of Escrow hereunder.

        Section 2.6. Conveyances. At COE, Seller shall convey to Buyer, by grant
deed (the "Grant Deed"), fee simple title to the Site. The Grant Deed shall
describe the Site by its metes and bounds description. In addition, Seller shall
convey, by metes and bounds, to Buyer the Permanent Easement. The conveyance of
the Site is subject to: (i) current general and special taxes and the
assessments not yet delinquent; (ii) all matters shown on a preliminary report
for the Site issued by the Title Company (the "Preliminary Report") which are
acceptable to Buyer in writing; (III) all matters which would be revealed by an
inspection of the Site; and (iv) matters affecting the condition of title to the
Site created by or with the written consent of Buyer. Evidence of title to the
Site shall be in the form of a C.L.T.A.

<PAGE>   34

Standard Coverage Owner's Policy of title insurance (the "Title Policy") naming
Buyer as the insured, or at Buyer's option, a binder for such Title Policy. The
Title Policy, to be paid for by Buyer, shall be in an amount of Twenty Five
Thousand Dollars ($25,000).

        Section 2.7. Indemnification. Buyer shall indemnify, defend, and hold
Seller and Lessee, their agents, employees, members, lenders, and their
respective successors and assigns, harmless from and against any and all
liabilities, causes of action, judgments, costs (including, but not limited to,
attorneys' fees), loss, expense, claim, damage, and injury to person or property
arising in connection with the performance of Buyer's rights and obligations
under this Agreement. Buyer shall maintain the Site free of liens or
encumbrances arising from Buyer's investigation or inspection of the Site and
shall hold Seller and Lessee harmless from any claim or lien arising from the
work. Buyer shall return the Site to its original condition upon completion of
its inspection and investigation. Buyer shall, at Buyer's expense, at all times,
obtain and keep in force a policy of comprehensive public liability insurance
with policy limits of Two Million Dollars ($2,000,000) per occurrence. The limit
-of -said insurance shall not limit the liability of the Buyer hereunder. Buyer
may carry such insurance under a blanket policy provided such insurance adds
Seller and Lessee as additional insureds. Prior to entry on the Site, Buyer
shall deliver to Seller certificates evidencing the existence and amounts of
such insurance and naming Seller, its members and lender as additional insured.
No policy shall be cancelable or subject to reduction of coverage except after
thirty (30) days prior written notice to Seller. The obligations of Buyer under
this Section 2.7 shall survive the Close of Escrow hereunder or the earlier
termination of this Agreement.

        Section 2.8. Documents. At the reasonable request of Buyer, Seller shall
make available for inspection by Buyer during reasonable business hours, without
representation or warranty, all reports, studies, surveys, maps, correspondence,
and other documents in the possession or control of the Seller relating to the
Site ("Property Documents"); provided, however, that the Property Documents
shall not include, and Seller shall not be obligated to make available for
inspection by Buyer, reports, correspondence, documents, or other information of
any nature whatsoever which relate to any financial and economic matters of the
Property, all matters which would normally be considered to be business or trade
secrets of an owner, developer, lessor and operator of real property, or all
matters which are protected by the attorney-client privilege or any other
legally recognized privilege.

        Section 2.9. Interim Construction/Access For Use.

             Section 2.9.1 Right of Entry. After the Date of Execution and until
Close of Escrow or termination of this Agreement, Buyer and its agents or
consultants shall have access to the Site to conduct inspection and
investigation including, without limitation, such soil and environmental
inspections as Buyer may deem appropriate. Buyer shall pay all costs associated
with such investigations and inspections.

             Prior to COE Seller hereby grants to Buyer, at Buyer's sole option,
an irrevocable right to enter upon the Property and utilize the Site and to use
the Permanent Easement as provided in this Agreement for the purposes of
allowing Buyer to begin and complete construction of the Well and to operate the
Well in such manner and fashion deemed, at Buyer's sole option, necessary to
pump water and utilize the Well for Buyer's purposes. Any entry upon the Site or
the Property by Buyer or its agents, employees, contractors or subcontractors
shall be undertaken without interference with Lessee.

             All rights of Buyer under this section shall terminate upon default
of Buyer. If this Agreement is terminated for any reason prior to COE, Buyer
shall, at its sole cost and expense, restore the Site to its condition prior to
entry. All entry on the Property prior to COE is subject to the terms and
conditions of this Agreement, including, without limitation, the terms and
conditions of maintenance,

<PAGE>   35

insurance, and indemnification of Seller and Lessee. The obligations of Buyer
upon this paragraph shall survive termination of this Agreement.

             Section 2.9.2. Buyer's Cost. All construction on the Site shall be
done at Buyer's sole cost and expense. Buyer shall obtain all necessary permits
and shall construct the improvements in compliance with all applicable laws.
Buyer shall indemnify, defend and hold Seller and Lessee, their agents,
employees, members, lenders, and their respective successors and assigns
harmless from any and all loss, expense, claim, damage or injury to persons or
property arising in connection with Buyer, its agents, consultants, and
contractors, activity on the Site or the Permanent Easement, including, without
limitation, mechanic's liens. The obligations of Buyer under this paragraph
shall survive the termination of this Agreement or the Close of Escrow
hereunder.

        Section 2.10. Seller's Representations and Warranties. For the purpose
of consummating the sale and purchase of the Site and the Permanent Easement in
accordance herewith, Seller makes the following representations and warranties
to Buyer as of the Date of Execution and as of the COE unless otherwise
specified below, which representations and warranties shall survive COE by one
year:

             Section 2.10.1. Authority . Subject to Seller obtaining Lessee's
        consent to this Agreement, Seller has the full right, power and
        authority to enter into this Agreement and to perform the transactions
        contemplated hereunder.

             Section 2.10.2. Valid and Binding Agreements . This Agreement and
        all other documents delivered by Seller to Buyer now or at COE have been
        or will be duly authorized and executed and delivered by Seller and
        subject to Seller obtaining Lessee's consent to this Agreement are lgal,
        valid and binding obligations of Seller sufficient to convey to Buyer
        the Site and the Permanent Easement described therein, and are
        enforceable in accordance with their respective terms and, to the actual
        knowledge of Seller, do not violate any provisions of any agreement to
        which Seller is a party or by which Seller may be bound.

             Section 2.10.3 Good Title. Seller has, and at COE shall have, good,
marketable and indefeasible fee simple title to the Site and the Permanent
Easement and the interests therein to be conveyed to Buyer hereunder.

             Section 2.10.4 Condition of the Site. Except or otherwise disclosed
to Buyer, to the best of Seller's knowledge without inquiry or investigation:
(I) the Site is not in violation of, nor has been under investigation for, a
violation of federal, state or local law or regulation relating to environmental
conditions or hazardous materials or waste; (ii) neither Seller nor any thir
dparty hve used, generated or manufactured, stored or disposed in, on, or under
the Site any hazardous materials or waste; and (iii) that there has been no
discharge, migration or release or any hazardous waste or material from, onto,
under or about the Site.

             Section 2.10.5 Development of the Site. Subject to Seller obtaining
Lessee's consent to this Agreement, Seller knows of no facts nor has Seller
misrepresented any fact which would prevent Buyer from using the Site or the
Permanent Easement during the installation of the Well.

             Section 2.10.6 Legal Disputes. To the best of Seller's knowledge as
of th eDate of Execution, there is no ongoing or threatened litigation or other
legal disputes concerning any aspect of the sale to Buyer.

        Section 2.11. Buyer's Representations and Warranties. For the purpose of
consummating the sale and purchase of the Site in accordance herewith, Buyer
makes the following representations and warranties to Seller as of the date this
Agreement is fully executed and as of the Date of Execution which
representations and warranties shall survive COE by one year.

<PAGE>   36

             Section 2.11.1 Authority. Buyer has the full right, power and
authority to enter into this Agreement and to perform the transactions
contemplated hereunder.

             Section 2.11.2. Valid and Binding Agreements. This Agreement and
all other documents delivered by Buyer to Seller now or at COE have been, or
will be, duly authorized, executed and delivered by Buyer and are legal, valid
and binding obligations of Buyer sufficient to allow conveyance to Buyer of the
Site and the Permanent Easement described therein, and are enforceable in
accordance with their respective terms and do not violate any provisions of any
agreement to which Buyer is a party or by which Buyer may be bound.

                                   ARTICLE III

                           ESCROW AND CLOSE OF ESCROW

        Section 3.1. Escrow and Possession. Seller shall open an escrow with the
Title Company within two (2) business days after the Date of Execution. All
escrow instructions shall be consistent with the terms and conditions of this
Agreement. COE means the moment when the last of the Grant Deed and Easement
Deed is recorded. Title shall be conveyed as provided in section 2.6 above and
possession given to Buyer at COE. COE shall occur on or before December 31,
1998. Each party shall timely deposit such documents, monies, and any additional
written escrow instructions with the Escrow Holder as may be necessary for the
conveyance of the Site and the Permanent Easement in accordance with the terms
of this Agreement. A fully executed copy of this Agreement shall be deposited
with Title Company to serve as escrow instructions to Title Company; provided
that the parties may execute such additional supplementary or customary escrow
instructions as Title Company may reasonably require. This Agreement may be
amended or supplemented by explicit additional escrow instructions signed by
both parties, but the printed portion of such escrow instructions shall not
supersede any inconsistent provisions contained in this Agreement. Title Company
is hereby appointed and instructed to deliver, pursuant to the terms of this
Agreement, the documents and monies to be deposited into the escrow as herein
provided.

        Section 3.2. Buyer's Conditions to Close. Buyer's obligation to perform
under this Agreement is conditioned upon:

             Section 3.2.1. Buyer's Approval of the Preliminary Report. Buyer
shall have not less than ten (10) days from receipt of the Preliminary Title
Report to complete its review and approval.

             Section 3.2.2. Easement Buyer and Seller have agreed to, and Seller
has executed the Permanent Easement and delivered such documents into escrow,
all to be recorded at COE.

             Section 3.2.3. Grant Deed. Delivery by Seller into escrow of the
Grant Deed conveying fee interest in the Site to Buyer.

             Section 3.2.4. Title Policy. Buyer's receipt at COE of a CLTA
Standard Coverage Owner's Policy, or, at Buyer's option, a binder for such Title
Policy, issued by Escrow Holder in an amount equal to Twenty-Five Thousand
Dollars ($25,000), subject only to those exceptions to title approved by Buyer
in writing following a ten (10) working day opportunity to review the exceptions
in the title report.

             Section 3.2.5. Viable Property. Confirmation by Buyer, its
contractors, agents or consultants that the Site will provide Buyer with a
viable water source with which to serve its customers.

<PAGE>   37

        Section 3.3. Seller's Conditions to Close. Seller's obligation to
perform under this Agreement is conditioned upon Buyer's deposit of the Purchase
Price into escrow and Buyer's naming Seller and its members and lender and
lessee as additional insureds on Buyer's liability insurance.

        Section 3.4. Closing Costs and Prorations. Buyer shall pay all transfer
taxes, all escrow fees, the premium for the Title Policy, all notary, document
preparation, and recording fees. General and special real property taxes shall
be prorated as of the date of the Close of Escrow. Each party shall pay the
legal fees incurred by its own legal counsel.

                                   ARTICLE IV

                              DEFAULT AND REMEDIES

        Section 4.1. Default by Seller. In the event of Seller's default, Buyer
may obtain specific performance of this Agreement and may seek any other remedy
available to Buyer at law or equity.

        Section 4.2. Default by Buyer. Because the purchase and placement of the
Well is for the benefit of Seller, in the event of Buyer's default in the
acquisition of the Site and Permanent Easement, Seller agrees and affirms that
Seller shall have no further remedy at law or equity to enforce this Agreement
except to retain the amount of money placed in escrow by Buyer. Notwithstanding
the preceding, if Buyer breaches any of its obligations under Sections 2.2, 2.4,
2.5, 2.7, 2.9.1, and 2.9.2, then Seller may pursue any rights and remedies
available to it at law or in equity.

                                    ARTICLE V

                             CONTINUING OBLIGATIONS

        Section 5.1. Non-hinderance. Buyer agrees it will not hinder Seller and
Lessee in their use of the remainder of the Property. The obligation of Buyer
under the immediately preceding sentence shall survive the Close of Escrow
hereunder.

        Section 5.2. Notices. All notices and demands shall be given in writing
by personal service, certified mail (return receipt requested), or by any
commercial delivery service which guarantees next business day delivery
("Overnight Service"). Notices and payments required hereunder, shall be
considered given when served, when deposited in the United States mail, or when
deposited with an Overnight Service. Notices shall be addressed to the parties
at their addresses set forth above, provided that if any party gives notice of a
change in name or address, notices to the giver of that notice shall thereafter
be given as demanded in that notice. Notice shall be accomplished by delivery
to: To Seller:

ENZO DRIVE, LLC
511 Division Street
Campbell, CA 95008
Attn: Dan Rosenbaum

Courtesy Copy:

Berliner & Cohen
10 Almaden Blvd., llth Floor
San Jose, CA 95113-2233
Attn: Sam Farb

<PAGE>   38

To Buyer:

GREAT OAKS WATER
23 Great Oaks Boulevard, Suite L
San Jose, CA 95119

Courtesy Copy:

Law offices Of Robert J. Logan
255 West Julian Street, Suite 302
San Jose, CA 95110-2406

        The parties may subsequently change addresses by providing written
notice of the change in address to the other party in accordance with this
section.

        Section 5.3. Broker's Commissions. Buyer and Seller each covenant to the
other that they have not entered into any agreement or incurred any obligation
which might result in any obligation to pay a sales or brokerage commission or
finder's fee on this transaction to any party or company. Buyer and Seller each
shall indemnify and hold harmless the other from any losses, damages, costs, or
expenses, including reasonable attorney's fees, incurred by the other due to a
breach by the indemnifying party of the foregoing warranty. The obligations of
Buyer and Seller under this Section 5.3 shall survive the Close of Escrow or the
earlier termination of this Agreement.

                                   ARTICLE VI

                            MISCELLANEOUS PROVISIONS

        Section 6.1. Integrated Document. This Agreement supersedes any prior
agreements, statements or promises by the parties and contains the entire
agreement of the parties on the matters covered.

        Section 6.2. Amendments. Any amendments to this Agreement shall be in
writing and signed by all parties hereto.

        Section 6.3. Interpretation. This Agreement shall be interpreted under
the laws of the State of California. The provisions of this Agreement were
negotiated by all the parties hereto and this Agreement shall be deemed to have
been drafted by all the parties hereto. Time is of the essence of this Agreement

        Section 6.4. Binding on Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto.

        Section 6.5. Partial Invalidity. If any provision of this Agreement
shall be held invalid or unenforceable to any extent, the remainder of this
Agreement shall not be affected and shall be enforced to the greatest extent
permitted by law.

        Section 6.6. Costs and Attorney's Fees. If either party institutes an
action to enforce or interpret the terms of this Agreement, the losing party
shall pay to the prevailing party the reasonable attorneys' fees and costs of
the prevailing party.

<PAGE>   39

        Section 6.7. Captions and Headings. Captions and headings in the
Agreement are for convenience of reference only, and are not to be considered in
construing the Agreement.

        Section 6.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but which together
shall constitute one instrument.

        IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
of the Date of Execution.

BUYER                                  SELLER:
GREAT OAKS WATER COMPANY,              ENZO DRIVE, LLC, a California
a California corporation               limited liability company
By:                                    By:
Name:                                  Name:
Its:                                   Its:
Date:                                  Dated:

                                       By:

 ACKNOWLEDGEMENT REQUIRED]             Name:

                                       Its:

                                       Dated:

                                       [ACKNOWLEDGEMENT REQUIRED]

                                    EXHIBIT A
                                Legal Description

  ALL OF THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF SAN JOSE, COUNTY OF
  SANTA CLARA, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

PARCEL ONE:

BEGINNING AT A POINT ON THE NORTHEASTERLY LINE OF MONTEREY ROAD. AS THE SAME WAS
ESTABLISHED IN THE DEED FROM DOMINGOS T. BORGE, ET UX, TO THE STATE OF
CALIFORNIA, DATED JANUARY 7, 1937 RECORDED MARCH 2, 1937 IN BOOK 815 OF OFFICIAL
RECORDS, PAGE 80, SAID POINT BEING THE MOST EASTERLY CORNER OF THAT CERTAIN
0.031 ACRE PARCEL DESCRIBED IN THE ABOVE MENTIONED DEED AND ALSO BEING ON THE
SOUTHEASTERLY LINE OF THAT CERTAIN 29.58 ACRE PARCEL OF LAND DESCRIBED IN THE
DEED FROM JACK TURTURICI ET UX. TO LUISA MARIA FERRARI DATED MARCH 12,1946,
RECORDED APRIL 12,1946 IN BOOK 1335 OF OFFICIAL RECORDS, PAGE 182, DISTANT
THEREON NORTH 37 12' 55" EAST 67.52 FROM THE MOST SOUTHERLY CORNER OF SAID 28.58
ACRE PARCEL; THENCE FROM SAID POINT OF BEGINNING ALONG THE SOUTHEASTERLY LINE OF
SAID 28.58 ACRE PARCEL NORTH 37 12' 55" EAST 2,522.68 FEET TO THE MOST SOUTHERLY
CORNER OF THAT CERTAIN 10 ACRE PARCEL OF LAND DESCRIBED IN THE DEED FROM LUISA
MARIA FERRARI, TO GIOVANNI L. ROMANO, DATED APRIL 11 1957, RECORDED APRIL
15,1957 IN BOOK 3775 OF OFFICIAL RECORDS, PAGE 532, THENCE ALONG A SOUTHWESTERLY
LINE OF SAID 10 ACRE PARCEL NORTH 52 47'45" WEST 20.00 FEET, TO A POINT ON A
NORTHWESTERLY LINE OF SAID 28.58 ACRE PARCEL; THENCE ALONG SAID LAST MENTIONED
LINE SOUTH 37 12'55" WEST 2,522.66 FEET TO THE MOST NORTHERLY CORNER OF SAID
0.031 ACRE PARCEL; THENCE ALONG THE NORTHEASTERLY LINE OF SAID 0.031 ACRE PARCEL
SOUTH 52 43' 45" EAST 20.14 FEET TO THE POINT OF BEGINNING.

<PAGE>   40

EXCEPTING THEREFROM THAT PORTION THEREOF LYING SOUTHWESTERLY OF THE
NORTHEASTERLY LINE OF THE PARCEL OF LAND CONDEMNED TO THE STATE OF CALIFORNIA BY
FINAL ORDER OF CONDEMNATION, A CERTIFIED COPY OF WHICH WAS RECORDED APRIL 4,
1972 IN BOOK 9772, PAGE 609 OF OFFICIAL RECORDS.

PARCEL TWO:

BEGINNING AT A STAKE MARKED "B" STANDING AT THE INTERSECTION OF THE CENTER LINE
OF THE MONTEREY ROAD WITH THE SOUTHWESTERLY PROLONGATION OF THE FENCE LINE
BETWEEN LANDS OF MRS. MURPHY COLOMBET AND WARREN COTTLE, BEING ALSO THE COMMON
CORNER FOR LOTS "M" AND "N" IN THE CENTER OF SAID ROAD, AS SHOWN ON THE MAP
ACCOMPANYING THE REPORT OF THE REFEREES IN THE SUIT FOR PARTITION ENTITLED
"YGNACIO BERNAL ET AL VS. RUFINA BERNAL DE GUINAC ET AL. CASE NO. 5643 IN THE
TWENTIETH DISTRICT COURT OF THE STATE OF CALIFORNIA, IN AND FOR THE COUNTY OF
SANTA CLARA, AND RUNNING THENCE ALONG THE CENTER OF THE MONTEREY ROAD, S.52 55'
E. 16.36 CHAINS TO A POINT DISTANT NORTHWESTERLY 20 FEET FROM THE COMMON CORNER
FOR LANDS OF MRS. MURPHY COLOMBET AND E. VAN EVERY IN THE CENTER OF SAID ROAD,
THENCE PARALLEL TO THE FENCE LINE BETWEEN THE LANDS OF SAID VAN EVERY AND MRS
MURPHY COLOMBET AND DISTANT THEREFROM TWENTY FEET NORTHWESTERLY, N. 37
E.39.24-1/2 CHAINS TO A 4" X 4" STAKE MARKED 2-3; THENCE AT RIGHT ANGLES N 53 W.
9.85-1/2 CHAINS TO A STAKE MARKED C.M.1 STANDING IN THE CENTER OF THE COYOTE
RIVER AND LINE BETWEEN LANDS OF MRS. MURPHY COLOMBET AND EDWARD M. PIERCY AND
FROM WHICH STAKE A SYCAMORE 36 INCHES IN DIAMETER MARKED B.T.C.M. 1 BEARS N.84"
30' W. 2.26 CHAINS; THENCE ALONG THE CENTER OF SAID RIVER AND LINE BETWEEN LANDS
OF SAID PIERCYAND MRS. MURPHYCOLOMBET WITH THE FOLLOWING COURSES AND DISTANCES:
S. 31 45' W. 4.71-1/2 CHAINS N 86 38'W.5.00 CHAINS AND N. 64 30'W. 2.82 CHAINS
TO THE COMMON CORNER FOR LANDS OF MRS. MURPHY COLOMBET AND WARREN COTTLE IN THE
CENTER OF SAID RIVER; THENCE LEAVING SAID RIVER AND RUNNING ALONG THE FENCE LINE
BETWEEN THE LANDS OF SAID COTTLE AND MURPHY COLOMBET, S. 37 W. 31.17 CHAINS TO
THE PLACE OF BEGINNING. BEING A PART OF LOT "N" AS SET OFF TO JOSE A. AND DANIEL
BERNAL IN THE SUIT FOR PARTITION ENTITLED "YGNACIO BERNAL ET AL VS. RUFINA
BERNAL DE GUINAC ET Al CASE NO. 5643 IN THE TWENTIETH DISTRICT COURT OF THE
STATE OF CALIFORNIA, IN AND FOR THE COUNTY OF SANTA CLARA AND A PART OF LOT 33
OF THE PARTITION OF THE SANTA TERESA RANCHO.

EXCEPTING THEREFROM THAT PORTION THEREOF, LYING NORTHERLY OF THE SOUTHERLY LINE
OF THE LAND DESCRIBED IN THE DEED TO THE COUNTY OF SANTA CLARA, RECORDED
SEPTEMBER 11,1969 IN BOOK 8665, PAGE 413 OF OFFICIAL RECORDS MORE PARTICULARLY
DESCRIBED AS FOLLOWS:

BEGINNING AT THE MOST EASTERLY CORNER OF THAT CERTAIN PARCEL OF LAND CONVEYED TO
THE SANTA CLARA VALLEY WATER CONSERVATION DISTRICT BY DEED RECORDED JULY 9, 1963
IN BOOK 6094 OFFICIAL RECORDS, PAGE 493. THENCE ALONG THE SOUTHERLY BOUNDARY OF
SAID PARCEL SOUTH 39 30' 10" WEST 25.03 FEET, SOUTH 0 02' 10" EAST 31.40 FEET
SOUTH 34 56' 30" WEST 25.02 FEET, SOUTH 41 58' 50" WEST 11.95 FEET, SOUTH 26 07'
05" WEST 17.20, SOUTH 71 25' 40" WEST 25.18 FEET, NORTH 79 55' 30" WEST 26.9
FEET, SOUTH 83 40' 30" WEST 125.55 FEET, SOUTH 72 04' 40" WEST 85.72 FEET, SOUTH
64 08' 30" WEST 25.36 FEET, SOUTH 72 32'10", WEST 107.02 FEET. SOUTH 86 03' 10"
WEST 150.01 FEET, NORTH 87 40' 40" WEST 75.48 FEET, NORTH 82 28' 50" WEST 47.38
FEET, NORTH 75 22' 30" WEST 175.01 FEET, AND NORTH 66 13' WEST 56.94 FEET TO THE
MOST WESTERLY CORNER THEREOF AND LYING IN THE NORTHWESTERLY LINE OF THAT CERTAIN
PARCEL OF LAND DESCRIBED IN THE DEED FROM ANTHONY LABARBERA, ET AL. TO PETER
FILICE AND SONS. A CO-PARTNERSHIP. DATED APRIL 17, 1956 AND RECORDED APRIL 23,
1956 IN BOOK 3474 OFFICIAL RECORDS, AT PAGE 212, SANTA CLARA COUNTY RECOR.DS;
THENCE LEAVING SAID SOUTHERLY BOUNDARY AND PROCEEDING ALONG SAID NORTHWESTERLY
LINE SOUTH 37 00' WEST 34.71 FEET; THENCE LEAVING SAID NORTHWESTERLY LINE SOUTH
62 17' 10" EAST 5.61 FEET; THENCE SOUTH 74 44' 55" EAST 312.93 FEET. THENCE
NORTH 79 19' 42" EAST 764.03 FEET MORE OR LESS TO A POINT ON THE NORTHEASTERLY
LINE OF THAT PARCEL OF LAND DESCRIBED IN THE AFOREMENTIONED DEED FROM ANTHONY
LABARBERA, ET AL; THENCE ALONG SAID NORTHEASTERLY LINE NORTH 53 00' 00" WEST
145.09 FEET MORE OR LESS TO THE POINT OF BEGINNING.

ALSO EXCEPTING THEREFROM, THAT PORTION THEREOF LYING SOUTHWESTERLY AND
SOUTHEASTERLY OF THE NORTHEASTERLY AND NORTHWESTERLY LINE OF LAND DESCRIBED IN
THE DEED TO THE STATE OF CALIFORNIA RECORDED APRIL 13,1972 IN BOOK 9785, PAGE
674

<PAGE>   41

OF OFFICIAL RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING FOR REFERENCE AT THE MOST WESTERLY CORNER OF THAT PARCEL OF LAND
DESCRIBED IN THE DEED TO THE COUNTY OF SANTA CLARA RECORDED SEPTEMBER 22, 1969,
IN BOOK 8677 AT PAGE 216, OFFICIAL RECORDS OF SANTA CLARA COUNTY; THENCE ALONG
THE PROPERTY LINE COMMON TO THE LANDS, NOW OR FORMERLY, OF THE ESTATE OF
ANGELINA FILICE BEEHM AND DANNA AND DANNA, INC., A CORPORATION, S. 37 35'06"
WEST, 80.04 FEET TO THE TRUE POINT OF COMMENCEMENT, THENCE S. 55 00'29" E.,
786.52 FEET; THENCE S. 56 09' 14" E.281.42 FEET; THENCE N. 37 31'06", E. 106.62
FEET; THENCES.52 28'54" E., 15.00 FEET TO THE PROPERTY, LINE COMMON TO THE
LANDS, NOW OR FORMERLY, OF THE ESTATE OF ANGELOMA FILICE. BEHM AND OF EUGENE
FERRARI ET AL; THENCE ALONG LAST SAID COMMON PROPERTY LINE S. 37 31' 06", W.
411.89 FEET; THENCE N. 55 00' 29" W., 1083.00 FEET TO THE FIRST SAID COMMON
PROPERTY LINE; THENCE ALONG SAID COMMON PROPERTY LINE N. 37 35' 06" E., 300.31
FEET TO THE TRUE POINT OF COMMENCEMENT.

ARB-NO: 678-6-8 & 678-5-21
APN NO: 678-05-021 678-06-008

<PAGE>   42

November 14, 1997

Job No. 97-246

                                LEGAL DESCRIPTION
                                 OF A WELL SITE

All that certain real property situate in the City of San Jose, County of Santa
Clara, State of California, being as described as follows:

BEGINNING at the Easterly most corner of that certain parcel of land granted to
Santa Clara Land Title Company, a California Corporation from Arcadia
Development corporation, by that certain Corporation Grant Deed recorded on June
22, 1988 in Book K577, Page 2203 of the Official Records of Santa Clara County,
thence from said point of beginning along the northeasterly line of said parcel,
N. 53 23' 51" W, 86.92 feet; thence South 36 36' 09" W., 134.83 feet to the TRUE
POINT OF BEGINNING of this description; thence N. 53 23' 51" W, 53.93 feet;
thence south 11 05'40" E, 79.67 feet; thence N 36 36' 09" E, 53.62 feet to the
said true point of beginning of this description, and containing 1,580 square
feet of land, more or less.

<PAGE>   43

Job No. 97-291

                               LEGAL DESCRIPTION
                          OF A WATER PIPELINE EASEMENT

  An easement (10.00 feet in width) for the purposes of the installation,
  maintenance and repair of a water pipeline, together with any and all
  appurtenances thereto, over, under and upon that certain strip of land situate
  in the City of San Jose, County of Santa Clara, State of California, being
  described as follows:

BEGINNING at the Easterly most corner of that certain parcel of land granted to
Santa Clara Land Title Company, a California Corporation from Arcadia
Development corporation, by that certain Corporation Grant Deed recorded on June
22, 1988 in Book K577, Page 2203 of the Official Records of Santa Clara County;
thence from said point of beginning along the southeasterly line of said parcel,
S 36 36' 17" West, 91.86 feet to the true point of beginning of this
description; thence leaving said southeasterly line, N 54 13' 55" West 54.96
feet to point a; thence N. 54 13' 55" West, 37.00 feet to point b; thence North
54 13' 55" West, 152.14 feet; thence south 78 22' 26" West, 773.48 feet thence
South 34 23' 08" West, 56.94 feet to point c; thence South 56 00' 41" East,
742.41 feet to the said southeasterly line, hereinabove described, said point
being the terminus of this description.

TOGETHER WITH:

Parcel A

BEGINNING at point A, being hereinabove described; South 37 41' 40" West, 133.02
feet, thence North 53 23' 51" West, 20.34 feet to the terminus of this
description.

ALSO TOGETHER WITH:

Parcel B

BEGINNING at point B, being herinabove described; thence South 36 41' 36" West,
41.63 feet to the terminus of this description.

ALSO TOGETHER WITH:

Parcel C

BEGINNING at point C, being hereinabove described; thence North 81 36' 46" West,
31.49 feet to a line parallel with and 5.00 feet northeasterly of, measured at
right angles to, the southwesterly line of said parcel of land being hereinabove
described; thence along said parallel line, North 55 54' 00" West, 297.80 feet
to the northwesterly line of said parcel of land, said point being the terminus
of this description.

<PAGE>   44
                                LEASE AGREEMENT

        1. Parties. This Lease Agreement ("Lease"), dated for reference purposes
only, September 15, 1997, is made by and between ENZO DRIVE, LLC, a California
limited liability company ("Landlord"), and WESTERN DIGITAL CORPORATION, a
Delaware corporation ("Tenant").

        2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, upon the terms and conditions hereinafter set forth, the
following property (the "Premises"):

             (a) that certain real property, consisting of approximately 10.658
acres, more or less, as more particularly described in Exhibit "A" attached
hereto (the "Land") located in the City of San Jose, County of Santa Clara,
State of California; and

             (b) that certain R&D building containing approximately fifty-eight
thousand seven hundred eighty-five (58,785) square feet to be constructed on the
Land by Landlord in accordance with the terms of the Improvement Agreement
described below (the "Building"). The Building shall be situated on the Land in
the approximate location shown on the site plan attached hereto as Exhibit "B".

        The Building, together with the sitework outside the perimeter walls of
the Building, are to be constructed by Landlord in accordance with the
Improvement Agreement attached hereto as Exhibit "C" (the "Improvement
Agreement"). The parties hereto acknowledge and understand that Tenant intends
to construct, or cause to be constructed, certain leasehold improvements (both
general utility and specialized improvements) in the Building pursuant to the
terms of a separate construction contract or improvement agreement. Such
separate construction contract or improvement agreement is contemplated to be
entered into between Tenant and its general contractor, which general contractor
shall be a joint venture consisting of South Bay Construction Company and
Southland Industries. The aforementioned leasehold improvements (both general
utility and specialized) to be constructed, or caused to be constructed, by
Tenant in the Building are referred to herein as the "Tenant Improvements". The
term "Building", as used herein shall not include the Tenant Improvements.

        For purposes of this Lease, the term "Project" shall mean the Land,
Building, and Tenant Improvements described herein.

        Landlord acknowledges that during the Lease Term (as defined below),
Tenant may desire to construct, or cause to be constructed, at Tenant's sole
cost and expense, an extension of the Building and/or one or more additional
buildings on the Land (such extension of the Building and/or additional
buildings, if any, to be constructed by Tenant are collectively referred to
herein as the "Expansion Building(s)") and leasehold improvements therein (such
Expansion Building(s) and the leasehold improvements, if any, to be constructed
therein are collectively referred to herein as the "Expansion Project"). Tenant
may not construct, or cause to be constructed, such Expansion Project (or any
portion thereon on the Land without Landlord's approval, which approval shall
not be unreasonably withheld. Landlord may impose as a condition to Landlord's

<PAGE>   45

consent, such requirements as Landlord may deem necessary in its reasonable
discretion, including, without limitation, a right of reasonable approval of (i)
the plans and specifications for the Expansion Project, and all portions
thereof, and any and all changes to such approved plans and specifications (it
being understood and agreed that Landlord's approval of such plans and
specifications, and any changes thereto, shall not constitute a representation
or warranty by Landlord that such Expansion Project improvements are properly
engineered or designed), (ii) the general contractor by whom the work is to be
performed (it being understood and agreed that the Landlord's approval of any
such contractor shall not constitute a warranty that such contractor is in fact
qualified), (iii) the construction contract(s) covering the works of improvement
comprising the Expansion Project and all parts thereof, (iv) the manner in which
the work is to be performed, (v) the location in which the Expansion Building(s)
may be constructed on the Land, and (vi) the times during which the work is to
be accomplished. With respect to the Expansion Project, and all portions
thereof, the following additional requirements shall apply: (a) Tenant shall
give Landlord at least five (5) days written notice prior to commencing any work
of improvement in, on or about the Expansion Building(s), the Expansion Project
or the Land for which a building permit is required and/or which is to be
performed by a third party contractor or subcontractor and which is estimated to
cost or will cost in excess of $25,000, (b) prior to the commencement of
construction of the Expansion Project, or applicable portion thereof, Tenant
shall furnish Landlord with written evidence reasonably satisfactory to Landlord
that Tenant has the financial resources necessary to complete the Expansion
Project desired to be undertaken by Tenant, (c) if requested by Landlord, Tenant
shall post a completion bond in an amount and form satisfactory to Landlord, (d)
at the expiration or earlier termination of the Lease Term, Tenant shall
surrender to Landlord the Expansion Building(s) and all leasehold improvements
constructed or installed by Tenant therein (and all alterations, additions and
improvements to such leasehold improvements) in safe condition and free of
debris, with all trade fixtures, personal property and equipment of Tenant
removed from the Total Project, however, Tenant shall not be required by
Landlord to remove any leasehold improvements constructed in the Expansion
Building(s) or any alterations, additions or improvements constructed or
installed by Tenant in such leasehold improvements, (e) Tenant shall construct
the Expansion Project and all applicable portions thereof in compliance with all
applicable laws, ordinances, rules, orders and regulations of all federal,
state, county and municipal governments or agencies now in force or that may be
enacted hereafter and with all directive rules and regulations of the fire
marshal, health officer, building inspector or other proper officers of any
governmental agency now having or hereafter acquiring jurisdiction, (f) Tenant
be responsible for obtaining all necessary permits and approvals required for
the construction of the Expansion Project, or applicable portion thereof and (g)
Tenant shall reimburse Landlord for Landlord's actual costs incurred in
reviewing any proposed improvements, buildings or alterations or additions
whether or not Landlord's consent is granted. Landlord shall have no obligation
to pay for any of the costs of constructing, or causing to be constructed, the
Expansion Project, or any portion thereof, and Landlord shall not be responsible
for obtaining any approvals, licenses, or permits that are necessary to
construct, or cause to be constructed, the Expansion Project, or any portion
thereof Notwithstanding the immediately preceding sentence, Landlord agrees to
reasonably cooperate with Tenant, at Tenant's request but with no liability or
cost to Landlord, in Tenant's efforts to obtain any approvals, licenses or
permits that are necessary or appropriate to construct, or cause to be
constructed, the Expansion Project, or any portion thereof Tenant acknowledges
and agrees that the right to construct, or cause to be constructed, the
Expansion Project on terms and conditions set forth above shall be personal to
the original Tenant hereunder, Western Digital Corporation, and to any affiliate
of Western Digital Corporation to whom this Lease may be assigned or to an
entity that acquires all or substantially all of the assets of Western Digital
Corporation (in the event of an assignment of this Lease to such entity) and
Landlord reserves the right to withhold its approval, in its sole and absolute
discretion, to any other assignee, sublessee or transferee of Western Digital
Corporation constructing, or causing to be constructed any Expansion Project, or
any portion thereof, on the Land. During the Lease Term, the improvements
comprising the Expansion Project shall be owned by Tenant and Tenant shall be
entitled to claim the depreciation deductions, if any, applicable to the
Expansion Project.

<PAGE>   46

        For purposes of this Lease, the term "Total Project" shall mean the
Project and the Expansion Project described above.

        3. Conditions Precedent. The effectiveness of this Lease is hereby
conditioned upon the satisfaction (or written waiver by Landlord) of the
following conditions precedent:

             (a) Landlord's acquisition of the Land; and

             (b) Landlord obtaining a binding, written commitment or agreement
for the financing or joint venture development of the Premises that is
acceptable in form and substance to Landlord in its sole discretion.

        If any of the foregoing conditions precedent are not satisfied by
October 31, 1997, then unless Landlord expressly waives the applicable condition
precedent in writing within five (5) business days thereafter, Landlord may
terminate this Lease by written notice to Tenant within such five (5) business
day period following October 31, 1997. Upon any such termination of this Lease,
neither party shall have any obligations to the other in connection with or
under this Lease except for obligations accruing prior to the termination and
obligations which, by their terms, survive the termination of this Lease and
except that Landlord shall then promptly return to Tenant any advance rent paid
by Tenant pursuant to Paragraph 5.F.

        4. Term.

        A. Commencement Date. The term of this Lease ("Lease Term") shall be for
fifteen (15) years, commencing on the earlier of (i) the date Tenant takes
possession of the Building and commences business operations therein, or (ii)
June 1, 1998 (such earlier date being referred to herein as the "Commencement
Date") and ending fifteen (15) years later, unless sooner terminated pursuant to
any provision hereof or unless extended pursuant to the terms of Paragraph 4.C
below.

        B. Delays in Delivery of Possession of Buildings. Landlord makes no
representation or warranty as to the date by which the Building will be
substantially completed. Landlord shall not be liable for any damage or loss
incurred by Tenant for Landlord's failure for whatever cause to deliver
possession of the Building, or either of them, by a particular date, nor shall
this Lease be void or voidable on account of such failure to deliver possession
of the Building. Landlord agrees to exercise diligent, good faith efforts to
complete construction of the Building following approval of plans and
specifications for such Building and issuance of applicable building permits.

        C. Options to Extend Lease Term. Landlord hereby grants to Tenant two
(2) options to extend the Lease Term for a period of five (5) years each (each
such period being referred to herein as an "Extended Term" and together referred
to herein as the "Extended Terms"), on the following terms and conditions:

                    (1) Tenant shall give Landlord written notice of its
exercise of the applicable option to extend the Lease Term no earlier than nine
(9) months nor later than six (6) months before expiration of the initial Lease
Term, or the first Extended Term, as the case may be. Time is of the essence
Tenant shall have no right to exercise the option applicable to the second
Extended Term if it fails to timely and properly exercise the option applicable
to the first Extended Term.

                    (2) Tenant may not extend the Lease Term pursuant to this
Paragraph 4.C if Tenant is in material default of any of its obligations under
this Lease as of the date of Tenant's notice of exercise of this option, or if
Tenant shall have assigned, sublet or otherwise transferred its interest in this
Lease and/or the

<PAGE>   47

Premises, or any portion thereof, whether or not Landlord's consent to such
assignment or transfer has been given. The preceding sentence to the contrary
notwithstanding, Tenant shall not be precluded from extending the Lease Term as
provided herein solely because Tenant may have assigned this Lease to an
affiliate of Tenant or to an entity that acquires all or substantially all of
the assets of Tenant, by merger or otherwise. If Tenant is in default under this
Lease on the date that the Extended Term is to commence, then Landlord may elect
to terminate this Lease, notwithstanding any notice given by Tenant of an
exercise of its option to extend and such exercise of Tenant's option to extend
the Lease Term shall be void and of no force or effect.

                    (3) All terms and conditions of this Lease shall apply
during the applicable Extended Term, except that the Rent for the Extended Term
shall be determined in accordance with Paragraph 5.G below, Tenant shall have no
further options to extend the Lease Term beyond the Extended Terms described in
this Paragraph 4.C and Landlord shall have no obligation to construct or install
any building shell improvements (as described in Exhibit C attached hereto) or
leasehold improvements within such building shell improvements.

                    (4) Once Tenant delivers notice of its exercise of the
applicable option to extend the Lease Term, Tenant may not withdraw such
exercise and, subject to the provisions of this Paragraph 4.C, such notice shall
operate to extend the Lease Term. Upon the extension of the Lease Term pursuant
to this Paragraph 4.C, the term "Lease Term" as used in this Lease shall
thereafter include the applicable Extended Term for which the option is
exercised and the Lease Termination date shall be the expiration date of the
applicable Extended Term unless sooner terminated pursuant to the terms hereof.

        D. Fixturization. Commencing on the date Landlord delivers possession of
a water tight shell with respect to the Building (as defined in Exhibit F
attached hereto), Tenant shall have the right to enter into the Building to
fixturize such space or to commence construction or installation of certain
leasehold improvements therein (as permitted under this Lease), provided,
however, Tenant shall schedule such fixturization or construction or
installation of leasehold improvements in such a manner as to not interfere with
or delay Landlord's completion of construction of the Building. If Landlord
delivers possession of a water tight shell with respect the Building prior to
June 1, 1998, then Tenant's use and possession of the Building during the period
prior to the earlier of (i) June 1, 1998, or (ii) the date Tenant commences
operation of its business within such Building (such period being hereinafter
referred to as the "Building Early Occupancy Period") shall be subject to all of
the terms and conditions of this Lease except that Tenant shall have no
obligation to pay any Monthly Installment of rent or taxes or insurance incurred
by Landlord during the Building Early Occupancy Period.

        S. Rent.

        A. Time of Payment. Tenant shall pay to Landlord as rent for the
Premises the sum specified in Paragraph 5.B (with respect to the initial Lease
Term) and Paragraph 5.G below (with respect to the any Extended Term) (the
"Monthly Installment") each month in advance on the first day of each calendar
month, without deduction or offset, prior notice or demand, commencing on the
Commencement Date and continuing through the Term of this Lease, together with
such additional rents as are payable by Tenant to Landlord under the terms of
this Lease. The Monthly Installment for any period during the Lease Term which
period is less than one (1) full month shall be a prorata portion of the Monthly
Installment based on the actual number of days in such month.

        B. Monthly Installment.

<PAGE>   48

             (1) Initial Monthly Installment. The initial Monthly Installment of
rent payable each month during the first two (2) years of the Lease Term shall
be equal to Ninety-four Thousand Six Hundred Seventy-one Dollars ($94,671) per
month.

             (2) Rental Adjustments. During the Lease Term (including, without
limitation, any applicable Extended Term), the Monthly Installment of rent shall
be adjusted as follows:

Upon commencement of the twenty-fifth (25th); forty-ninth (49th); seventy-third
(73rd); ninety-seventh (97th); one hundred twenty-first (121st); one hundred
forty-fifth (145th) and one hundred sixty-ninth (169th) months of the initial
Lease Term and upon the commencement of the twenty-fifth and forty-ninth months
of each Extended Term ("Rental Adjustment Dates"), the Monthly Installment of
rent shall be adjusted by multiplying the Monthly Installment of rent payable
during the month immediately prior to the applicable Rental Adjustment Date
(without regard to any abatement of rent due to damage or destruction) by one
hundred eight and sixteen hundredths percent (108.16%)

        C. Late Charge. Tenant acknowledges that late payment by Tenant to
Landlord of rent and other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any mortgage or deed of trust covering the Premises. Accordingly, if
any installment of rent or any other sum due from Tenant shall not be received
by Landlord within ten (10) days after such amount shall be due, Tenant shall
pay to Landlord, as additional rent, a late charge equal to four percent (4%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of its other rights and remedies granted
hereunder.

        D. Additional Rent. All taxes, insurance premiums, late charges, costs
and expenses which Tenant is required to pay hereunder, together with all
interest and penalties that may accrue thereon in the event of Tenant's failure
to pay such amounts, shall be deemed to be additional rent ("Additional Rent")
and shall be paid in addition to the Monthly Installment of rent.

        E. Place of Payment. Rent shall be payable in lawful money of the United
States of America to Landlord at 511 Division Street, Campbell CA, or to such
other person(s) or at such other place(s) as Landlord may designate in
writing.

        F. Advance Payment. Within five (5) days following the date Tenant
receives written notice from Landlord of the satisfaction or waiver of the
conditions set forth in Paragraph 3 above (but in no event earlier than October
1, 1997), Tenant shall pay to Landlord the sum of Ninety-four Thousand Six
Hundred Seventy-one Dollars ($94,671) to be applied to the Monthly Installment
of rent first accruing under this Lease.

        G. Rent During Extended Term. If Tenant elects to extend the Lease Term
pursuant to Paragraph 4.C above, the Monthly Installment of rent payable by
Tenant for the first two (2) years of the applicable Extended Term shall be in
an amount equal to ninety-five percent (95%) of the fair market rental value of
the Project in relation to market conditions at the time of the commencement of
the applicable Extended Term (including, but not limited to, rental rates for
comparable space with comparable tenant improvements and taking into
consideration any adjustments to rent based upon direct costs (operating
expenses) and taxes, load factors, financing charges, and/or cost of living or
other rental adjustments; the relative strength of the TENANTS; THE SIZE of the
space; and any other factors which affect market rental values at the time of
the commencement of

<PAGE>   49

the applicable Extended Term, but without taking into consideration the value of
any leasehold improvements installed in the Premises by Tenant at Tenant's sole
cost and without taking into consideration the value of the Expansion Project
constructed or installed by Tenant at Tenant's sole cost); however, the Monthly
Installment of rent for the first two (2) years of the Extended Term shall in no
event be lower than the Monthly Installment of rent payable during the last
lease year immediately prior to the commencement of the applicable Extended Term
and the Monthly Installment of rent payable during the applicable Extended Term
shall be adjusted every two (2) years following the commencement of the
applicable Extended Term in accordance with Paragraph 5.B.(2) above. Anything
herein to the contrary notwithstanding, the value of the entire Land shall be
taken into consideration in calculating the fair rental value of the Project.

             (1) Mutual Agreement. After timely receipt by Landlord of Tenant's
notice of exercise of the applicable option to extend the Lease Term, Landlord
and Tenant shall have a period of fifteen (15) days in which to agree on the
Monthly Installment of rent for the first two (2) years of the applicable
Extended Term. If Landlord and Tenant agree on said Monthly Installment of rent
during such fifteen (15)-day period, they shall immediately execute an amendment
to this Lease stating the Monthly Installment of rent for the first two (2)
years of the applicable Extended Term. If Landlord and Tenant are unable to
agree on the Monthly Installment of rent for the first two (2) years of the
applicable Extended Term as aforesaid, then the provisions of Paragraph 5.G.(2)
below shall apply.

             (2) Appraisal. Within ten (10) days after the fifteen (15) day
period described in Paragraph 5.G(l) above, each party at its cost and by giving
notice to the other party, shall appoint an M.A.I. real estate appraiser, with
at least (5) years full-time commercial appraisal experience in Santa Clara
County, to appraise and set the fair market rental value of the Project. If a
party does not appoint an appraiser within ten (10) days after the other party
has given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall set the fair market rental value. The cost
of such sole appraiser shall be borne equally by the parties. If two (2)
appraisers are appointed by the parties as provided in this Paragraph 5.G(2),
the two appraisers shall meet promptly in an attempt to set the fair market
rental value. If they are unable to agree within twenty (20) days after the last
appraiser has been appointed, then the two (2) appraisers shall attempt to
select a third (3rd) appraiser meeting the qualifications stated in this
Paragraph 5.G(2) within ten (10) days after the last day the two (2) appraisers
are given to set the fair market rental value. If they are unable to agree on
the third (3rd) appraiser, either of the parties to this Lease, by giving ten
(10) days notice to the other party, may apply to the presiding judge of the
Superior Court of Santa Clara County for the selection of a third (3rd)
appraiser who meets the qualifications stated above. Each of the parties shall
bear one-half (1/2) of the cost of appointing the third (3rd) appraiser and of
paying the third (3rd) appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
Within twenty (20) days after the selection of the third appraiser, the majority
of the appraisers shall set the fair market rental value. If the majority of the
appraisers are unable to set the fair market rental value within said twenty
(20) day period, the three (3) appraisals shall be added together and the total
divided by three (3); the resulting quotient shall be the fair market rental
value and shall be deemed incorporated herein; provided, however, that if any
appraisal differs from the median appraisal by an amount equal to more than ten
percent (10%) of such median appraisal, that appraisal shall be disregarded, and
the average of the remaining appraisals (or the remaining appraisal) shall be
the fair market rental value. In establishing the fair market rental value, the
appraiser or appraisers shall consider the factors referred to in Section 5.G
above, without regard to the existence of this Lease and without regard to the
value of any leasehold improvements installed in the Premises by Tenant at
Tenant's sole cost (and Without talking into consideration the value of the
Expansion Project constructed or installed by Tenant at Tenant's sole cost) but
taking into consideration the triple net nature of this Lease.

        6. Security Deposit. (INTENTIONALLY DELETED.]

<PAGE>   50

        7. Use of Premises. Tenant shall use the Building (and the Expansion
Building(s), if applicable) only for the purpose of general office, marketing,
sales, warehousing, distribution, light industrial manufacturing and assembly,
research and development of electronics products, and any other related and
legally permitted uses, and for no other purpose. The preceding notwithstanding,
Tenant's use of the Total Project (and all portions thereof) shall in all events
be in conformance with applicable governmental laws, regulations, rules and
ordinances. Tenant shall indemnify, protect, defend, and hold Landlord harmless
against any loss, expense, damage, attorneys' fees or liability arising solely
out of the failure of Tenant to use the Total Project, or any portion thereof,
in compliance with any applicable law. Tenant shall not commit or suffer to be
committed, any waste upon the Total Project, or any nuisance, or allow any sale
by auction upon the Total Project (except at the expiration or earlier
termination of the Lease, Tenant may auction equipment in place from the
Building or the Expansion Building(s)), or allow the Total Project, or any
portion thereof, to be used for any unlawful purpose, or place any loads upon
the floor, walls or ceiling which endanger the structure, or place any harmful
liquids in the drainage system of the Building or the Expansion Building(s). No
waste materials or refuse shall be dumped upon or permitted to remain upon any
part of the Total Project outside of the Building or the Expansion Building(s),
if applicable, except in trash containers placed inside exterior enclosures
designated for that purpose by Landlord. No materials, supplies, equipment,
finished products or semifinished products, raw materials or articles of any
nature shall be stored upon or permitted to remain on any portion of the Total
Project outside of the Building or the Expansion Building(s) except in areas
approved in writing by Landlord for such purposes. Tenant's use of the Total
Project shall be subject to with the terms of Paragraph 38 below.

        8. Taxes and Assessments.

        A. Tenant's Property. Tenant shall pay before delinquency any and all
taxes and assessments, license fees and public charges levied, assessed or
imposed upon or against Tenant's fixtures, equipment, leasehold improvements,
furnishings, furniture, appliances and personal property installed or located on
or within the Total Project. Tenant shall cause said fixtures, equipment,
furnishings, furniture, appliances and personal property to be assessed and
billed separately from the real property of Landlord. If any of Tenant's said
personal property shall be assessed with Landlord's real property, Tenant shall
pay Landlord the taxes attributable to Tenant within thirty (30) days after
receipt of a written statement from Landlord setting forth the taxes applicable
to Tenant's property, together with a copy of Landlord's tax bill therefor.

        B. Property Taxes. Tenant shall pay, as additional rent, all Property
Taxes levied or assessed with respect to the real property comprising the Land
and with respect to all buildings and improvements located on the Land
(including, without limitation, the Building and Tenant Improvements referred to
in Paragraph 2 above and the Expansion Building(s) and all leasehold or tenant
improvements that may be constructed in such Expansion Building(s)) which become
due or accrue during the Term of this Lease. Provided that Landlord bills Tenant
at least thirty (30) days prior to the delinquency date of such Property Taxes,
Tenant shall pay such Property Taxes to Landlord at least ten (10) days prior to
the delinquency date, and if Tenant fails to do so, Tenant shall reimburse
Landlord, on demand, for all interest, late fees and penalties that the taxing
authority charges Landlord. If Landlord bills Tenant less than thirty (30) days
prior to the delinquency date of such Property Taxes, Tenant shall pay such
Property Taxes to Landlord within thirty (30) days of the date of delivery of
such bill to Tenant. Landlord's bill to Tenant shall include a copy of
Landlord's tax bill from the taxing authority. In the event Landlord's mortgagee
requires an impound for Property Taxes, then on the first day of each month
during the Lease Term (commencing not less than thirty (30) days after written
notice to Tenant that such impound account is so required), Tenant shall pay
Landlord one twelfth (1/12) of its annual share of such Property Taxes. If the
amount of any such impound installment payments paid by Tenant exceeds Tenant's
actual share of such Property Taxes after payment to the applicable taxing
authority (exclusive of any interest or penalties arising from late payment)
such excess shall be refunded to Tenant within thirty (30) days after the
payment is made to the taxing authority. Anything herein to the contrary
notwithstanding, Tenant's liability

<PAGE>   51
hereunder shall be prorated to reflect the Commencement Date and termination
date of this Lease; however, the amount of Property Taxes allocable to the
entire Land shall not be prorated based on the fact that the Expansion
Building(s), if applicable, may be completed after the Building.

        For the purpose of this Lease, "Property Taxes" means and includes all
taxes, assessments (including, but not limited to, assessments for public
improvements or benefits), taxes based on vehicles, utilizing parking areas,
taxes based or measured by the rent paid, payable or received under this Lease,
taxes based upon, allocable to, or measured by the area of the Total Project,
the Premises, the Building and the Expansion Building(s) or the Land; taxes upon
or with respect to the possession, leasing, operation, management, maintenance,
alteration or repair of the Total Project or any portion thereof, gross receipts
tax, sales and/or use tax, water tax, sewer tax, employee tax, occupational
license tax imposed upon Landlord or Tenant with respect to the Total Project,
or applicable portion thereof, any tax upon this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate in the
Total Project or the Premises, taxes on the value, use, or occupancy of the
Total Project, or any portion thereof, Environmental Surcharges, and all other
governmental impositions and charges of every kind and nature whatsoever,
whether or not customary or within the contemplation of the parties hereto and
regardless of whether the same shall be extraordinary or ordinary, general or
special, unforeseen or foreseen, or similar or dissimilar to any of the
foregoing which, at any time during the Lease Term, shall be applicable to the
Total Project, or any portion thereof or assessed, levied or imposed upon the
Total Project, or any portion thereof, or become due and payable and a lien or
charge upon the Total Project, or any part thereof, under or by virtue of any
present or future laws, statutes, ordinances, regulations or other requirements
of any governmental authority whatsoever. The term "Environmental Surcharges"
shall mean and include any and all expenses, taxes, charges or penalties imposed
by the Federal Department of Energy, the Federal Environmental protection
Agency, the Federal Clean Air Act, or any regulations promulgated thereunder or
any other local, state or federal governmental agency or entity now or hereafter
vested with the power to impose taxes, assessments, or other types of surcharges
as a means of controlling or abating environmental pollution or the use
of-energy. The term "Property Taxes" shall not include (a) any federal, state or
local income, franchise, estate, gift or inheritance tax, (b) any transfer
taxes, recording fees, or monument preservation fees. (c) any license or similar
fees imposed to permit the conduct of Landlord's business, (d) that portion of
any tax, fee or encumbrance that would otherwise come within the definition of
"Property Taxes" but which is assessed or imposed with respect to the
operations, activities of any tenant or occupant other than Tenant, (e) fuel
taxes on Landlord's vehicles, sales taxes on Landlord's purchases, withholding
and other employment taxes for Landlord's employees and Landlord's business
license, (f) any tax imposed on Landlord as a result of it financing or
refinancing the Land, or any portion thereof, or as a result of Landlord's
secured lender foreclosing on the Land (except Property Taxes shall include any
increased taxes resulting from a change of ownership following any foreclosure
of the Land), (g) any interest or penalties imposed as a result of Landlord's
failure to comply with applicable law, including, without limitation, Landlord's
failure to pay its taxes timely, unless such failure arises from Tenant's acts,
negligence, willful misconduct or breach of this Lease, or (h) any taxes
included as a Project Cost under the Improvement Agreement attached hereto. The
term "Environmental Surcharge" shall not include any expense, tax, penalty or
other charges imposed as a result of (a) any environmental contamination not
caused by Tenant or its Agents, (b) the operations or activities of any tenant
or occupant other than Tenant, or (c) Landlord's failure to comply with
applicable law, unless such failure arises from Tenant's acts, negligence,
willful misconduct or breach of this Lease.

        9. Insurance.

A. Indemnity. Tenant agrees to indemnify, protect and defend Landlord against
and hold Landlord harmless from any and all claims, causes of action, judgments,
obligations or liabilities, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable attorneys' fees), on
account of, or
<PAGE>   52

arising out of, the operation, maintenance, use or occupancy of the Total
Project and/or any portion thereof and all areas appurtenant thereto by Tenant
or Tenant's agents, employees, contractors, guests, invitees or licensees. This
Lease is made on the express understanding that Landlord shall not be liable
for, or suffer loss by reason of, injury to person or property, from whatever
cause (except for negligence or willful misconduct of Landlord or its Agents),
which in any way may be connected with the operation, use or occupancy of the
Total Project and/or any portion thereof by Tenant or Tenant's agents,
employees, contractors, guests, invitees or licensees, specifically including,
without limitation, any liability for injury to the person or property of
Tenant, its agents, officers, employees, licensees and invitees. The obligations
of Tenant under this Paragraph 9.A shall survive the expiration or earlier
termination of this Lease.

        B. Liability Insurance. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease a policy of commercial general
liability insurance insuring Landlord and Tenant against claims and liabilities
arising out of the operation, use, or occupancy of the Total Project and all
areas appurtenant thereto, including parking areas. Such insurance shall be in
an amount of not less than Five Million Dollars ($5,000,000.00) for bodily
injury or death as a result of any one occurrence and One Million Dollars
($1,000,000.00) for damage to property as a result of any one occurrence. The
insurance shall be with companies rated A X or better by A. M. Best insurance
rating. Tenant shall deliver to Landlord, prior to possession, and at least
thirty (30) days prior to the expiration thereof, a certificate of insurance
evidencing the existence of the policy required hereunder and such certificate
shall certify that the policy (1) names Landlord as an additional insured, (2)
shall not be canceled or the coverage or amount of coverage reduced without
thirty (30) days prior written notice to Landlord, (3) insures performance of
the indemnity set forth in Paragraph 9.A above, (4) the coverage is primary and
any coverage by Landlord is in excess thereto and (5) contains a cross-liability
endorsement or its equivalent (i.e. a separation of insured provision in the
basic comprehensive liability insurance policy). Landlord may maintain a policy
or policies of comprehensive general liability insurance (or commercial general
liability insurance) insuring Landlord (and such others as are designated by
Landlord), against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from an occurrence in, on or about the
Total Project, with such limits of coverage as Landlord may from time to time
determine are reasonably necessary for its protection. Within thirty (30) days
following receipt of a written statement or invoice from Landlord and a copy of
the insurance carrier's invoice, Tenant shall pay to Landlord, as additional
rent, the cost of any such liability insurance maintained by Landlord.

        C. Property Insurance. Landlord shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Building only, in the amount of not less than Sixty Dollars ($60.00) per
square foot of completed Building, providing protection against those perils
included within the classification of "all risk" insurance, plus a policy of
rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months rent (including, without limitation, sums payable as Additional
Rent), plus, at Landlord's option, flood insurance and earthquake insurance, and
any other coverages which may be required from time to time by Landlord's
mortgagee. The preceding to the contrary notwithstanding, within ten (10) days
following written request of Tenant to increase the minimum limits of property
insurance covering the Building, or at Landlord's election in its sole
discretion, Landlord shall increase the minimum limits of property insurance
covering the Building to the amount requested by Tenant or the amount desired by
Landlord, as the case may be, but in no event shall such property insurance be
in an amount more than the full replacement cost of the Building. Landlord shall
furnish to Tenant, within twenty (20) days after written request by Tenant, a
certificate from Landlord's insurance carrier evidencing that the insurance
coverage required to be carried by Landlord is in effect. Landlord's insurance
shall be primary up to the amount of its policy limits. Tenant shall have no
interest in nor any right to the proceeds of any insurance procured by Landlord
on the Premises except as specifically provided in this Lease.
<PAGE>   53

             Provided that Landlord bills Tenant at least thirty (30) days prior
to the due date of the premium for such insurance procured and maintained by
Landlord, Tenant shall pay such premium to Landlord at least ten (10) days prior
to the due date, and if Tenant fails to do so, Tenant shall reimburse Landlord,
on demand, for all interest, late fees and penalties that the insurance carrier
charges Landlord. If Landlord bills Tenant less than thirty (30) days prior to
the due date of such insurance premium, Tenant shall pay such premium to
Landlord within thirty (30) days of the date of delivery of such bill to Tenant.
Landlord's bill to Tenant shall include a copy of the insurance carrier's
invoice to Landlord. In the event Landlord's mortgagee requires an impound for
insurance premiums, then on the first day of each month during the Lease Term
(commencing not less than thirty (30) days after written notice to Tenant that
such impound account is so required), Tenant shall pay Landlord one twelfth
(1/12) of the annual insurance premiums. If the amount of any such impound
installment payments paid by Tenant exceeds Tenant's actual share of such
insurance premiums after payment to Landlord's insurer (exclusive of any
penalties for late payment) such excess shall be refunded to Tenant within
thirty (30) days after the payment is made to Landlord's insurer.

             Tenant acknowledges that such insurance procured by Landlord shall
contain a commercially reasonable deductible which reduces Tenant's cost for
such insurance and, in the event of loss or damage, Tenant shall be required to
pay to Landlord the amount of such deductible (which, exclusive of the
deductible applicable to the earthquake insurance coverage, shall not exceed
Twenty Thousand Dollars ($20,000) without Tenant's prior written approval).
Tenant further acknowledges that, except to the extent covered by the limits of
insurance required to be carried by Landlord as described above, the insurance
carried by Landlord does not cover, and Landlord has no obligation to insure,
any specialized roof or core improvements to the Building (including, without
limitation, reinforced roof improvements) or Tenant Improvements installed by
Tenant in or on the Building (or any alterations, additions or improvements
thereto installed by Tenant). In addition, Tenant further acknowledges and
agrees that Landlord shall not be required hereunder to carry or maintain any
insurance covering the Expansion Project or any portion thereof (including,
without limitation, any Expansion Building(s) or leasehold improvements that may
be constructed in the Expansion Building(s), if any).

        D. Tenant's Insurance; Release of Landlord. Tenant acknowledges that the
insurance to be maintained by Landlord on the Building pursuant to Subparagraph
C above will not insure any of Tenant's property or Tenant Improvements
constructed by Tenant (or any alterations, additions or improvements thereto
installed by Tenant) or any portion of the Expansion Project. Accordingly,
Tenant, at Tenant's own expense, shall maintain in full force and effect on all
of its fixtures, equipment, Tenant Improvements and personal property in the
Premises and all of the Expansion Building(s) and leasehold and tenant
improvements constructed in such Expansion Building(s), if applicable,, a policy
of "All Risk" coverage insurance to the extent of at least ninety percent (90%)
of their insurable value. The foregoing notwithstanding, Landlord agrees that
the original Tenant hereunder, Western Digital Corporation, may elect to
self-insure Tenant's fixtures, equipment, personal property and Tenant
Improvements (and leasehold or tenant improvements, if any, constructed or
installed in the Expansion Building(s), if applicable), and such self-insurance
shall be primary. The right to so self-insure shall apply only to the original
Tenant hereunder and shall not apply to any assignee of the original Tenant. In
the event the premiums for Landlord's liability insurance are increased by
reason of Tenant's self-insurance (whether because of the parties' agreement
that the original Tenant hereunder may self-insure or because of claims made or
defense undertaken or proceeds paid under Landlord's liability policy would not
have otherwise occurred if Tenant had maintained a policy of liability insurance
in accordance with the provisions of this paragraph, Tenant agrees to pay
promptly following demand and receipt of a statement of such increase, but in no
event later than ten (10) days after such demand and as Additional Rent, the
amount of such increase. Tenant hereby releases Landlord, and its partners,
officers, agents employees and servants from any and all claims, demands,
losses, expenses or injuries to the Total Project, or any portion thereof, or to
the furnishings, fixtures, equipment, inventory or other personal property of
Tenant in, about, or upon the Total Project, which are caused by perils, events
or happenings where the same are covered by the insurance required by this Lease
or

<PAGE>   54

which are the subject of insurance carried by Tenant and in force at the time of
such loss (and then only to the extent of such insurance proceeds payable
thereunder). Tenant shall procure an appropriate clause in, or an endorsement
to, all policies required by this Lease or any other insurance policy maintained
by Tenant with respect to the Building, Tenant Improvements, the Expansion
Building(s) and/or leasehold improvements constructed in such Expansion
Building(s) or Tenant's occupancy thereof, pursuant to which the insurance
company or companies waive subrogation or consent to a waiver of a right of
recovery against Landlord.

        E. Waiver of Subrogation. Notwithstanding any provision of this Lease to
the contrary, Landlord and Tenant each hereby waive, for themselves and their
respective insurers, any and all rights of recovery against the other for any
loss or damage occasioned to such waiving party or its property or the property
of others under its control (and whether or not such loss or damage is due to
the neglect or fault of a party) to the extent such loss or damage is insured,
or is required hereunder to be insured, against under any casualty insurance
policy existing for the benefit of the respective parties at the time of such
loss or damage. Each party shall obtain any special endorsements, if required by
their insurer, to evidence compliance with the aforementioned waiver.

        10. Utilities. Tenant shall pay for all water, gas, light, heat, power,
electricity, telephone, trash pick-up, sewer charges and all other services
supplied to or consumed on the Project, and all taxes and surcharges thereon.

        Tenant shall store its waste either inside the Building (inside the
Expansion Building(s), if applicable) or in trash enclosures or dumpsters
located outside of the Building (and Expansion Building(s), if applicable).
Tenant shall not at any time store, place or maintain any garbage, trash,
rubbish, other refuse or Tenant's personal property in any area of the parking
areas or exterior of the Building or Expansion Building(s) (except in areas
approved in writing by Landlord for such purposes).

        11. Repairs and Maintenance.

        A. Landlord's Repairs. Subject to provisions of Paragraph 15, during the
first two (2) years following the Commencement Date of this Lease, Landlord
shall keep and maintain the structural elements of the Building in good order
and repair. Tenant shall not be required to reimburse Landlord for the cost of
maintenance and repairs of such structural elements of the Building which accrue
or become necessary during such two (2) year period unless such maintenance or
repair is required because of the negligence or willful misconduct of Tenant or
its employees, agents or invitees. As used herein, the term "structural elements
of the Building" shall mean and be limited to the foundation, footings, floor
slab (but not flooring), structural walls, and roof structure and specialized
roof reinforcement improvements (but not roofing or roof membrane). During the
two (2)-year period set forth above, Landlord shall have no obligation to make
repairs to the structural elements of the Building under this Subparagraph until
a reasonable time after receipt of written notice from Tenant of the need for
such repairs. However, in the event of circumstances posing imminent risk of
personal injury or property damage during the two (2)-year period set forth
above, Tenant, upon notice to Landlord, shall have the right, but not the
obligation, to make such repairs and Landlord shall reimburse Tenant the
reasonable cost thereof within thirty (30) days after presentation of Tenant's
invoice.

        Following the two (2)-year period set forth above, subject to Paragraphs
15 and 16 below, Tenant shall, at its sole cost, keep and maintain the
structural elements of the Building in good condition and repair. Following the
two (2)-year period, should Tenant fail to maintain such structural elements of
the Building or fail to commence making repairs required of Tenant hereunder
forthwith upon thirty (30) days notice from Landlord or should Tenant fail
thereafter to diligently complete the repairs, Landlord, in addition to all
other remedies available hereunder or by law and without waiving any alternative
remedies, may make the same, and in that event, Tenant shall reimburse Landlord
as additional rent for the cost of such maintenance or repairs within thirty
(30) days of written demand by Landlord.

<PAGE>   55

        B. Tenant's Repairs. Except as expressly provided in Subparagraph A
above and subject to Paragraphs 15 and 16 below, Tenant shall, at its sole cost,
keep and maintain the entire Premises and every part thereof in the same
condition as delivered to Tenant by Landlord, ordinary wear and tear excepted,
including without limitation the exterior walls, roof, specialized or
supplemental shell and core improvements, specialized roof reinforcement
improvements, roof membrane, the windows, window frames, plate glass, glazing,
skylights, truck doors, doors and all door hardware, the walls and partitions,
parking areas, exterior landscaping, and the electrical, plumbing, lighting,
heating, ventilating and air conditioning systems and equipment. The term
"repair" shall include replacements, restorations and/or renewals when necessary
as well as painting. Tenant's obligation shall extend to all Tenant Improvements
installed by Tenant and alterations, additions and improvements to the Premises
and Tenant Improvements, and all fixtures and appurtenances therein and thereto.
Landlord hereby assigns to Tenant for the Term of this Lease all of its rights
and interests under all manufacturer and installation warranties covering the
heating, ventilation and air conditioning ("HVAC") equipment or other fixtures
or personal property within the Premises and agrees to reasonably cooperate, at
no cost to Landlord, with Tenant in enforcing such warranties.

             Should Tenant fail to commence making repairs required of Tenant
hereunder forthwith upon thirty (30) days notice from Landlord or should Tenant
fail thereafter to diligently complete the repairs, Landlord, in addition to all
other remedies available hereunder or by law and without waiving any alternative
remedies, may make the same, and in that event, Tenant shall reimburse Landlord
as additional rent for the cost of such maintenance or repairs within thirty
(30) days of written demand by Landlord. In the event that Tenant is required to
effect repairs or replacements to any portion of the Premises or Tenant
Improvements (or to any alterations, additions or improvements to any of portion
of the Premises or Tenant improvements) or to any portion of the Expansion
Project, then, to the extent Tenant is permitted or required under this Lease to
make such repairs or replacements, the same shall be made at Tenant's sole cost
and expense.

             Landlord shall have no maintenance or repair obligations whatsoever
with respect to the Premises except as expressly provided in Paragraphs 11.A.
Anything herein to the contrary notwithstanding, the parties hereto acknowledge
and agree that Landlord shall not be responsible or liable for the maintenance
or repair of any portion of the Expansion Project; it being understood and
agreed that Tenant, at its sole cost and expense, shall maintain the Expansion
Project and all portions thereof in safe condition during the Lease Term. Should
Tenant fail to maintain the Expansion Project or any portion thereof or fail to
commence making repairs required of Tenant hereunder forthwith upon thirty (30)
days notice from Landlord or should Tenant fail thereafter to diligently
complete the repairs, Landlord, in addition to all other remedies available
hereunder or by law and without waiving any alternative remedies, may make the
same, and in that event, Tenant shall reimburse Landlord as additional rent for
the cost of such maintenance or repairs within thirty (30) days of written
demand by Landlord.

             Tenant hereby expressly waives the provisions of Subsection I of
Section 1932 and Sections 1941 and 1942 of the Civil Code of California and all
rights to make repairs at the expense of Landlord as provided in Section 1942 of
said Civil Code. There shall be no allowance to Tenant for diminution of rental
value, and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from the making of any repairs,
alterations, decorations, additions or improvements in or to any portion of the
Total Project, the Premises, the Buildings, the Tenant Improvements or the Land
(or any of the areas used in connection with the operation thereof, or in or to
any fixtures, appurtenances or equipment), or by reason of the negligence of
Tenant or any other tenant or occupant of the Land. Landlord shall use
reasonable efforts to minimize the disruption to Tenant's business resulting
from such activities by Landlord or its Agents. In no event shall Landlord be
responsible for any consequential damages arising or alleged to have arisen from
any of the foregoing matters. Tenant hereby agrees that Landlord shall not be
liable for injury to Tenant's business or any loss of income therefrom or for
damage to the goods, wares, merchandise or other property of Tenant,

<PAGE>   56

Tenant's employees, invitees, customers, or any other person in or about the
Total Project or any portion thereof, nor shall Landlord be liable for injury to
the person of Tenant, Tenant's employees, agents or contractors whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury results
from any other cause, whether the said damage or injury results from conditions
arising upon the Total Project or upon any portion thereof, or from other
sources or places and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible to Tenant. Landlord shall not
be liable for any damages arising from any act or neglect of any other tenant,
if any, of the Total Project, or any portion thereof However, the provisions of
this paragraph shall not apply in the event of the negligence or willful
misconduct of Landlord or its Agents, but in no event shall Landlord be liable
for consequential damages, including without limitation, lost profits or loss of
business.

        12. Alterations. Tenant shall not make, or suffer to be made, any
structural alterations, improvements or additions in, on, about or to the
Project or the Premises or any part thereof, or make any alterations,
improvements or additions which would adversely affect the basic building
systems of the Building, without the prior written consent of Landlord, which
consent will not be unreasonably withheld. At the time Tenant requests
Landlord's consent to any structural alterations, additions or improvements or
any alterations, additions or improvements which would adversely affect the
basic building systems in the Building (which request shall be made in writing
and shall include plans and specifications detailing the work desired to be
performed by Tenant), Tenant shall also request Landlord's response to such
consent within ten (10) business days following Landlord's receipt of such
request. If Landlord fails or refuses to respond to Tenant's request for consent
within such ten (10) business day period, then Landlord shall be deemed to have
consented to such alterations, additions or improvements requested to be
performed by Tenant in the Building (and in accordance with the plans and
specifications included in Tenant's request). Under no circumstances shall
Tenant be permitted to make any alterations, additions or improvements which
would adversely affect or impair the structural integrity of the Building or the
Expansion Building(s). Landlord's consent shall not be required for
non-structural alterations, improvements or additions in the Building or in the
Expansion Building(s) (which do not adversely affect the basic building systems
of the Building or the Expansion Building(s) or involve roof or wall
penetrations). The preceding sentence notwithstanding, whether or not Landlord's
consent is required, in order to allow Landlord sufficient time to post a notice
or notices of nonresponsibility, Tenant agrees to give Landlord at least five
(5) days written notice prior to commencing any work of improvement in, on or
about the Project or Premises or the Expansion Project (a) for which a building
permit is required, and/or (b) which is to be performed by a third party
contractor or subcontractor and which is estimated to cost or will cost in
excess of $25,000.

        Within ten (10) days after Tenant's written request, Landlord shall
advise Tenant as to whether Landlord will require any proposed alterations,
improvements or additions to the Building (including, without limitation, the
Tenant Improvements to be installed by Tenant in the Building) to be removed or
surrendered at the expiration (or earlier termination) of the Lease Term. In the
absence of any such request by Tenant, Landlord shall give Tenant written
notice, not less than ninety (90) days prior to the expiration of the Term, of
any alterations, additions or improvements to the Building (including, without
limitation, the Tenant Improvements to be installed by Tenant in the Building)
Landlord requires to be removed. Failure of Landlord to respond timely to
Tenant's request or, otherwise to give timely notice of the alterations,
additions or improvements (including, without limitation, the Tenant
Improvements to be installed by Tenant in the Building) Landlord requires to be
removed from the Building at the expiration of the Lease Term, shall constitute
Landlord's consent to the surrender of such alterations,

<PAGE>   57

improvements or additions, excluding any non-structural alterations,
improvements or additions which Tenant elects to remove, provided that Tenant
repairs all damage to the Total Project caused by such removal. Unless Landlord
requires that Tenant remove any such alterations, improvements or additions, any
alteration', addition or improvement to the Premises, except movable furniture
and trade fixtures, shall become the property of Landlord upon termination of
the Lease and shall remain upon and be surrendered with the Premises at the
termination of this Lease. Without limiting the generality of the foregoing, all
heating, lighting, electrical (including all wiring, conduit, outlets, drops,
buss ducts, main and subpanels, partitioning [except for modular demountables,
which may be removed], drapery, and carpet installations made by Tenant
regardless of how affixed to the Premises, together with all other additions,
alterations and improvements that have become an integral part of the Building,
shall be and become the property of the Landlord upon termination of the Lease,
and shall not be deemed trade fixtures, and shall remain upon and be surrendered
with the Premises at the termination of this Lease.

        The foregoing notwithstanding, on or before the expiration or earlier
termination of the Lease Term, Tenant shall not be required by Landlord to
remove any leasehold improvements constructed in the Expansion Building(s) by or
for Tenant (or to remove any additions, alterations or improvements to such
leasehold improvements in the Expansion Building(s)) and, if not voluntarily
removed by Tenant, the same shall become the property of the Landlord upon
termination or expiration of the Lease.

        All alterations, improvements and additions to the Premises or the
Tenant Improvements and/or the Expansion Building(s) or Expansion Project
installed by Tenant shall be undertaken in compliance with all applicable laws,
rules, regulations and ordinances, and with a valid building permit or permits
if required.

        If during the term hereof, any alteration, addition or change of any
sort to all or any portion of the Project, Premises or Expansion Project is
required by law, regulation, ordinance or order of any public agency as a result
of (i) Tenant's negligence or willful misconduct, (ii) Tenant's particular use
of the Premises, Tenant Improvements or Expansion Project (including, without
limitation, any change of use of the Premises, Tenant Improvements or Expansion
Project by Tenant), (iii) any alterations, additions or improvements to the
Premises, Tenant Improvements or Expansion Project by or for Tenant, or (iv)
Tenant's applications for governmental approvals or permits, rather than due to
the use and occupancy of the Premises in general or for any other reason, Tenant
shall promptly make the same at its sole cost and expense. If during the term
hereof, any alteration, addition, or change to the Premises (except as provided
in the previous sentence) is required by law, regulation, ordinance or order of
any public agency, Landlord shall make the same and no portion of the cost of
such alteration, addition or change shall be borne by the Tenant. It is
expressly understood and agreed that Tenant shall not be required to make any
alterations, improvements or additions to the Premises which are required by any
law, regulation, ordinance or order except and only to the extent that such
requirement applies because of the specific activities conducted by Tenant at
the Project, Premises or Expansion Project, including without limitation, the
negligence or willful misconduct of Tenant, the particular use or any change in
use of the Premises, Tenant Improvements or Expansion Project by Tenant, any
alterations, additions or improvements to the Premises, Tenant Improvements or
Expansion Project by or for Tenant, or any application by Tenant for
governmental approvals or permits.

             If during the term hereof, any alteration, addition, or change to
the Expansion Project or any portion thereof is required by law, regulation,
ordinance or order of any public agency, Tenant shall diligently make the same
at Tenant's sole cost and expense.

        13. Acceptance of the Premises. By entry and taking possession of the
Premises, or applicable portion thereof, pursuant to this Lease, Tenant accepts
the same as being in good and sanitary order, condition and repair (subject to
punch list items and reservation by Tenant of claims of latent defects and
violations of applicable law, and without limiting Landlord's obligations under
this Lease) and Tenant accepts the Premises, or applicable portion thereof,
including without limitation, the Building constructed by Landlord, in their
condition existing as of the date of such entry or possession. Landlord
acknowledges that Tenant's acceptance

<PAGE>   58

of possession of the shell of the Building in a "water tight" condition does not
release or excuse Landlord from its obligation under the Improvement Agreement
attached hereto as Exhibit "C" to complete construction of such Building. Tenant
acknowledges that neither the Landlord nor Landlord's agents has made any
representation or warranty as to the suitability of the Premises or the
Expansion Project to the conduct of Tenant's business. Any agreements,
warranties or representations not expressly contained herein shall in no way
bind either Landlord or Tenant, and Landlord and Tenant expressly waive all
claims for damages by reason of any statement, representation, warranty, promise
or agreement, if any, not contained in this Lease. This Lease constitutes the
entire understanding between the parties hereto and no addition to, or
modification of, any term or provision of this Lease shall be effective until
set forth in a writing signed by both Landlord and Tenant.

        14. Default.

        A. Events of Default. A breach of this Lease shall exist if any of the
following events (hereinafter referred to as "Event of Default") shall occur:

             1. Default in the payment when due of any installment of rent or
other payment required to be made by Tenant hereunder, where such default shall
not have been cured within five (5) days after written notice of such default is
given to Tenant;

             2. Tenant's failure to perform any other term, covenant or
condition contained in this Lease where such failure shall have continued for
thirty (30) days after written notice of such failure is given to Tenant;
provided that if performance reasonably requires more than thirty (30) days,
then Tenant shall not be in default unless Tenant shall have failed to commence
performance within such thirty (30) day period and thereafter diligently pursued
such performance to completion.

             3. Tenant's general assignment of its assets for the benefit of its
creditors:

             4. The sequestration of, attachment of, or execution on, any
substantial part of the property of Tenant or on any property essential to the
conduct of Tenant's business shall have occurred and Tenant shall have failed to
obtain a return or release of such property within sixty (60) days thereafter,
or prior to sale pursuant to such sequestration, attachment or levy, whichever
is earlier,

             5. Tenant shall commence any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seek appointment of a receiver, trustee,
custodian, or other similar official for it or for all or any substantial part
of its property; or

             6. Any case, proceeding or other action against Tenant shall be
commenced seeking to have an order for relief entered against it as debtor, or
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or other action (i)
results in the entry of an order for relief against it which is not fully stayed
within thirty (30) business days after the entry thereof or (ii) remains
undismissed for a period of sixty (60) days.

        B. Remedies. Upon any Event of Default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law, to which Landlord may resort cumulatively, or in the alternative:

<PAGE>   59

             1. Recovery of Rent. Landlord shall be entitled to keep this Lease
in full force and effect (whether or not Tenant shall have abandoned the
Premises or the Expansion Project) and to enforce all of its rights and remedies
under this Lease, including the right to recover rent and other sums as they
become due, plus interest at the Permitted Rate (as defined in Paragraph 32
below) from the due date of each installment of rent or other sum until paid.

             2. Termination. Landlord may terminate this Lease by giving Tenant
written notice of termination. On the giving of the notice, all of Tenant's
rights in the Total Project, including, without limitation, Premises, Buildings,
Tenant Improvements, Land, Expansion Building(s) and the leasehold improvements
in or to the Expansion Building(s) shall terminate. Upon the giving of the
notice of termination, Tenant shall surrender and vacate the Total Project in
the condition required by Paragraph 3'3, and Landlord may re-enter and take
possession of the Total Project and all the remaining improvements or property
and eject Tenant or any of Tenant's subtenants, assignees or other person or
persons claiming any fight under or through Tenant or eject some and not others
or eject none. This Lease may also be terminated by a judgment specifically
providing for termination. Any termination under this paragraph shall not
release Tenant from the payment of any sum then due Landlord or from any claim
for damages or rent previously accrued or then accruing against Tenant. In no
event shall any one or more of the following actions by Landlord constitute a
termination of this Lease:

                    a. maintenance and preservation of the Premises, Tenant
Improvements and/or the Expansion Project;

                    b. efforts to relet the Premises and Tenant Improvements
and/or the Expansion Project;

                    c. appointment of a receiver in order to protect Landlord's
interest Hereunder;

                    d. consent to any subletting of the Premises (and Tenant
Improvements) and/or the Expansion Project or assignment of this Lease by
Tenant, whether pursuant to provisions hereof concerning subletting and
assignment or otherwise; or

                    e. any other action reasonably taken by Landlord or
Landlord's agents intended to mitigate the adverse effects from any breach of
this Lease by Tenant.

             3. Damages. In the event this Lease is terminated pursuant to
Subparagraph 14.B.2 above, or otherwise, Landlord shall be entitled to damages
in the following sums:

                    a. the worth at the time of award of the unpaid rent which
has been earned at the time of termination; plus

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

                    c. the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; and

<PAGE>   60

                    d. any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom including, without limitation, the following: (i) expenses for
cleaning, repairing or restoring the Total Project, or applicable portion
thereof, (ii) costs of carrying the Total Project such as taxes and insurance
premiums thereon, utilities and security precautions; (iii) expenses in retaking
possession of the Total Project, or applicable portion thereof, (iv) reasonable
attorneys' fees and court costs; and (v) any unamortized real estate brokerage
commission paid in connection with this Lease.

                    e. The "worth at the time of award" of the amounts referred
to in Subparagraphs (a) and (b) of this Paragraph, is computed by allowing
interest at the Permitted Rate. The "worth at the time of award" of the amounts
referred to in Subparagraph (c) of this Paragraph is computed by discounting
such amount at the discount rate of the Federal Reserve Board of San Francisco
at the time of award plus one percent (1%). The term "rent" as used in this
Paragraph shall include all sums required to be paid by Tenant to Landlord
pursuant to the terms of this Lease.

        15. Destruction. In the event that any portion of the Building is
destroyed or damaged by an uninsured peril, Landlord or Tenant may, upon written
notice to the other, given within thirty (30) days after the occurrence of such
damage or destruction, elect to terminate this Lease; provided, however, that
either party may, within thirty (30) days after receipt of such notice, elect to
make any required repairs and/or restoration at such party's sole cost and
expense, in which event this Lease shall remain in full force and effect, and
the party having made such election to restore or repair shall thereafter
diligently proceed with such repairs and/or restoration.

        In the event that the Building is damaged or destroyed from any insured
peril and there are insufficient insurance proceeds available to repair or
restore the Building, Landlord may, upon written notice to Tenant, given within
thirty (30) days after the occurrence of such damage or destruction, elect to
terminate this Lease; provided, however, Tenant may, within thirty (30) days
after receipt of such termination notice and in its sole discretion, elect to
pay for any shortfall in funding the required repairs and/or restoration, in
which event Tenant shall furnish Landlord such shortfall funds prior to the
commencement of such repairs and/or restoration, this Lease shall remain in full
force and effect, and Landlord shall thereafter diligently proceed with such
repairs and/or restoration. If Landlord does not give such notice in writing
within such period, Landlord shall be deemed to have elected to rebuild or
restore the Building and the sitework outside the perimeter walls of the
Building, if damaged, to the extent of insurance proceeds available to Landlord.
Any shortfall in insurance proceeds available to Landlord to rebuild or restore
the Building shall be borne by Tenant and be made available by Tenant to
Landlord prior to commencement of such rebuilding or restoration. Upon
Landlord's receipt of such insurance proceeds and shortfall funds, if
applicable, Landlord shall promptly rebuild or restore the applicable Building
and such sitework to their condition prior to the damage or destruction. Tenant
also shall pay to Landlord upon commencement of reconstruction the amount of any
deductible from the insurance policy.

        In the event the Building is damaged or destroyed from an insured peril,
and if there are adequate insurance proceeds available to Landlord to rebuild or
restore the Building, then Landlord shall promptly rebuild or restore the
applicable Building and also repair the sitework outside of the perimeter walls
of the Building, if damaged, to their condition prior to such damage or
destruction. In such event, Tenant shall pay to Landlord upon commencement of
reconstruction, the amount of any deductible from the insurance policy.

        In the event that, pursuant to the foregoing provisions, Landlord is to
rebuild or restore the Building, Landlord shall, within thirty (30) days after
the occurrence of such damage or destruction, provide Tenant with written notice
of the estimated time required for such repair or restoration. If such period is
longer than one hundred eighty (180) days from the date of the event causing
such damage or destruction of the Building,

<PAGE>   61

Tenant may, within thirty (30) days after receipt of Landlord's notice, elect to
terminate the Lease by giving written notice to Landlord of such election,
whereupon the Lease shall immediately terminate. The period of time for Landlord
to complete the repair or restoration shall be extended for delays caused by the
fault or neglect of Tenant or because of acts of God, labor disputes, strikes,
fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, acts of contractors or subcontractors, or delay of
contractors or subcontractors due to such causes, or other contingencies beyond
the control of Landlord. Landlord's obligation to repair or restore a Building
shall not include Tenant's trade fixtures, equipment, personal property or
merchandise.

        Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect; provided, however, that during
any period of repairs or restoration to the Building, rent and all other amounts
to be paid by Tenant on account of the Premises and this Lease shall be abated
in proportion to the area of the Premises rendered not reasonably suitable for
the conduct of Tenant's business thereon. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the
California Civil Code.

        In the event the Expansion Project, or any portion thereof, is damaged
or destroyed, Landlord shall have no obligation to repair, restore or rebuild
the same and Tenant shall have no right to terminate this Lease as a result
thereof If any portion of the Expansion Project is damaged or destroyed, Tenant
shall have the right, during the Lease Term, to rebuild or restore the same
provided Tenant complies with the terms of the penultimate paragraph of Section
2 of this Lease above as the same relates to the construction or installation of
the Expansion Project. If Tenant does not elect to rebuild or restore the
damaged or destroyed Expansion Project, or applicable portion thereof, Tenant
shall, at its sole cost, remove all debris and rubble from the Total Project
caused by the damage or destruction of the Expansion Project, or applicable
portion thereof, and maintain the balance of the Expansion Project in safe
condition and repair.

        16. Condemnation.

        A. Definition of Terms. For the purposes of this Lease, the term (1)
"Taking" means a taking of the Total Project, or applicable portion thereof or
damage to the Total Project, or applicable portion thereof, related to the
exercise of the power of eminent domain and includes a voluntary conveyance, in
lieu of court proceedings, to any agency, authority, public utility, person or
corporate entity empowered to condemn property and who has commenced proceedings
to condemn the Total Project, or applicable portion thereof, (2) "Total Taking"
means the taking of the entire Total Project or so much thereof as to prevent or
substantially impair the use thereof by Tenant for the uses herein specified;
provided, however, in no event shall a Taking of less than ten percent (10%) of
the Building and Expansion Building(s) or twenty-five percent (25%) of the
parking areas be deemed a Total Taking; (3) "Partial Taking" means the taking of
only a portion of the Building and/or Expansion Building(s) or the parking areas
which does not constitute a Total Taking; (4) "Date of Taking" means the date
upon which the title to the Total Project, or a portion thereof, passes to and
vests in the condemnor or the effective date of any order for possession if
issued prior to the date title vests in the condemnor; and (5) "Award" means the
amount of any award made, consideration paid, or damages ordered as a result of
a Taking.

        B. Rights. The parties agree that in the event of a Taking all rights
between them or in and to an Award shall be as set forth herein and Tenant shall
have no right to any Award except as set forth herein.

        C. Total Taking In the event of a Total Taking during the Term hereof
(1) the rights of Tenant under the Lease and the leasehold estate of Tenant in
and to the Total Project shall CEASE AND TERMINATE AS OF THE DATE of

<PAGE>   62
Taking; (2) Landlord shall refund to Tenant any prepaid rent; (3) Tenant shall
pay Landlord any rent or charges due Landlord under the Lease, each prorated as
of the Date of Taking; (4) Tenant shall receive those portions of the Award
attributable to (a) the unamortized cost of Tenant Improvements constructed or
installed in the Building by Tenant, at Tenant's cost, in excess of the
unamortized cost of Landlord's deemed contribution to such Leasehold
Improvements (which deemed contribution shall be equal to Twenty Dollars
($20.00) per square foot of the Building), which amortization shall be
calculated on a straight-line basis over a fifteen-year period, (b) the
Expansion Building(s) and the leasehold improvements therein paid for by Tenant,
(c) movable personal property or trade fixtures of Tenant, (d) moving expenses
of Tenant, (e) loss of goodwill; and (5) the remainder of the Award shall be
paid to and be the property of Landlord.

        D. Partial Taking In the event of a Partial Taking during the term
hereof (1) the rights of Tenant under the Lease and leasehold estate of Tenant
in and to the portion of the Total Project taken shall cease and terminate as of
the Date of Taking; (2) from and after the Date of Taking the Monthly
Installment of rent shall be an amount equal to the product obtained by
multiplying the Monthly Installment of rent immediately prior to the Taking by a
fraction, the numerator of which is the number of square feet contained in the
Building after the Taking and the denominator of which is the number of square
feet contained in the Building prior to the Taking; (3) Tenant shall receive
from the Award the portions of the Award attributable to (a) the unamortized
cost of Tenant Improvements constructed or installed in the Building by Tenant,
at Tenant's cost (allocated on a per square foot basis to the portion of such
Tenant Improvements taken), in excess of the unamortized cost of Landlord's
deemed contribution to such Tenant Improvements (allocated on a per square foot
basis to the portion of such Tenant Improvements taken and which deemed
contribution shall be equal to Twenty Dollars ($20.00) per square foot of the
Building), which amortization shall be calculated on a straight-line basis over
a fifteen-year period, (b) the Expansion Building(s) and the leasehold
improvements therein paid for by Tenant, (c) movable personal property or trade
fixtures of Tenant, and (d) removal costs; and (4) the remainder of the Award
shall be paid to and be the property of Landlord. In the event of a Partial
Taking, Landlord shall restore, to the extent solely of severance damages paid
to Landlord from the condemnation Award, the Building to a completed
architectural unit, and any amount not so funded by Landlord shall be borne by
Tenant. In the event of a Partial Taking of the Expansion Project, or applicable
portion thereof, Tenant shall have no right to terminate this Lease and there
shall be no reduction or abatement of the Monthly Installment of rent.

17. Mechanics' Lien. Tenant shall (A) pay for all labor and services performed
for, materials used by or furnished to, Tenant or any contractor employed by
Tenant with respect to the Total Project, or applicable portion thereof, (B)
indemnify, defend, protect and hold Landlord and the Total Project harmless and
free from any liens, claims, liabilities, demands, encumbrances, or judgments
created or suffered by reason of any labor or services performed for, materials
used by or furnished to, Tenant or any contractor employed by Tenant with
respect to the Total Project or applicable portion thereof, and (C) permit
Landlord to post a notice of nonresponsibility in accordance with the statutory
requirements of California Civil Code Section 3094 or any amendment thereof. In
the event Tenant is required to post an improvement bond with a public agency in
connection with the above, Tenant agrees to include Landlord as an additional
obligee.

18. Inspection of the Premises. Tenant shall permit Landlord and its agents to
enter the Total Project, or applicable portion thereof, at any reasonable time
for the purpose of inspecting the same, performing Landlord's maintenance and
repair responsibilities (if applicable), posting a notice of non-responsibility
for alterations, additions or repairs, placing upon the Total Project ordinary
"For Sale" signs and at any time within ninety (90) days prior to expiration of
this Lease, to place upon the Total Project, ordinary "For Lease" signs. Except
in the event of an emergency, Landlord shall give Tenant at least 48 hours prior
notice and enter only during Tenant's normal business hours. Entry shall be
subject to Tenant's reasonable security requirements. Landlord shall exercise
good faith efforts to perform its activities on the Total Project in a manner so
as to minimize any

<PAGE>   63
disruption, disturbance or interference with the conduct of Tenant's business to
the extent practicable under the circumstances.

19. Compliance with Laws. Tenant shall, at its own cost, comply with all of the
requirements of all municipal, county, state and federal authorities now in
force, or which may hereafter be in force, pertaining to the use and occupancy
of the Total Project, Expansion Building(s) (and leasehold improvements
constructed therein), Premises and Tenant Improvements by Tenant, and shall
faithfully observe all municipal, county, state and federal law, statutes or
ordinances now in force or which may hereafter be in force applicable to
Tenant's use or occupancy of the Total Project, Expansion Building(s) (and
leasehold improvements constructed therein), Premises and Tenant Improvements.
The judgment of any court of competent jurisdiction or the admission of Tenant
in any action or proceeding against Tenant, whether Landlord be a party thereto
or not, that Tenant has violated any such ordinance or statute in the use and
occupancy of the Total Project, Expansion Building(s) (and leasehold
improvements constructed therein), Premises or Tenant Improvements shall be
conclusive of the fact that such violation by Tenant has occurred.

20. Subordination. The following provisions shall govern the relationship of
this Lease to any underlying lease, mortgage or deed of trust which now or
hereafter affects the Total Project, Expansion Project, Premises, the Building
and/or the Land, or Landlord's interest or estate therein and any renewal,
modification, consolidation, replacement, or extension thereof (a "Security
Instrument").

        A. Maximum Secured Borrowings. Landlord agrees that at no time during
the term of this Lease shall Landlord obtain a loan or loans secured by the
Total Project, or any portion thereof, in an aggregate principal amount greater
than the fair market value of the Premises at the time such loan(s) is made and
assuming the completion of construction of the Building in accordance with
approved plans and specifications. Such fair market value shall be determined by
the secured party's appraisal.

        B. Subsequent Security Instruments. At Landlord's election, this Lease
shall become subject and subordinate to any Security Instrument created after
the Commencement Date. Notwithstanding such subordination, Tenant's rights under
this Lease, including without Initiation, its right to quiet possession of the
Total Project shall not be disturbed so long as Tenant is not in default and
performs all of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.

        C. Documents. Tenant shall execute any document or instrument required
by Landlord or any Lender to make this Lease either prior or subordinate to a
Security Instrument, which may include such other matters as the Lender
customarily and reasonably requires in connection with such agreements,
including provisions that the Lender not be liable for (1) the return of the
Security Deposit unless the Lender receives it from Landlord, and (2) any
defaults on the part of Landlord occurring prior to the time that the Lender
takes possession of the Total Project or applicable portion thereof in
connection with the enforcement of its Security Instrument; provided, however,
that such other matters shall not conflict with the terms of this Lease.
Tenant's failure to execute any such document or instrument within fifteen (15)
days after written demand therefor shall constitute a default by Tenant.

<PAGE>   64
        D. Tenant's Attornment. Tenant shall attorn (1) to any purchaser of the
Total Project or applicable portion thereof at any foreclosure sale or private
sale conducted pursuant to any Security Instrument encumbering the Total Project
or applicable portion thereof, (2) to grantee or transferee designated in any
deed given in lieu of foreclosure; or (3) to the lessor under any underlying
ground lease should such ground lease be terminated, provided such party, in
writing, assumes and agrees to observe and perform the obligations of Landlord
under this Lease accruing after the date of the applicable transfer.

        E. Lender. The term "Lender" shall mean (1) any beneficiary, mortgagee,
secured party, or other holder of any deed of trust, mortgage, or other written
security device or agreement affecting the Total Project or applicable portion
thereof, and (2) any lessor under any underlying lease under which Landlord
holds its interest in the Total Project or applicable portion thereof.

21. Holding Over. This Lease shall terminate without further notice at the
expiration of the Lease Term. Any holding over by Tenant after expiration shall
not constitute a renewal or extension or give Tenant any rights in or to the
Total Project except as expressly provided in this Lease. Any holding over after
the expiration without the consent of Landlord shall be construed to be a
tenancy from month to month, at one hundred twenty-five percent (125%) of the
monthly rent for the last month of the Lease Term, and shall otherwise be on the
terms and conditions herein specified insofar as applicable.

22. Notices. Any notice required or desired to be given under this Lease shall
be in writing with copies directed as indicated below and shall be personally
served or given by mail. Any notice given by mail shall be deemed to have been
given on the third (3rd) day following the date on which such notice was
deposited in the United States mails, certified and postage prepaid, addressed
to the party to be served with a copy as indicated herein at the last address
given by that party to the other party under the provisions of this Paragraph.
At this date of execution of this Lease, the address of Landlord is:

511 Division Street
Campbell CA 95008

        and the address of Tenant is:

8105 Irvine Center Drive
Irvine, CA 92718
Attention: Manager, Corporate Real Estate

23. Attorneys' Fees. In the event either party shall bring any action or legal
proceeding for damages for any alleged breach of any provision of this Lease, to
recover rent or possession of the Total Project or applicable portion thereof,
to terminate this Lease, or to enforce, protect or establish any term or
covenant of this Lease or right or remedy of either party, the prevailing party
shall be entitled to recover as a part of such action or proceeding, reasonable
attorneys' fees and court costs, including attorneys' fees and costs for appeal,
as may be fixed by the court or jury. The term "prevailing party" shall mean the
party who received substantially the relief requested, whether by settlement,
dismissal, summary judgment, judgment, or otherwise.

24. Nonassigment.

        A. Landlord's Consent Required. Except as expressly provided in this
Paragraph 24, Tenant's interest in this Lease is not assignable, by operation of
law or otherwise, nor shall Tenant have the right to sublet the Total Project,
or any portion thereof, transfer any interest of Tenant therein or permit any
use of the Total Project, or any portion thereof by another party, without the
prior written consent of Landlord to such assignment,

<PAGE>   65
subletting, transfer or use, which consent Landlord agrees not to withhold or
delay unreasonably subject to the provisions of Subparagraph B below. A consent
to one assignment, subletting, occupancy or use by another party shall not be
deemed to be a consent to any subsequent assignment, subletting, occupancy or
use by another party. Any assignment or subletting without such consent shall be
void and shall, at the option of Landlord, terminate this Lease.

               Landlord's waiver or consent to any assignment or subletting
hereunder shall not relieve Tenant from any obligation under this Lease unless
the consent shall so provide.

        B. Transferee Information Required. If Tenant desires to assign its
interest in this Lease or sublet the Total Project or any portion thereof, or
transfer any interest of Tenant therein, or permit the use of the Total Project
or any portion thereof by another party (hereinafter collectively referred to as
a "Transfer"), Tenant shall give Landlord at least ten (10) days prior written
notice of the proposed Transfer and of the terms of such proposed Transfer,
including, but not limited to, the name and legal composition of the proposed
transferee, a financial statement of the proposed transferee, the nature of the
proposed transferee's business to be carried on in the Premises or Expansion
Building(s), the payment to be made or other consideration to be given to Tenant
on account of the Transfer, and such other pertinent information as may be
requested by Landlord, all in sufficient detail to enable Landlord to evaluate
the proposed Transfer and the prospective transferee. Landlord shall keep and
maintain such information in strict confidence and shall not disclose the same
to any person or entity (other than to Landlord's lender, general partners,
attorneys and employees who have a need to know such information and who agree
in writing to comply with this confidentiality obligation) without Tenant's
express written consent. In the event Tenant seeks to Transfer its interest in
this Lease or the Total Project, or applicable portion thereof, Landlord shall
have the following options, which may be exercised at its sole choice without
limiting Landlord in the exercise of any other right or remedy which Landlord
may have by reason of such proposed Transfer:

               (1) If Tenant proposes to assign this Lease or sublet more than
seventy-five percent (75%) of the total rentable square footage of the Premises
for a term exceeding two years (or, if less, for the balance of the Term), then
Landlord may elect to terminate this Lease effective as of the proposed
effective date of the proposed Transfer and release Tenant from any farther
liability hereunder accruing after such termination date by giving Tenant
written notice of such termination within ten (10) days after receipt by
Landlord of Tenant's notice of intent to transfer as provided above. If Landlord
makes such election to terminate this Lease, Tenant shall surrender the Total
Project, in accordance with Paragraph 33, on or before the effective termination
date, however, this Lease shall not terminate if, within five (5) days after
receiving Landlord's notice electing to terminate this Lease, Tenant notifies
Landlord in writing; that Tenant has withdrawn its assignment or sublet
proposal; or

               (2) Landlord may consent to the proposed Transfer on the
condition that Tenant agrees to pay to Landlord, as additional rent, fifty
percent (50%) of all rents or other consideration (including key money) received
by Tenant from the transferee by reason of such Transfer of the Premises only,
or applicable portion thereof, in excess of the rent payable by Tenant to
Landlord under this Lease (prorated in the event of a subletting of less than
the entire Premises) (less any brokerage commissions, advertising expenses, or
tenant improvement costs or other concessions paid or incurred by Tenant in
connection with the Transfer of the Premises only, or applicable portion
thereof). Tenant expressly agrees that the foregoing is a reasonable condition
for obtaining Landlord's consent to any Transfer; or

                (3) Landlord may reasonably withhold its consent to the proposed
Transfer.

<PAGE>   66
               Notwithstanding anything to the contrary contained herein, the
provisions of this Paragraph 24 shall not apply to any transfer (a) to any
affiliate of Tenant, (b) any entity who acquires all or substantially all of the
assets of Tenant, by merger or otherwise, or (c) to independent contractors
under contract to provide services to or for the benefit of Tenant, including,
without limitation, vending machine companies, food service providers, and
consultants.

25. Successors. The covenants and agreements contained in this Lease shall be
binding on the parties hereto and on their respective heirs, successors and
assigns (to the extent the Lease is assignable).

26. Mortgagee Protection. In the event of any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any beneficiary of a
deed of trust or mortgagee of a mortgage encumbering the Total Project, or
applicable portion thereof, whose address shall have been furnished to Tenant,
and shall offer such beneficiary or mortgagee a reasonable opportunity to cure
the default, including reasonable time to obtain possession of the Total Project
or applicable portion thereof by power of sale or judicial foreclosure, if such
should prove necessary to effect a cure.

27. Landlord Loan or Sale. Tenant agrees promptly following request by Landlord
(A) to execute and deliver to Landlord estoppel certificates presented to Tenant
by Landlord, (i) certifying that this Lease is unmodified and in full force and
effect or specifying any modifications 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 the nature of any such defaults, and (iii) evidencing the status of
the Lease as may be required either by a lender making a loan to Landlord to be
secured by a deed of trust or mortgage covering the Total Project or applicable
portion thereof or a purchaser of the Total Project or applicable portion
thereof from Landlord; (B) to deliver to Landlord the publicly available (if
Tenant is publicly traded) financial statement of Tenant with an opinion of a
certified public accountant, if available, including a balance sheet and profit
and loss statement, for the-last completed fiscal year all prepared in
accordance with generally accepted accounting principles consistently applied;
and (C) to deliver to Landlord a financial statement of Tenant (if Tenant is not
a publicly traded entity) with an opinion of a certified public accountant, if
available, including a balance sheet and profit and loss statement, for the last
completed fiscal year all prepared in accordance with generally accepted
accounting principles consistently applied. Tenant's failure to deliver an
estoppel certificate promptly following such request shall be an Event of
Default under this Lease.

28. Surrender of Lease Not Merger. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and
shall, at the option of Landlord, terminate all or any existing subleases or
subtenants, or operate as an assignment to Landlord of any or all such subleases
or subtenants.

29. Waiver. The waiver by Landlord or Tenant of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of any
preceding or succeeding breach of the same or any other covenant or condition
herein contained.

30. General.

        A. Captions, The captions and paragraph headings used in this Lease are
for the purposes of convenience only. They shall not be construed to limit or
extend the meaning of any part of this Lease, or be used to interpret specific
sections. The word(s) enclosed in quotation marks shall be construed as defined
terms for purposes of this Lease. As used in this Lease, the masculine, feminine
and neuter and the singular or plural number shall each be deemed to include the
other whenever the context so requires.

<PAGE>   67
        B. Definition of Landlord. The term "Landlord" as used in this Lease, so
far as the covenants or obligations on the part of Landlord are concerned, shall
be limited to mean and include only the owner at the time in question of the fee
title of the Premises, and in the event of any transfer or transfers of the
title of such fee, the Landlord herein named (and in case of any subsequent
transfers or conveyances, the then grantor) shall after the date of such
transfer or conveyance be automatically freed and relieved of all liability with
respect to performance of any covenants or obligations on the part of Landlord
contained in this Lease, thereafter to be performed; provided that any funds in
the hands of Landlord or the then grantor at the time of such transfer, in which
Tenant has an interest, shall be turned over to the grantee. It is intended that
the covenants and obligations contained in this Lease on the part of Landlord
shall, subject as aforesaid, be binding upon each Landlord, its heirs, personal
representatives, successors and assigns only during its respective period of
ownership.

        C. Time of Essence. Time is of the essence for the performance of each
tem covenant and condition of this Lease in which the time for performance is
specified.

        D. Severability. In case any one or more of the provisions contained
herein, except for the payment of rent, shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if such invalid, illegal or unenforceable provision
had not been contained herein. This Lease shall be construed and enforced in
accordance with the laws of the State of California.

        E. Joint and Several Liability. If Tenant is more than one person or
entity, each such person or entity shall be jointly and severally liable for the
obligations of Tenant hereunder.

        F. Law. The term "law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule, administrative order, or
other published and available requirement of any government agency or authority
having jurisdiction over the parties to this Lease and/or the Total Project (or
applicable portion thereof), in effect at the Commencement Date of this Lease or
any time during the Lease Term, including, without limitation, any regulation,
order, or policy of any quasi-official entity or body (e.g., board of fire
examiners, public utility or special district).

        G. Agent. As used herein the term "Agent" shall mean, with respect to
either Landlord or Tenant, its respective agents, employees, contractors (and
their subcontractors), and invitees (and in the case of Tenant, its subtenants).

        H. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR
RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM COUNTERCLAIM OR
CROSS-COMPLAINT IN ANY ACTION, PROCEEDING, AND/OR HEARING BROUGHT BY EITHER
LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER
ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE TOTAL PROJECT, OR ANY
PORTION THEREOF, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY
REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR
HEREAFTER IN EFFECT.

               INITIALS:           LANDLORD /S/

                                   TENANT /S/

<PAGE>   68
31. Sign. Subject to all necessary governmental approvals, Tenant shall have the
right to place identifying signs on the exterior of the Building and the
Expansion Building(s) and on a sign monument at the entrance to the Project. The
location and size of such signs shall be subject to Landlord's approval, which
shall not be unreasonably withheld or delayed. Tenant may place additional signs
or decorations on the exterior of the Building and Expansion Building(s) or on
the Land with the prior written consent of Landlord, which consent will not be
unreasonably withheld or delayed.

32. Interest on Past Due Obligations. Any Monthly Installment of rent or any
other sum due from Tenant under this Lease which is received by Landlord after
the date the same is due shall bear interest from said due date until paid, at
an annual rate equal to the greater of (the "Permitted Rate"): (1) ten percent
(10%); or (2) five percent (5%) plus the rate established by the Federal Reserve
Bank of San Francisco, as of the twenty-fifth (25th) day of the month
immediately preceding the due date, on advances to member banks under Section 13
and 13 (a) of the Federal Reserve Act, as now in effect or hereafter from time
to time amended. Payment of such interest shall not excuse or cure any default
by Tenant. In addition, Tenant shall pay all reasonable costs and attorneys fees
incurred by Landlord in collection of such amounts.

33. Surrender of the Premises. On the last day of the term hereof, or on the
sooner termination of this Lease, (i) Tenant shall surrender to Landlord the
Expansion Building(s), and the leasehold improvements constructed or installed
therein (and all alterations, additions and improvements to such leasehold
improvements) in safe condition and free of debris, with all trade fixtures,
personal property and equipment of Tenant removed from the Total Project,
however, Tenant shall not be required by Landlord to remove any leasehold
improvements constructed in the Expansion Building(s) or any alterations,
additions or improvements to such leasehold improvements, (ii) Tenant shall
surrender the Premises to Landlord, subject to the provisions of paragraph 10 of
the Improvement Agreement attached hereto as Exhibit "C", in their condition
existing as of the date such Premises, or applicable portion thereof, are
delivered to Tenant, and (iii) Tenant shall also surrender to Landlord any
Tenant Improvements and alterations, additions and improvements to such Tenant
Improvements made by Tenant that are not required by Landlord, pursuant to the
terms of this Lease, to be removed by Tenant at Tenant's cost, each in their
condition existing as of the date the same were constructed or installed,
ordinary wear and tear and damage from casualty or condemnation excepted (unless
caused by the negligence or willful misconduct of Tenant or Tenant's agents,
employees or contractors), with all interior walls cleaned, and repaired or
replaced, all carpets shampooed and cleaned, the air conditioning and heating
equipment serviced and repaired by a reputable and licensed service firm, all
floors cleaned and waxed, all to the reasonable satisfaction of Landlord. Tenant
shall remove all of Tenant's personal property and trade fixtures from the Total
Project, and all property not so removed shall be deemed abandoned by Tenant.
Tenant, at its sole cost, shall repair any damage to the Total Project, and any
portion thereof, caused by the removal of Tenant's personal property, machinery
and equipment, which repair-shall include, without limitation, the patching and
filling of holes and repair of structural damage. If the Total Project or any
portion thereof are not so surrendered at the termination of this Lease, as
required by the terms of this Lease, Tenant shall indemnify and hold Landlord
harmless from and against loss or liability resulting from delay by Tenant in so
surrendering the Expansion Project, the Expansion Building(s) (or any leasehold
improvements constructed or installed therein), the Premises and/or Tenant
Improvements (or alterations, additions or improvements to such Tenant
Improvements) including without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lost opportunities to lease to succeeding
tenants.

34. Authority. The undersigned parties hereby warrant that they have proper
authority and are empowered to execute this Lease on behalf of Landlord and
Tenant, respectively.

35. Public Record. This Lease is made subject to all matters of public record
affecting title to the property of which the Premises are a part. Tenant shall
abide by and comply with all matters of public record now or

<PAGE>   69
hereafter affecting the Total Project and any amendment thereof. The preceding
notwithstanding, Tenant shall not be responsible for correcting any violations
existing as of the date possession of the Building is delivered to Tenant of the
provisions of any document which is of public record and affecting the Premises
or the Land.

36. Brokers. Tenant represents and warrants to Landlord that it has dealt solely
with CB Commercial with respect to this transaction and hereby agrees to
indemnify and hold Landlord harmless from and against any brokerage commission
or fee, obligation, claim or damage (including attorneys' fees) paid or incurred
respecting any other broker claiming through Tenant or with which/whom Tenant
has dealt. It is acknowledged that one or more of Landlord's members may be real
estate brokers. Landlord shall pay and be solely responsible for all commissions
due CB Commercial pursuant to a separate written agreement between Landlord and
CB Commercial and any other persons or entities representing or claiming under
or through Landlord in connection with this transaction. Landlord hereby
indemnifies and agrees to defend and hold harmless Tenant from and against all
claims, demands, liabilities, damages and expenses (including, without
limitation, attorneys' fees and costs) from all such persons or entities.

37. Limitation on Landlord's Liability. Tenant, for itself and its successors
and assigns (to the extent this Lease is assignable), hereby agrees that in the
event of any actual, or alleged, breach or default by Landlord under this Lease
that:

        A) Tenant's sole and exclusive remedy against Landlord shall be as
against the assets owned by Landlord (including, without limitation, Landlord's
interest in the Total Project, and any insurance proceeds available to
Landlord), but not against the individual assets of Landlord's partners or
members;

        B) No partner, member or officer of any partner or member of Landlord
shall be sued or named as a party in a suit or action (except as may be
necessary to secure jurisdiction of the partnership or limited liability
company);

        C) No service of process shall be made against any partner or member of
Landlord (except as may be necessary to secure jurisdiction of the partnership
or limited liability company);

        D) No partner or member of Landlord shall be required to answer or
otherwise plead to any service of process;

        E) No judgment will be taken against any partner or member of Landlord;

        F) Any judgment taken against any partner or member of Landlord maybe
vacated and set aside at any time nunc pro tunc;

        G) No writ of execution will ever be levied against the assets of any
partner or member of Landlord;

        H) The covenants and agreements of Tenant set forth in this Section 37
shall be enforceable by Landlord and any partner or member of Landlord.

3.8 Hazardous Material.

        A. Definitions. As used herein, the term "Hazardous Material", shall
mean any substance: (i) the presence of which requires investigation or
remediation under any federal, state or local statutes, regulation, ordinance,
order, action, policy or common law; (ii) which is or becomes defined "hazardous
waste," "hazardous substance," pollutant or contaminant under any federal, state
or local statute, regulation, rule or

<PAGE>   70
ordinance or amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.); (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
or becomes regulated by any governmental authority, agency, department,
commission, board, agency, or instrumentality of the United States, the State of
California or any political subdivision thereof, (iv) the presence of which on
the Project or the Expansion Project, if applicable, or any portion thereof,
poses or threatens to pose a hazard to the health or safety of persons on or
about the Project or the Expansion Project; (v) without limitation which
contains gasoline, diesel fuel, or other petroleum hydrocarbons; (vi) without
limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde foam insulation; or (vii) without limitation radon gas.

        B. Landlord's Indemnity. Landlord shall indemnify, defend, protect and
hold Tenant harmless from and against all liabilities, claims, penalties, fines,
response costs and other expenses (including, but limited to, reasonable
attorneys' fees and consultants' fees and costs) arising out of, resulting from,
or caused by any Hazardous Material used, generated, discharged, transported to
or from, stored or disposed of by Landlord or its Agents in, on, under, over,
through or about the Total Project (or any portion thereof and/or the
surrounding real property. Landlord further agrees not to hold Tenant
responsible for the cleanup or remediation of any Hazardous Materials that
exist, if any, in, on or under the Land or the Premises as of the date
possession of the Premises is delivered to Tenant (unless the same was generated
or caused to be present by Tenant or its agents, employees or contractors).
Nothing stated herein (including, without limitation, the terms of the
immediately preceding sentence) shall be interpreted or construed as creating an
obligation on Landlord to indemnify or defend Tenant against liabilities,
claims, penalties, fines, response costs and other expenses (including, without
limitation, attorneys' fees and consultants' fees and costs) arising out of or
resulting from, or caused by any Hazardous Materials used, generated,
discharged, transported to or from, stored or disposed of by a person or entity
other than Landlord or its Agents.

        C. Permitted Use. Subject to the compliance by Tenant with the
provisions of Subparagraphs D, E, F, G, I, J and K below, Tenant shall be
permitted to use and store on the Total Project those Hazardous Materials listed
in Exhibit "D" attached hereto in the quantities attached set forth in Exhibit
"D" and such additional Hazardous Materials as are reasonably required or
necessary in connection with Tenant's business. Unless such new Hazardous
Materials are described in a HMMP (as described below) furnished to Landlord,
promptly following Tenant's use of any Hazardous Materials that are not
described on Exhibit "D" attached hereto, Tenant shall notify Landlord in
writing of the name of the new Hazardous Materials being used by Tenant and the
estimated quantities of such Hazardous Materials being used.

        D. Hazardous Materials Management Plan. Prior to Tenant using, handling,
transporting or storing any Hazardous Material at or about the Project and/or
the Expansion Project (including, without limitation, those listed in Exhibit
"D" , Tenant shall submit to Landlord a Hazardous Materials Management Plan
("HMMP") for Landlord's review and approval which approval shall not be
unreasonably withheld. The HMMP shall describe: (i) the approximate quantities
of each MATERIAL to be used, (ii) the purpose for which each material is to be
used (subject to Tenant's requirements for maintaining the confidentiality of
its trade secrets), (iii) the method of storage of each material, (iv) the
method of transporting each material to and from the Project (and the Expansion
Project, if applicable), or applicable portion thereof, (v) the methods Tenant
will employ to monitor the use of the material and to detect any leaks or
potential hazards, and (vi) any other information any department of any
governmental entity (city, state or federal) requires prior to the issuance of
any required permit for the Project (or the Expansion Project) or during
Tenant's occupancy of the Premises (or the Expansion Project). Landlord may, but
shall have no obligation to review and approve the foregoing information and
HMMP, and such review and approval or failure to review and approve shall not
act as an estoppel or otherwise waive Landlord's rights under this Lease or
relieve Tenant of its obligations under this

<PAGE>   71
Lease. If Landlord determines in good faith by inspection of the Project (or the
Expansion Project), or any portion thereof, or review of the HMMP that the
methods in use or described by Tenant are not adequate in Landlord's good faith
judgment to prevent or eliminate the existence of environmental hazards, then
Tenant shall not use, handle, transport, or store such Hazardous Materials at or
about the Project (or at or about the Expansion Project), or portion thereof,
unless and until such methods are approved by an environmental consultant
reasonably approved by Landlord and Tenant and added to an approved HMMP. Tenant
shall strictly comply with the HMMP and shall not change its use, operations or
procedures with respect to Hazardous Materials without submitting an amended
HMMP for Landlord's review and approval as provided above.

        E. Use Restriction. Except as specifically allowed in Subparagraph C
above, Tenant shall not cause or permit any Hazardous Material to be used,
stored, generated, discharged, transported to or from, or disposed of in or
about the Project (or the Expansion Project, if applicable), or any other land
or improvements in the vicinity of the Project (or the Expansion Project).
Without limiting the generality of the foregoing, Tenant, at its sole cost,
shall comply with all Laws relating to the storage, use, generation, transport,
discharge and disposal by Tenant or its Agents of any Hazardous Material. If the
presence of any Hazardous Material on the Total Project or any portion thereof
caused or permitted by Tenant or its Agents results in contamination of the
Total Project, or any portion thereof, or any soil, air, ground or surface
waters under, through, over, on, in or about the Total Project, or any portion
thereof Tenant, at its expense, shall promptly take all actions necessary to
return the Total Project and/or the surrounding real property to the condition
required by applicable governmental authorities or agencies. The obligation of
Tenant to return the Total Project and/or surrounding property to the condition
required by applicable governmental authorities or agencies shall not limit,
reduce or alter in any manner Tenant's indemnity obligation under Subparagraph F
below; it being understood and agreed by Tenant that, although hypothetically
the applicable governmental agencies may allow Tenant to keep on the Project or
Expansion Project, if applicable, or encapsulate thereunder, certain traces of a
Hazardous Material(s) caused to be present by Tenant or any of its agents and
not remove all of it from the Project or the Expansion Project, if Landlord
suffers any damages, liabilities or losses as a result of such Hazardous
Materials remaining on the Project or the Expansion Project or migrating onto
another property (including, without limitation, diminution in the fair market
value of the Project or the Expansion Project, or any portion thereof, and
diminution in the fair rental value of the Project or the Expansion Project,
inability to finance or refinance the Project or the Expansion Project or
inability to lease or sell the Project or the Expansion Project), Tenant shall
be liable for such damages, liabilities or losses under the terms of
Subparagraph F below.

        F. Tenant Indemnity . Tenant shall defend, protect, hold harmless and
indemnify Landlord and its Agents and Lenders with respect to all actions,
claims, losses (including, diminution in value of the Project), fines,
penalties, fees, (including, but not limited to, reasonable attorneys' and
consultants' fees and costs) costs, damages, liabilities, remediation costs,
investigation costs, response costs and other expenses arising out of, resulting
from, or caused by any Hazardous Material used, generated discharged,
transported to or from, stored, or disposed of by Tenant or its Agents in, on,
under, over, through or about the Project and/or the Expansion Project (or any
portion of either) and/or the surrounding real property. Tenant shall not suffer
any lien to be recorded against the Total Project, or any portion thereof, as a
consequence for the disposal of any Hazardous Material by Tenant or its Agents,
including any so called state, federal or local "super fund" lien related to the
"clean up" of any Hazardous Material in, over, on, under through, or about the
Total Project, or applicable portion thereof

        G. Compliance. Tenant shall immediately notify Landlord of any
governmentally required test, investigation, or enforcement proceeding against
Tenant or the Total Project, or any portion thereof, concerning any Hazardous
Material in, on, under or about the Total Project, or applicable portion thereof
or allegedly used in, on, under or about the Total Project or applicable portion
thereof. Any remediation plan prepared by or on behalf of Tenant must be
submitted to Landlord prior to conducting any work pursuant to such plan and
prior to

<PAGE>   72
submittal to any applicable government authority and shall be subject to
Landlord's consent. Tenant acknowledges that Landlord, as the owner of the Land
and Building (and the Expansion Building(s) at the expiration of the Lease Term)
located thereon, at its election, shall have the sole right to negotiate,
defend, approve and appeal any action taken or order issued with regard to any
Hazardous Material by any applicable governmental authority. The preceding
sentence notwithstanding, Landlord agrees that if governmental enforcement
action is taken against Landlord with respect to any Hazardous Materials
discharged or released or caused to be present on, in or under the Total
Project, or applicable portion thereof, then Landlord shall promptly notify
Tenant of such enforcement action and Tenant shall be entitled to participate in
any negotiations with the applicable governmental agency concerning the clean
up, remediation or monitoring of such Hazardous Materials. Nothing stated herein
shall preclude Landlord from settling or compromising any claims or actions
initiated against it or from entering into any monitoring or remediation plan
for which Tenant has an obligation of indemnity hereunder.

        H. Assignment and Subletting. It shall not be unreasonable for Landlord
to withhold its consent to any proposed assignment or subletting if the proposed
assignee or subtenant has been required by any prior landlord, lender, or
governmental authority to "clean up" or remediate any Hazardous Material and has
failed to promptly do so; provided that the foregoing will not apply in the case
of a Fortune 1,000 Company. Landlord shall not unreasonably withhold its consent
to any proposed assignment or subletting if (i) the proposed assignee's or
subtenant's anticipated use of the Total Project, or applicable portion so
subleased, involves the storage, generation, discharge, transport, use or
disposal of any Hazardous Material not permitted under Subparagraph C above; or
(ii) if the proposed assignee or subtenant is subject to investigation or
enforcement order or proceeding by any governmental authority in connection with
the use, generation, discharge, transport, disposal or storage of any material
amount of Hazardous Material.

        I. Surrender. Upon the expiration or earlier termination of the Lease,
Tenant, at its sole cost, shall remove all Hazardous Materials from the Total
Project that Tenant or its Agents introduced to the Total Project, or applicable
portion thereof. If Tenant fails to so surrender the Total Project, Tenant shall
indemnify, protect, defend and hold Landlord harmless from and against all
damages resulting from Tenant's failure to surrender the Total Project as
required by this Paragraph, including, without limitation, any actions, claims,
losses, liabilities, fees (including, but not limited to, reasonable attorneys'
fees and consultants' fees and costs), fines, costs, penalties, or damages in
connection with the presence of such Hazardous Materials at the Total Project,
or applicable portion thereof, including, without limitation, damages occasioned
by the inability to relet the Total Project, or applicable portion thereof, or a
reduction in the fair market and/or rental value of the Total Project by reason
of the existence of any Hazardous Materials in, on, over, under, through or
around the Total Project, or applicable portion thereof, by Tenant.

        J. Right to Appoint Consultant. Landlord shall have the right to appoint
a consultant, reasonably acceptable to Tenant, to conduct an investigation to
determine whether any Hazardous Material is being used, generated, discharged,
transported to or from, stored or disposed of in, on, over, through, or about
the Total Project, or any portion thereof, in an appropriate and lawful manner.
If Tenant has violated any Law or covenant in this Lease regarding the use,
storage or disposal of Hazardous Materials on or about the Total Project, or any
portion thereof, Tenant shall reimburse Landlord for the reasonable cost of such
investigations applicable to the discovery of Tenant's violation and future
investigations of the environmental condition of the Total Project reasonably
undertaken by or on behalf of Landlord to confirm the violation has been cured.
Tenant, at its expense, shall comply with all reasonable recommendations of the
consultant required to conform Tenant's use, storage or disposal of Hazardous
Materials to the requirements of applicable Law or to fulfill the obligations of
Tenant hereunder.

<PAGE>   73
        K. Holding Over. If any action of any kind is required to be taken by
any governmental authority to clean-up, remove, remediate or monitor Hazardous
Material (the presence of which is the result of the acts or omissions of Tenant
or its Agents) and such action is not completed prior to the expiration or
earlier termination of the Lease, Tenant shall be deemed to have impermissibly
held over until such time as such required action is completed, and Landlord
shall be entitled, subject to Landlord's obligation to attempt to reasonably
mitigate its damages, to all damages directly or indirectly incurred in
connection with such holding over, including without limitation, damages
occasioned by the inability to re-let the Total Project, or applicable portion
thereof, or a reduction of the fair market and/or rental value of the Total
Project, or applicable portion thereof; provided, however, that the presence of
any Hazardous Material that is confined to a single Building shall be deemed to
be a holdover only as to the affected Building, and Tenant's liability for the
rent due with respect to such holdover status shall be equitably apportioned.

        L Existing Environmental Reports;. Tenant hereby acknowledges that it
has received, read and reviewed the reports and test results described in
Exhibit "E" attached hereto and made a part hereof (the "Existing Environmental
Reports").

        M. Provisions Survive Termination. The provisions of this Paragraph 38
shall survive the expiration or termination of this Lease.

        N. Controlling Provisions. The provisions of this Paragraph 38 are
intended to govern the rights and liabilities of the Landlord and Tenant
hereunder respecting Hazardous Materials to the exclusion of any other
provisions in this Lease that might otherwise be deemed applicable. The
provisions of this Paragraph 38 shall be controlling with respect to any
provisions in this Lease that are inconsistent with this Paragraph 38.

IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set
forth below.

LANDLORD:                                  TENANT:
ENZO DRIVE, LLC,                           WESTERN DIGITAL CORPORATION,
a California limited liability company     a Delaware corporation
By:  /s/ J.D. Mair                         By:  /s/ Richard Salva
Its: Member                                Its: Vice President

<PAGE>   74
                                   EXHIBIT "A"
                                LEGAL DESCRIPTION

All that certain real property situate in the City of San Jose. County of Santa
Clara. State of California. described as follows:

PARCEL ONE:

BEGINNING at a point on the Northeasterly line of Monterey Road, as the same was
established in the Deed from Domingos T. Borge, et ux, to the State of
California, dated January 7, 1937, recorded March 2, 1937, in Book 815 of
Official Records, page 80, said point being the most Easterly corner of that
certain 0.031 acre parcel described in the above mentioned Deed and also being
on the Southeasterly line of that certain 28.58 acre parcel of land described in
the Deed from Jack Turturici, et ux, to Luisa Maria Ferrari, dated March 12,
1946, recorded April 12, 1946 in Book 1335 of Official Records, page 182,
distant thereon North 37 12' 55" East 67.52 from the most Southerly corner of
said 28.58 acre parcel: thence from said point of beginning along the
Southeasterly line of said 28.58 acre parcel North 37 12' 55" East 2,522.68 feet
to the most Southerly comer of that certain 10 acre parcel of land described in
the Deed from Luisa Maria Ferrari, to Giovanni L. Romano, dated April 11, 1957,
recorded April 15, 1957 in Book 3775 of Official Records, page 532; thence along
a Southwesterly line of said 10 acre parcel North 52 47' 45 " West 20.00 feet,
to a point on a Northwesterly line of said 28.5 8 acre parcel; thence along said
last mentioned line South 37 12' 55" West. 2,522.66 feet to the most Northerly
comer of said 0.031 acre parcel, thence along the Northeasterly line of said
0.031 acre parcel South 52 43' 45" East 20.14 feet to the point of beginning,.

EXCEPTING THEREFROM that portion thereof lying Southwesterly of the
Northeasterly line of the parcel of land condemned to the State of California by
Final Order of Condemnation. a Certified Copy of which was recorded April 4,
1972 in Book 9772. Page 609 of Official Records.

PARCEL TWO:

BEGINNING at a stake marked "B" standing at the intersection of the center line
of the Monterey Road with the Southwesterly prolongation of the Fence line
between lands of Mrs. Murphy Colombet and Warren Cottle, being also the common
comer for Lots "M" and "N" in the center of said road, as shown on the Map
accompanying the report of the referees in the suit for partition entitled,
"Ygnacio Bernal et al vs. Rufina Bemal de Guinac et al", Case No. 5643 in the
Twentieth District Court of the State of California, in and for the County of
Santa Clara, and running thence along the center of the Monterey Road, S. 52 55'
E. 16.36 chains to a point distant Northwesterly 20 feet from the common corner
for lands of Mrs. Murphy Colombet and E. Van Every in the center of said road,
thence parallel to the fence line between the lands of said Van Every and Mrs.
Murphy Colombet and distant therefrom twenty feet Northwesterly, N. 37 E.
39.24-1/2 chains to a 4" x 4" stake marked 2-3: thence at right angles N. 53' W.
9.85-1/2 chains to a stake marked C.M. 1 standing in the center of the Coyote
River and line between lands of Mrs. Murphy Colombet and Edward M. Piercy and
from which stake a Sycamore 36 inches in diameter marked B.T.C.M. 1 bears N. 84
30' W. 2.26 chains: thence along the center of said river and line between lands
of said Piercy and Mrs. Murphy Colombet with the following courses and
distances: S. 31 45' W. 4.71-1/2 chains, N. 86 38' W. 5.00 chains and N. 64 30'
W. 2.82 chains to tiie common corner for lands of Mrs. Murphv Colombet and
Warren Cottle in the center of said river; thence leaving said river and running
along the fence line between the ------ lands of said Cottle and Murphy
Colombet, S. 37 W. 31.17 chains to the place of beginning. Being a part of Lot
"N" as setoff to Jose A. and Daniel Bernal in the suit for partition entitled,
"Ygnacio Bemal et al vs. Rufina Bemal de Guinac et al, Case No. 5643 in the
Twentieth District Court of the State of California, in and for the County of
Santa Clara and a part of Lot 33 of the partition of the Santa Teresa Rancho.

<PAGE>   75
EXCEPTING THEREFROM that portion thereof, lying Northerly of the Southerly line
of the land described in the deed to the County of Santa Clara, recorded
September 11, 1969 in Book 8665, page 413 of Official Records, more particularly
described as follows:

BEGINNING at the most Easterly corner of that certain parcel of land conveyed to
the Santa Clara Valley Water Conservation District by Deed Recorded July 9, 1963
in Book 6094 Official Records, page 493; thence along the Southerly boundary of
said parcel South 41 58' 50" West 25.03 feet. South 0 02' 10" East 31.40 feet.
South 34 56' 30" West 25.02 feet, South 41 58' 50" West 11.95 feet, South 26 07'
05" West 17.20 feet. South 71 25' 40" West 25.18 feet. North 79 55' 30" West
26.93 feet. South 83 40' 30" West 125.55 feet. South 72 04' 40" West 85.72 feet,
South 64 08' 30" West 25.36 feet, South 72 32' 10" West 107.02 feet, South 86
03' 10" West 150.01 feet, North 87 40' 40" West 75.48 feet. North 82 28' 50"
West 47.38 feet. North 75 22' 30" West 175.01 feet, and North 66 13' West 56.94
feet to the most Westerly corner thereof and lying in the Northwesterly line of
that certain parcel of land described in the Deed from Anthony LaBarbera et al.
to Peter Filice and Sons, a co-partnership. dated April 17, 1956 and recorded
April 23, 1956 in Book 3474 Official Records, at Page 212. Santa Clara County
Records; thence leaving said Southerly boundary and proceeding along, said
Northwesterly line South 37 00' West 34.71 feet; thence leaving said
Northwesterly line South 62 17' 10" East 5.61 feet; thence South 74 44' 55" East
312.93 feet; thence North 79 19' 42" East 764.03 feet more or less to a point on
the Northeasterly line of that parcel of land described in the aforementioned
Deed from Anthony LaBarbera. et al; thence along said Northeasterly line North
53 00' 00" West 145.09 feet more or less to the point of beginning.

ALSO EXCEPTING THEREFROM that portion thereof lying Southwesterly and
Southeasterly of the Northeasterly and Northwesterly line of the land described
in the deed to the State of California recorded April 13. 1972 in Book 9785,
Page 674 of Official Records, more particularly describe as follows:

Beginning for reference at the most Westerly corner of that parcel of land
described in the deed to the County of Santa Clara recorded September 22, 1969,
in Book 8677 at page 216, Official Records of Santa Clara County; thence along
the property line common to the lands, now or formerly, of the Estate of
Angelina Filice Behm and Danna and Danna. Inc., a corporation, S. 37 35' 06"
West, 80.04 feet to the true point of commencement; thence South 55 00'29" East,
786.52 feet; thence South 56 09' 14" East, 281.42 feet. thence N. 37 31' 06",
Eat 106.62 feet; thence South 52 28' 54" East, 15.00 feet to the property line
common to the lands, now or formerly, of the Estate of Angelina Filice Behm, and
of Eugene Ferrari, et al; thence

<PAGE>   76
                                   EXHIBIT "C"

                              Improvement Agreement

        This Improvement Agreement is made part of that Lease Agreement dated
September 15, 1997 (the "Lease"), by and between ENZO DRIVE, LLC, a California
limited liability company ("Landlord") and WESTERN DIGITAL CORPORATION, a
Delaware corporation ("Tenant").

        Except as otherwise provided herein, all defined or capitalized terms
used herein shall have the same meaning as ascribed to such terms in the Lease.

        I. Landlord's Obligation to Construct the Building and Improve the Land.
The parties hereto acknowledge that the Land is presently unimproved. Subject to
satisfaction or waiver by Landlord of the conditions set forth in Paragraph 3 of
the Lease, Landlord shall improve the Land with a building shell (the "Building
Shell") and sitework related thereto. Such Building Shell and related sitework
shall be constructed by Landlord substantially in accordance with the Final
Building Plans (as described below) approved or to be approved by Landlord and
Tenant as described herein, subject to the approval of and any changes required
by any appropriate governmental authority or Landlord's Lender. As stated in the
Lease, the Building shall contain approximately 58,785 square feet.

        Prior to the execution of this Lease, Tenant contemplated entering into
a build-to-suit lease with Landlord pursuant to which Landlord would develop and
build two (2) buildings on the Land and lease the same to Tenant for Tenant's
use. One of those buildings was to have been approximately 101,060 square feet
and the other building was to have been approximately 55,202 square feet. In
cooperation with Tenant, Landlord had caused to be prepared certain preliminary
plans and specifications for the development of such two buildings and had
submitted such plans to the City of San Jose for plan check and approval.
Although Landlord may elect, in its sole and absolute discretion, to continue to
pursue site development approval from the City of San Jose based on the
development of the site with two buildings, consisting of approximately 101,060
and 55,202 square feet, respectively, the parties hereto acknowledge and agree
that the plans and specifications for development of the Land will need to be
redesigned to address the development of only an approximately 58,785 square
foot building on the Land. The Building Shell for the approximately 58,785
square foot Building and related sitework shall be designed and constructed in
accordance with the terms set forth below.

        2. Design of Building Shell. As soon as practicable following the
execution of the Lease, Landlord, with the reasonable cooperation of Tenant,
shall develop preliminary plans and specifications (the "Preliminary Building
Plans") and then final plans, specifications and working drawings for the
Building Shell (the "Final Building Plans"). Within five (5) days following
delivery to Tenant of the Preliminary Plans or Final Building Plans for the
Building Shell, Tenant shall review them and either (i) approve them, which
approval shall not be unreasonably withheld, or (ii) specify in writing its
objections to such Preliminary Building Plans or Final Building Plans for the
Building Shell, and all changes that must be made to such Preliminary Building
Plans or Final Building Plans to satisfy such objections; provided, however,
that Tenant may only object to the Preliminary Building Plans or Final Building
Plans for the Building Shell on the basis that they do not substantially conform
to the schematic plan for the Building Shell attached hereto as Attachment 1. If
Tenant does not deliver any written objections to such Preliminary Building
Plans for the Building Shell within the specified period, then Tenant shall be
deemed to have approved the same and Landlord shall then diligently cause to be
prepared Final Building Plans that are consistent with and a logical evolution
of the approved Preliminary Building Plans. If Tenant does not deliver any
written objections to the Final Building Plans for the Building Shell within the
specified period, then Tenant shall be deemed to have approved the Final
Building
<PAGE>   77
Plans for the Building Shell. If Tenant does deliver such written objections
within such time period, then the parties shall confer and use their best
efforts to resolve such objections by Tenant within five (5) days after Landlord
has received notice thereof. If the parties are unable to resolve such
objections by Tenant within said time period, then such objections shall be
resolved by arbitration conducted according to the procedures described in
paragraph 11 hereof. Upon Tenant's approval of the Final Building Plans,
Landlord shall submit such Final Building Plans to all appropriate governmental
agencies for approval. Immediately after all such governmental approvals have
been obtained, and after such Final Building Plans for the Building Shell, have
been approved by Landlord's Lender providing financing for the construction of
such Building, then such approved Final Building Plans (which, together with any
and all change orders approved by Landlord, Tenant and, if applicable,
Landlord's Lender, are hereinafter collectively referred to as the "Approved
Final Plans" for the Building) shall be initialed and dated by Landlord and
Tenant.

        The parties hereto acknowledge and understand that Tenant intends to
construct, or cause to be constructed certain leasehold improvements (both
general utility and specialized improvements) in the Building pursuant to the
terms of a separate construction contract or improvement agreement. Such
separate construction contract or improvement agreement is contemplated to be
entered into between Tenant and its general contractor, which general contractor
shall be a joint venture consisting of South Bay Construction Company and
Southland Industries. This Improvement Agreement shall not govern or address the
terms and conditions upon which such leasehold improvements shall be designed
and constructed, however, Landlord shall have a right to reasonably approve the
scope of such initial leasehold improvements contemplated to constructed by
Tenant within the Building Shell.

        3. Construction Contract. Landlord shall retain South Bay Construction
Company (the "General Contractor") as general contractor to construct the
Building Shell (and related sitework) on behalf of Landlord. The contract
entered into by Landlord with the General Contractor for construction of the
Building Shell shall be on a "cost plus six percent (6%)" basis so that, with
respect to the Building Shell and related sitework, the General Contractor is
paid all Project Costs (as hereinafter defined) applicable to the design and
construction of such applicable Building Shell and related sitework and receives
a fee for profit and overhead equal to six percent (6%) of the Project Costs.
Landlord agrees that all major subcontractor work shall be bid in accordance
with standard procedures in Santa Clara County. "Project Costs" shall mean:

               (i) All "hard" construction costs for the construction of the
Building Shell and related sitework, according to the Approved Final Plans and
all approved changes thereto, including, but not limited to, the following:

                      (A) All labor, supervision and benefit costs therefore,
including, without limitation, costs of a project manager and project
superintendents (with such costs to be equitably apportioned by Landlord to the
extent any employee of Landlord or the General Contractor is not engaged on this
project on a full-time basis);

                      (B) Costs of all materials;

                      (C) Value of all tools and equipment consumed on the job
and rental of all equipment used in the construction;

                      (D) Contract price for all construction work undertaken by
general contractors and sub-contractors, including grading and site preparation;

<PAGE>   78
                      (E) The cost of obtaining all governmental approvals and
permits (including, without limitation, building permits) for the construction
of the Building Shell and related sitework, including all building or
construction taxes imposed by any governmental authority;

                      (F) The cost of all equipment and fixtures, including the
cost of installation;

                      (G) Engineering and architectural fees for the preparation
of all plans, specifications and working drawings;

                      (H) The cost of all other on-site improvements made to the
Land, including grading and filling portions of the Land, and the installation
of paved parking and driveways, sidewalks, curbs, landscaping, irrigation and
underground drainage systems;

                      (1) The cost of premiums for surety bonds, if any,
including but not limited to payment and performance bonds and mechanics' lien
bonds;

                      (J) The cost of bringing utilities from the street to the
Building, including, without limitation, service connection fees;

                      (K) Fees for any reports necessary in the construction of
the improvements, including environmental impact reports, soils reports and
other reports;

                      (L) Costs of machinery and equipment rented for the
construction of the Building Shell and related sitework, or which are owned by
General Contractor but are purchased for the construction and would not
ordinarily be owned by General Contractor (however, if such machinery or
equipment is purchased by General Contractor and may be used on other
construction projects, then the costs of such equipment and machinery shall be
equitably included as a Project Cost (and charged to Tenant) or, alternatively,
Landlord shall quitclaim and convey such equipment and machinery to Tenant if
the same has no residual value to the Landlord once used;

                      (M) Costs of reasonable transportation and travel expenses
incurred in connection with the construction of the Building Shell and related
sitework;

                      (N) Costs of minor repairs and replacements (including,
without limitation, dismantling and removal thereof);

                      (O) Costs of removal of debris;

                      (P) Costs of telephone calls, postage and delivery charges
and reasonably petty cash expenses at the construction site office;

                      (Q) Costs of insurance required to be maintained by
General Contractor under the construction contract;

                      (R) Sales, use or similar taxes related to the
construction and for which General Contractor is liable;

                      (S) Costs of preventing damage or loss in the event of an
emergency (provided the emergency is not caused by the negligence of General
Contractor);

<PAGE>   79
                      (T) Costs of repairing work damaged or improperly
executed, provided the damage or improper execution did not result from the
negligence of General Contractor (except that such costs shall be included in
Project Costs notwithstanding the cause of such costs to the extent such costs
are not covered by insurance);

                      (U) Fees and assessments for the building permits,
licenses and inspections for which Landlord or the General Contractor is
required to pay; and

                      (V) Such other costs as reasonably may be incurred by the
Landlord or General Contractor in connection with the construction of the
Building Shell and related sitework on the Land (including, without limitation,
any and all "soft costs" and the costs incurred by Landlord in connection with
the design and development of the prior two buildings contemplated to be built
on the Land as stated above and the costs of revising such plans and
specifications based on the development of only a single Building on the Land
consisting of approximately 58,785 square feet).

        4. Changes to Approved Final Plans. Once the Approved Final Plans have
been finally approved by Landlord and Tenant and the general construction
contract has been signed with the General Contractor with respect to the
construction of the approximately 58,785 square foot Building Shell and related
sitework, Landlord or Tenant shall have the right to order extra work or change
orders with respect to the construction of the Building Shell or related
sitework provided Landlord and Tenant consent in writing to such requested
change orders. The consent of Landlord or Tenant, as the case may be, to any
change orders requested by Landlord or Tenant shall not be unreasonably withheld
or delayed. All extra work or change orders requested by either Landlord or
Tenant shall be made in writing, shall specify the amount of delay or the time
saved resulting therefrom, shall estimate any added or reduced cost resulting
therefrom, and shall become effective and a part of the Approved Final Plans for
the Building Shell once approved in writing by both parties. Anything herein to
the contrary notwithstanding, the Commencement Date of the Lease shall not be
extended for any reason and all delays caused by any changes made to the
Approved Final Plans shall be charged to Tenant.

        5. Commencement and Completion of the Building Shell. Landlord and
Tenant acknowledge that the Building Shell for the approximately 58,785 square
foot Building and related sitework shall be constructed, or caused to be
constructed, by Landlord on a "fast track" basis and that construction of such
Building Shell may commence prior to the date the Final Building Plans
applicable to such Building Shell is approved. With respect to the Building
Shell, as soon as (i) all necessary governmental approvals for the construction
of the Building Shell have been obtained, (ii) Landlord has entered into a
general construction contract with General Contractor for the construction of
the Building Shell, and (iii) all major subcontractor work has been put out to
bid and bids received by Landlord applicable to the Building Shell, then
Landlord shall commence construction of the Building Shell, and shall diligently
prosecute such construction to completion. Tenant acknowledges that the
Commencement Date of the Lease, and the date Tenant is required to start paying
rent and additional rent under the Lease, may occur prior to the date that
construction of the Building Shell and/or Building is complete.

        6. Payment of Cost of Building Shell. With respect to the Building Shell
(and related sitework) Landlord agrees to make available for the payment of the
costs of the Building Shell and related sitework ("Building Shell Costs"), an
amount equal to Three Million Five Hundred Twenty-seven Thousand One Hundred
Dollars ($3,527,100) (the "Maximum Shell Allowance"). Such Maximum Shell
Allowance for the Building can be used by Tenant to pay for shell improvements
to the Building and/or related sitework, and if such Maximum Shell Allowance
applicable to the Building is not fully expended on the Building Shell and
related sitework for the approximately 58,785 square foot Building, such
unexpended funds shall be applied to the cost any leasehold

<PAGE>   80
improvements to be constructed by Tenant within such Building Shell. The
preceding to the contrary notwithstanding, if the Maximum Shell Allowance has
not been fully expended on the Building Shell or related sitework for the
Building (or such aforementioned leasehold improvements) on or before the
Commencement Date of the Lease, then, provided Tenant is not in default under
this Improvement Agreement or the Lease, such unexpended portion of the Maximum
Shell Allowance allocable to the Building Shell shall be paid to Tenant promptly
following the Commencement Date of the Lease.

        With respect to the completion of construction of the Building Shell for
the approximately 58,785 square foot Building, Tenant shall pay all of the
Building Shell Costs incurred or to be incurred by Landlord in excess of the
Maximum Shell Allowance for the Building Shell and related sitework (with such
Building Shell Costs to be paid by Tenant being referred to herein as "Tenant's
Shell Contribution"). During the course of construction of the Building Shell,
each progress payment due to Landlord's contractor or to any subcontractor or
material supplier shall be paid by Landlord and Tenant as follows: (i) Landlord
shall pay a fraction of each progress or other payment, which fraction shall
have as its numerator the Maximum Shell Allowance for the Building and shall
have as its denominator Landlord's estimate of the total Building Shell Costs
applicable to the Building and related sitework, to complete construction of the
Building Shell and related sitework (it being understood and agreed, however,
that in no event shall Landlord be required to contribute more than the Maximum
Shell Allowance toward the costs of designing and constructing the Building
Shell and related sitework); and (ii) Tenant shall pay the balance of each
progress or other payment. Prior to the commencement of construction of the
Building Shell, Tenant shall, if requested to do so by Landlord, provide
assurances to Landlord's Lender that the funds necessary to pay Tenant's Shell
Contribution will be immediately available to Landlord as and when needed to pay
such Building Shell Costs, which assurances shall be reasonably satisfactory to
Landlord and Landlord's Lender. As soon as practicable following completion of
the Building Shell, Landlord shall notify Tenant of the actual cost of
construction of such Building Shell. Tenant shall have the right to audit the
books, records, and supporting documents of the Landlord to the extent necessary
to determine the accuracy of such notice of actual costs during normal business
hours after giving Landlord at least three (3) business days prior written
notice. Tenant shall bear the cost of such audit. Any such audit must be
conducted, if at all, within sixty (60) days after Landlord delivers its notice
of actual costs to Tenant. In the event Tenant's payment of Landlord's estimate
of Tenant's Shell Contribution shall have resulted in either an overpayment or
underpayment of the amount actually due, then an adjustment shall be made such
that any overpayment shall be credited against the next Monthly Installment of
rent or any underpayment shall be paid as Additional Rent together with the next
Monthly Installment of rent.

        In addition to Tenant's Shell Contribution, to the extent the following
costs are not paid for from Landlord's Maximum Shell Allowance, Tenant shall
also be obligated to pay or reimburse Landlord, within ten (10) days following
written demand therefor, for all predevelopment costs or expenses incurred by
Landlord in connection with its investigation or evaluation of the Land for the
design and construction of the Building Shell (including, without limitation,
governmental fees, the costs of all soils and geologic studies, and
architectural and engineering costs). The preceding to the contrary
notwithstanding, Tenant shall not be obligated to pay or reimburse Landlord for
the following costs: (i) costs of off-site improvements to be constructed by
Landlord (i.e. streets, curbs, and gutters) and the value of any land dedication
for such purposes, (ii) brokerage commissions incurred by Landlord, (iii)
finance costs incurred by Landlord, (iv) costs of preparation of the burrowing
owl studies, (v) costs related to the investigation of the riparian corridor
adjacent to, or comprising part of, the Land upon which the Building Shell is to
be built, (vi) costs of the initial Phase I environmental assessment prepared by
or for Landlord, (vi) Landlord's attorneys' fees; or (vii) impact fees charged
by the City of San Jose in connection with the development of the Property (e.g.
school fees, park fees, and environmental mitigation fees).

        7. [Intentionally Omitted]

<PAGE>   81
        8. Delivery of Possession and Punchlist. When the Building Shell for the
approximately 58,785 square foot Building is "water-tight" as described in
Exhibit F to the Lease, and again following substantial completion of the
Building Shell, Landlord and Tenant shall together walk through and inspect the
Building Shell, using their best efforts to discover all uncompleted or
defective construction. After the first such inspection has been completed, each
party shall sign a list of "punch list" items which Tenant has determined must
be corrected by Landlord, and which Landlord has determined Landlord is
obligated to correct, in order to make such applicable Building Shell
"water-tight". After the second such inspection has been completed, each party
shall sign a list of "punch list" items which Tenant has determined must be
corrected by Landlord, and which Landlord has determined Landlord is obligated
to correct, in order to complete construction of the Building Shell. Landlord
agrees to use reasonable efforts to complete those "punch list" items within
thirty (30) days after executing each such list. Notwithstanding anything
contained herein, Tenant's obligations to pay the Monthly Installment of rent
and Additional Rent shall commence as provided in the Lease, regardless of
whether Tenant completes such inspection or executes such list or whether or not
Landlord has completed construction of the Building Shell or placed such
Building Shell in "water-tight" condition.

        9. Construction Warranty for the Building Shell. Effective upon
substantial completion of the Building Shell for the approximately 58,785 square
foot Building, Landlord does hereby warrant that the construction of the
Building Shell and related sitework were performed substantially in accordance
with the Approved Final Plans therefor, as the case may be, in a good and
workmanlike manner, and that all materials and equipment furnished conform to
said plans and are new and otherwise of good quality; provided, however, that
said representation and warranty shall not extend to, and Landlord shall not be
liable for, any defect in construction or in the operation of equipment which is
discovered twelve (12) months or more after substantial completion of
construction of the Building Shell for the approximately 58,785 square foot
Building, subject to "punch list" items as referred to above.(which applicable
twelve (12)-month period of time is referred to herein as the "Warranty
Period"). Tenant shall promptly notify Landlord in writing of any defect in
construction or the operation of equipment comprising the Building Shell
discovered within the applicable Warranty Period, and promptly thereafter
Landlord shall commence the cure of such defect and complete such cure with
diligence at Landlord's cost and expense. With respect to defects discovered
after the expiration of the applicable Warranty Period, the parties hereto
acknowledge that it is their intention that Tenant have the benefit of any
construction or equipment warranties existing in favor of Landlord that would
assist Tenant in correcting such construction defects and in discharging its
obligations regarding the repair and maintenance of the Premises. Upon request
by Tenant following the expiration of the Warranty Period, Landlord shall inform
Tenant of all written construction and equipment warranties existing in favor of
Landlord which affect the Building Shell. Landlord shall cooperate with Tenant
in enforcing such warranties and in bringing any suit that may be necessary to
enforce liability with regard to any defective construction or operation of
equipment so long as Tenant pays all costs incurred by Landlord so acting.
Landlord makes no other express or implied warranty with respect to the
construction or operation of the Building Shell.

        10. Ownership of the Improvements. The Building Shell for the
approximately 58,785 square foot Building which is constructed by Landlord shall
become the property of Landlord upon installation and shall not be removed or
altered by Tenant except as expressly permitted by the Lease. Anything in this
Improvement Agreement or in the Lease to the contrary notwithstanding, in the
event Tenant requests any specialized or supplemental shell improvements be
constructed as part of the Building Shell (e.g. specialized reinforcement of the
roof), Landlord shall have the right, pursuant to the terms set forth below, to
require that Tenant remove such specialized or supplemental shell improvements
from the Building Shell, at Tenant's sole cost, prior to the expiration of the
Lease Term. Within ten (10) days after Tenant's written request, Landlord shall
advise Tenant as to whether Landlord will require any specialized or
supplemental shell improvements to be constructed as part of the Building Shell
to be removed or surrendered at the expiration (or earlier termination) of the
Lease

<PAGE>   82
Term. In the absence of any such request by Tenant, Landlord shall give Tenant
written notice, not less than ninety (90) days prior to the expiration of the
Lease Term, of any specialized or supplemental shell improvements Landlord
requires to be removed. Failure or Landlord to respond timely to Tenant's
request or, otherwise to give timely notice of the specialized or supplemental
shell improvements Landlord requires to be removed at the expiration of the
Lease Term shall constitute Landlord's consent to the surrender of such
specialized or supplemental improvements. Unless Landlord requires that Tenant
remove any such specialized or supplemental shell improvements as provided
above, the same shall, once constructed or installed in the Building Shell,
become the property of Landlord upon termination or expiration of the Lease and
shall remain upon and be surrendered with the Total Project at the termination
or expiration of the Lease. Any such specialized or supplemental shell
improvements that Landlord timely requests be removed from the Building Shell at
the expiration (or earlier termination of the Lease Term) shall be so removed by
Tenant at its sole cost, and Tenant shall repair all damage, if any, to the
Total Project caused by such removal.

        11. Arbitration. Any question, dispute or controversy specifically
required to be determined by arbitration pursuant to this Improvement Agreement
shall be determined by arbitration as provided in this paragraph, and shall in
no way delay or affect the commencement of the Lease Term and/or Tenant's
obligation to pay rent pending the outcome of such arbitration. Neither Landlord
or Tenant shall have the right and hereby waive such right, to request or
require arbitration of any other questions, dispute or controversy arising under
the Lease. Arbitrable questions, disputes or controversies shall be arbitrated
according to the following procedure. Either Landlord or Tenant may initiate
arbitration by giving written notice to the other stating an intention to
arbitrate, the issue to be arbitrated, and the relief sought. Such arbitration
shall be conducted pursuant to the provisions of the laws of the State of
California then in force and the procedural rules of the American Arbitration
Association or its successor insofar as said rules of procedure do not conflict
with said laws or this paragraph. Once notice to arbitrate has been given,
Landlord and Tenant shall within ten (10) days select one joint arbitrator, or
if they cannot agree on one joint arbitrator then each shall select an
arbitrator within fifteen (15) days of delivery of said notice and notify the
other party of its selection. The two arbitrators selected shall designate the
third arbitrator forthwith. No arbitrator may be related to or affiliated with
either Landlord or Tenant. The three arbitrators shall convene in the county in
which the Premises are located as soon as practicable and offer Landlord and
Tenant the opportunity to present their cases. If any party fails to appear,
participate or produce evidence in an arbitration proceeding, the arbitrators
may make their award and decision based solely on the evidence actually
presented. The arbitrators shall, by majority vote, make such award and
decisions as is appropriate and in accord with the terms of the Lease and such
award and decision shall be binding upon Landlord and Tenant and enforceable in
a court of law. Said award and decision shall include an award to the prevailing
party of reasonable attorneys' fees and expenses and costs of arbitration. In
the event their party fails to appoint an arbitrator or the two arbitrators fail
to select a third arbitrator within the time required by this paragraph, upon
application of either party the arbitrator shall be appointed by the American
Arbitration Association, or if there be no American Arbitration Association or
it shall refuse to perform this function, then by the then Presiding Judge of
the Superior Court of the State of California for the County in which the
Premises are located.

        IN WITNESS WHEREOF, the parties hereto shall have executed this
Improvement Agreement as of the date of the Lease referred to herein.

LANDLORD:                                       TENANT:
ENZO DRIVE                                      WESTERN DIGITAL CORPORATION,
a California limited liability company          a Delaware corporation

By:    /s/ J.D. Mair                            By:     /s/ Richard Salva
Name:  James D. Mair                            Name:   Richard Salva

<PAGE>   83

Title: Member                                   Title:  Vice President

<PAGE>   84
                                   EXHIBIT "E"
                         (Existing Environmental Report)

                      Phase I Environmental Site Assessment
                                Unoccupied Parcel
                           Rue Ferrari and Enzo Drive
                              San Jose, California
                           ATC Project No. 62296.0003

                       Prepared For:

                       South Bay Development Company
                       511 Division Street
                       Campbell, California 95008

                       Attn.: Mr. Dan Rosenbaum

                       8 August 1997

<PAGE>   85
                                   EXHIBIT "F"

                         DEFINITION OF WATER-TIGHT SHELL

        A "water tight" shell shall consist of the construction of the
foundation, floor slab, and exterior walls comprising the approximately 58,785
square foot Building (as defined in the Lease to which this Exhibit is attached)
and the placement of the roof and roof membrane thereon. A "water tight" shell
shall not include the construction of specialized or supplemental shell or core
improvements contemplated to be part of the aforementioned Building.

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