Document:

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                                                                   EXHIBIT 10.15

                         LOAN AND SECURITY AGREEMENT
                                 (EQUIPMENT)

                        DATED AS OF FEBRUARY 9, 1999

                                   BETWEEN

                              NEW FOCUS, INC.,
                          A CALIFORNIA CORPORATION

                               AS "BORROWER",

                                     AND

                     VENTURE LENDING & LEASING II, INC.,
                           A MARYLAND CORPORATION

                                 AS "LENDER"

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                         LOAN AND SECURITY AGREEMENT
                                 (EQUIPMENT)

      The Borrower and Lender identified on the cover page of this document have
entered or anticipate entering into one or more transactions pursuant to which
Lender agrees to make available to Borrower an equipment loan facility governed
by the terms and conditions set forth in this document and one or more
Supplements executed by Borrower and Lender which incorporate this document by
reference. Each Supplement constitutes a supplement to and forms part of this
document, and will be read and construed as one with this document, so that
this document and the Supplement constitute a single agreement between the
parties (collectively referred to as this "Agreement").

      Accordingly, the parties agree as follows:

ARTICLE 1 - INTERPRETATION

      1.1   DEFINITIONS.  The terms defined in Article 10 and in the Supplement
will have the meanings therein specified for purposes of this Agreement.

      1.2   INCONSISTENCY.  In the event of any inconsistency between the
provisions of any Supplement and this document, the provisions of the
Supplement will be controlling for the purpose of all relevant transactions.

ARTICLE 2 - THE COMMITMENT AND LOANS

      2.1   THE COMMITMENT.  Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time from
the Closing Date and to, but not including, the Termination Date in an
aggregate principal amount not exceeding the Commitment, for the purpose of
financing the acquisition or carrying of certain Equipment. The Commitment is
not a revolving credit commitment, and Borrower does not have the right to
repay and reborrow hereunder. Each Loan requested by Borrower to be made on a
single Business Day shall be for a minimum principal amount set forth in the
Supplement, except to the extent the remaining Commitment is a lesser amount.

      2.2   NOTES EVIDENCING LOANS; REPAYMENT.  Each Loan shall be evidenced by
a separate Note payable to the order of Lender, in the total principal amount
of the Loan. Principal and interest of each Loan shall be payable at the times
and in the manner set forth in the Note.

      2.3   PROCEDURES FOR BORROWING.

            (a)  Borrower shall give Lender, at least five (5) Business Days'
prior to a proposed Borrowing Date, written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of Exhibit "B" to the Supplement, shall be executed by
a responsible executive or financial officer of Borrower, and shall state how
much is requested, and shall be accompanied by such other information and
documentation as Lender may reasonably request.

            (b)  No later than 1:00 p.m. Pacific Standard Time on the Borrowing
Date, if Borrower has satisfied the conditions precedent in Article 4, Lender
shall make the Loan available to Borrower in immediately available funds.

      2.4   INTEREST.  Basic Interest on the outstanding principal balance of
the each Loan shall accrue daily at the Designated Rate from the Borrowing Date
until the Maturity Date.

      2.5   TERMINAL PAYMENT.  Borrower shall pay the Terminal Payment with
respect to each Loan on the Maturity Date of such Loan.

      2.6   INTEREST RATE CALCULATION.  Basic Interest, along with charges and
fees under this Agreement and any Loan Document, shall be calculated for actual
days elapsed on the basis of a 360-day year, which results in higher interest,
charge or fee payments than if a 365-day year were used. In no event shall
Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.

      2.7   DEFAULT INTEREST.  Any unpaid payments of principal or interest or
the Terminal Payment with respect to any Loan shall bear interest from their
respective maturities, whether scheduled or accelerated, at the Designated Rate
for such Loan plus five percent (5.00%) per annum, until paid in full, whether
before or

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after judgment (the "Default Rate"), Borrower shall pay such interest on
demand.

     2.8  LATE CHARGES. If Borrower is late in making any payment of
principal or interest or Terminal Payment under this Agreement by more than
five (5) days, Borrower agrees to pay a late charge of five percent (5%) OF
the installment due, but not less than fifty dollars ($50.00) for any one
such delinquent payment. This late charge may be charged by Lender for the
purpose of defraying the expenses incidental to the handling of such
delinquent amounts. Borrower acknowledges that such late charge represents a
reasonable sum considering all of the circumstances existing on the date of
this Agreement and represents a fair and reasonable estimate of the costs
that will be sustained by Lender due to the failure of Borrower to make
timely payments. Borrower further agrees that proof of actual damages would
be costly and inconvenient. Such late charge shall be paid without prejudice
to the right of Lender to collect any other  amounts provided to be paid or
to declare a default under this Agreement or any of the other Loan Documents
or from exercising any other rights and remedies of Lender.

     2.9  LENDER'S RECORDS. Principal, Basic interest, Terminal Payments and
all other sums owed under any  Loan Document shall be evidenced by entries in
records maintained by Lender for such purpose. Each payment on and any other
credits with respect to principal, Basic Interest, Terminal Payments and all
other sums outstanding under any Loan Document shall be evidenced by entries in
such records. Absent manifest error, Lender's records shall be conclusive
evidence thereof.

     2.10 GRANT OF SECURITY INTERESTS. To secure the timely payment and
performance of all of Borrower's Obligations to Lender, Borrower hereby grants
to Lender continuing security interests in all of the Collateral.

ARTICLE 3 - REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants that, except as set forth in the
Supplement or any schedule of exceptions executed by the parties, as the
Closing Date and each Borrowing Date:

     3.1  DUE ORGANIZATION. Borrower is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good
sanding in each other jurisdiction in which its business is conducted or its
properties are located, except where the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect.

     3.2  AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery
and performance of all Loan Documents executed by Borrower are within
Borrower's powers, have been duly authorized, and are not in conflict with
Borrower's articles or certificate of incorporation or by-laws, or the terms
of any charter or other organizational document of Borrower, as amended from
time to time; and all such Loan Documents constitute valid and binding
Obligations of Borrower, enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency and similar laws affecting the
enforcement of creditors' rights in general, and subject to general principles
of equity).

    3.3  COMPLIANCE WITH APPLICABLE LAWS. Borrower has complied with all
licensing, permit and fictitious name requirements necessary to lawfully
conduct the business in which it is engaged, and to any sales, leases or the
furnishing of services by Borrower, including without limitation those
requiring consumer or other disclosures, the noncompliance with which would
have a material Adverse Effect.

     3.4  NO CONFLICT. To its knowledge the execution, delivery, and
performance by Borrower of all Loan Documents are not in conflict with any law,
rule, regulation, order or directive, or any indenture, agreement, or
undertaking to which Borrower is a party or by which Borrower may be bound or
affected.

     3.5  NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim, proceeding or dispute pending, or, to the knowledge of Borrower,
threatened against or affecting Borrower or its property, which may have a
Material Adverse Effect.

     3.6  CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial statements
which have been delivered to Lender fairly and accurately reflect Borrower's
financial condition as of the latest date of such financial statements; and,
since that date there has been no Material Adverse Change.

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     3.7  SUBSIDIARIES. Borrower has one wholly-owned subsidiary,  Focused
Research, a California corporation, engaged in advanced research and
development, but otherwise is not a majority owner of or in a control
relationship with any other business entity.

    3.8   ENVIRONMENTAL MATTERS. Borrower has reviewed, or caused to be reviewed
on its behalf, all Environmental Laws applicable to its business operations and
materials handled therein, and as a result thereof has reasonably concluded
that Borrower is in compliance with such Environmental Laws, except to the
extent a failure to be in such compliance could not reasonably be expected to
have a Material Adverse Effect on Borrower's operations, properties or
financial condition.

     3.9  NO EVENT OF DEFAULT. No Default or Event of Default currently exists.

     3.10 FULL DISCLOSURE. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of Borrower
in connection with the Loan Documents (including disclosure materials delivered
by or on behalf of Borrower to Lender prior to the Closing date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they are made, not misleading as of the time when
made or delivered.

     3.11 SPECIFIC REPRESENTATIONS REGARDING COLLATERAL.

     (a)  TITLE. Except for the security interests created by this Agreement
and Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens (other than Permitted Liens), rights or defenses of others.

     (b)  LOCATION OF COLLATERAL. Other than mobile goods as defined in Division
9 of the California Uniform Commercial Code, as amended, Borrower's chief
executive office, Records, Equipment, and any other offices or places of
business are located at the address(es) shown on the Supplement as amended in
writing by Borrower from time to time.

     (c)  BUSINESS NAMES. Other than its full corporate name, Borrower has not
conducted business using any trade names or fictitious business names except as
shown on the Supplement.

ARTICLE 4 - CONDITIONS PRECEDENT

     4.1  CONDITIONS TO FIRST LOAN. The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified in Section
4.2, subject to the fulfillment of the following conditions and to the receipt
by Lender of the documents described below, duly executed and in form and
substance satisfactory to Lender and its counsel:

     (a)  RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.

     (b)  INCUMBENCY AND SIGNATURES. A certificate of the secretary of Borrower
certifying the names of the officer or officers of Borrower authorized to sign
the Loan Documents, together with a sample of the true signature of each such
officer.

     (c)  LEGAL OPINION. The opinion of legal counsel for Borrower as to such
matters as Lender may reasonably request, including the matters covered by
Sections 3.1, 3.2 and 3.4 hereof.

     (d)  ARTICLES AND BY-LAWS. Certified copies of the Articles or Certificate
of Incorporation and By-Laws of Borrower, as amended through the Closing Date.

     (e)  THIS AGREEMENT. A counterpart of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Lender.

     (f)  FINANCING STATEMENTS. Filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination statements, with
respect to the Collateral as Lender shall request.

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     (g) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy and
tax lien searches of Borrower from such jurisdictions or offices as Lender may
reasonably request, all as of a date reasonably satisfactory to Lender and its
counsel.

     (h) GOOD STANDING CERTIFICATE. A Certificate of status or good standing of
Borrower as of a date acceptable to Lender from the jurisdiction of Borrower's
organization and any foreign jurisdictions where Borrower is or should be
qualified to do business.

     (i) WARRANT. A warrant issued by Borrower to Lender exercisable for such
number, type and class of shares of Borrower's capital stock, and for an initial
exercise price as is specified in the Supplement.

     4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:

     (a) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and in any Supplement are true and correct as of the Borrowing Date
of such Loan.

     (b) NO MATERIAL ADVERSE CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.

     (c) BORROWING REQUEST. Borrower shall have delivered to Lender a Borrowing
Request for such Loan.

     (d) NOTE. Borrower shall have delivered an executed Note evidencing such
Loan, in form and substance satisfactory to Lender.

     (e) SUPPLEMENTAL LIEN FILINGS. Borrower shall have executed and delivered
such amendments or supplements to this Agreement and such financing statements
as Lender may reasonably request in connection with the proposed Loan, in order
to create or perfect or to maintain the perfection of Lender's Liens on the
Collateral.

     (f) VCOC LIMITATION. Lender shall not be obligated to make any Loan under
its Commitment if at the time of or after giving effect to the proposed Loan
Lender would no longer qualify as: (A) a "venture capital operating company"
under U.S. Department of Labor Regulations Section 2510.3-101(d), Title 29 of
the Code of Federal Regulations, as amended; and (B) a "business development
company" under the provisions of federal Investment Company Act of 1940, as
amended; and (C) a "regulated investment company" under the provisions of the
Internal Revenue Code of 1986, as amended.

ARTICLE 5 - AFFIRMATIVE COVENANTS

     During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:

     5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:

     (a) Any litigation or administrative or regulatory proceeding affecting
Borrower where the amount claimed against Borrower is at the Threshold Amount or
more, or where the granting of the relief requested could have a Material
Adverse Effect.

     (b) Any substantial dispute which may exist between Borrower or any
governmental or regulatory authority and which could have a Material Adverse
Effect.

     (c) The occurrence of any Default or any Event of Default.

     (d) Any change in the location of any of Borrower's places of business or
Collateral other than mobile goods as defined in Division 9 of the California
Uniform Commercial Code, as amended, at least thirty (30) days in advance of
such change, or of the establishment of any new, or the discontinuance of any
existing, place of business.

     (e) Any dispute or default by Borrower or any other party under any joint
venture, partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement which
could reasonably be expected to have a Material Adverse Effect.

     (f) Any other matter which has resulted or might reasonably result in a
Material Adverse Change.

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     5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be delivered
to Lender, in form and detail satisfactory to Lender and Lender agrees to
protect the confidentiality of the following financial information, which
Borrower warrants shall be accurate and complete in all material respects:

     (a)  MONTHLY FINANCIAL STATEMENTS. As soon as available but no later than
thirty (30) days after the end of each month, Borrower's balance sheet as of the
end of such period, and Borrower's income statement for such period and for that
portion of Borrower's financial reporting year ending with such period, prepared
and attested by a responsible financial officer of Borrower as being complete
and correct and fairly presenting Borrower's financial condition and the results
of Borrower's operations; provided, however, that after the effective date of
the initial Qualified Public Offering Borrower's obligations hereunder to
deliver financial statements shall apply only to those statements required to be
filed by the Securities and Exchange Commission, to be provided no less
frequently than quarterly.

     (b)  YEAR-END FINANCIAL STATEMENTS. As soon as available but no later than
ninety (90) days after and as of the end of each financial reporting year, a
complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows for
such year, prepared and certified by an independent certified public accountant
selected by Borrower and satisfactory to Lender (the "Accountant"); provided,
however, that after the effective date of the initial Qualified Public Offering
Borrower's obligations hereunder to deliver financial statements shall apply
only to those statements required to be filed by the Securities and Exchange
Commission, to be provided no less frequently than quarterly. The Accountant's
certification shall not be qualified or limited due to a restricted or limited
examination by the Accountant of any material portion of Borrower's records or
otherwise.

     (c)  COMPLIANCE CERTIFICATES. Simultaneously with the delivery of each set
of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer of Borrower substantially in the form
of Exhibit "C" to the Supplement (i) setting forth in reasonable detail any
calculations required to establish whether Borrower is in compliance with any
financial covenants or tests set forth in the Supplement, and (ii) stating
whether any Default or Event of Default exists on the date of such certificate,
and if so, setting forth the details thereof and the action which Borrower is
taking or proposes to take with respect thereto.

     (d)  GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Promptly after sending,
issuing, making available, or filing, copies of all statements released to any
news media for publication, all reports, proxy statements, and financial
statements that Borrower sends or makes available to its stockholders, and, not
later than five (5) days after actual filing or the date such filing was first
due, all registration statements and reports that Borrower files or is required
to file with the Securities and Exchange Commission, or any other governmental
or regulatory authority.

     (e)  OTHER INFORMATION. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as Lender may from
time to time reasonably request.

     5.3  MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. Sections 2610.3-101(d), and;

     (a)  Permit Lender to make available to Borrower, at no cost to Borrower,
"significant managerial assistance", as defined in Section 2(a)(47) of the
Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors, employees
or affiliates, (ii) Borrower's allowing Lender to provide recommendations of
prospective candidates for election to Borrower's Board of Directors, or (iii)
Lender, at Borrower's request, seeking the services of third-party consultants
to aid Borrower with respect to its management and operations;

     (b)  Permit Lender to make available consulting and advisory services to
officers of Borrower regarding Borrower's equipment acquisition and financing
plans, and such other matters affecting the business, financial condition and
prospects of Borrower as Lender shall reasonably deem relevant; and

     (c)  If Lender reasonably believes that financial or other developments
affecting Borrower have impaired or are likely to impair Borrower's ability to
perform its obligations under this Agreement, permit Lender reasonable access to
Borrower's management and/or

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Board of Directors and opportunity to present Lender's views with respect to
such developments.

      5.4 EXISTENCE. Maintain and preserve Borrower's existence, present form
of business, and all rights and privileges necessary or desirable in the normal
course of its business; and keep all Borrower's property in good working order
and condition, ordinary wear and tear excepted.

      5.5 INSURANCE. Obtain and keep in force insurance in such amounts and
types as is usual in the type of business conducted by Borrower, with insurance
carriers having a policyholder rating of not less than "A" and financial
category rating of Class VII in "Best's Insurance Guide," unless otherwise
approved by Lender. Such insurance policies must be in form and substance
satisfactory to Lender, and shall list Lender as an additional insured or loss
payee, as applicable, on endorsement(s) in form reasonably acceptable to
Lender. Borrower shall furnish to Lender such endorsements, and upon Lender's
request, copies of any or all such policies.

      5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and records,
and prepare all financial statements in accordance with GAAP, and in compliance
with the regulations of any governmental or regulatory authority having
jurisdiction over Borrower or Borrower's business; and permit employees or
agents of Lender at such reasonable times as Lender may request, at Borrower's
expense, to inspect Borrower's properties, and to examine, and make copies and
memoranda of Borrower's books, accounts and records. Such inspections shall
occur no more frequently than once a year except after a Default.

      5.7 COMPLIANCE WITH LAWS. Comply with all laws (including Environmental
Laws), rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, Borrower or
Borrower's business, and with all material agreements to which Borrower is a
party, except where the failure to so comply would not have a Material Adverse
Effect.

      5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when due;
pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.

      5.9 SPECIAL COLLATERAL COVENANTS.

      (a) MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good
working order and salable condition, ordinary wear and tear excepted, deal with
the Collateral in all ways as are considered good practice by owners of like
property, and use the Collateral lawfully and, to the extent applicable, only
as permitted by Borrower's insurance policies. Maintain, or cause to be
maintained, complete and accurate Records relating to the Collateral. Upon
reasonable prior notice at reasonable times during normal business hours,
Borrower hereby authorizes Lender's officers, employees, representatives and
agents, at Lender's expense, to inspect the Collateral and to discuss the
Collateral and the Records relating thereto with Borrower's officers and
employees.

      (b) FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to Lender
all financing statements, notices and other documents from time to time
reasonably requested by Lender to maintain a first perfected security interest
in the Collateral in favor of Lender; perform such other acts, and execute and
deliver to Lender such additional conveyances, assignments, agreements and
instruments, as Lender may at any time request in connection with the
administration and enforcement of this Agreement or Lender's rights, powers and
remedies hereunder.

      (c) LIENS. Not create, incur, assume or permit to exist any Lien or grant
any other Person a negative pledge on any Collateral, except Permitted Liens.

      (d) DOCUMENTS OF TITLE. Not sign or authorize the signing of any
financing statement or other document naming Borrower as debtor or obligor, or
acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt
or other document or instrument of title with respect to any Collateral, except
those negotiated to Lender, or those naming Lender as secured party.

      (e) DISPOSITION OF COLLATERAL. Not sell, transfer, lease or otherwise
dispose of any Collateral. Unless Borrower grants to Lender a perfected first
security interest in replacement collateral, acceptable to Lender, with a value
equal to or greater than the Collateral being disposed of.

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     (f)  CHANGE IN LOCATION OR NAME. Without at least 30 days' prior written
notice to Lender: (a) not relocate any Collateral except as provided in Section
3.11(b) or Records, its chief executive office, or establish a place of
business at a location other than as specified in the Supplement; and (b) not
change its name, mailing address, location of Collateral except as provided in
Section 3.11(b), or its legal structure.

     (g)  DECALS, MARKINGS. At the request of Lender, firmly affix a decal,
stencil or other marking to designated items of Equipment, indicating thereon
the security interest of Lender.

     (h)  AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Equipment is
located as Lender may require, all in form and substance satisfactory to Lender.

ARTICLE 6 - NEGATIVE COVENANTS

During the term of this Agreement and until the performance of all obligations
to Lender, Borrower will not (without Lender's prior written consent which
shall not be unreasonably withheld):

     6.1  DIVIDENDS. Except after a Qualified Public Offering, pay any
dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except (a)
dividends or other distributions solely of capital stock of Borrower, (b)
conversions of its securities into other securities pursuant to the terms of
such convertible securities or otherwise in exchange therefore, and (c)
repurchases of stock from employees upon termination of employment under
reverse vesting or similar repurchase plans.

     6.2  CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination except:
(a) joint ventures, strategic alliances, licensing and similar arrangements
customary in Borrower's industry, or
(b)  mergers or consolidations in which the surviving entity:

     (i)   succeeds to all or substantially all of Borrower's business and
assets to which this Agreement pertains; and

     (ii)  agrees in writing to be bound by the Agreement, including all of the
terms, rights and obligations thereto; and

     (iii) has a net worth balances and cash balances, each after giving effect
to the merger or consolidation, greater than the net worth and cash of Borrower
immediately prior to such merger or consolidation; or (c) the creation of
additional direct or indirect subsidiaries of Borrower.

     6.3  SALES OF ASSETS. Except for in connection with mergers or
consolidations permitted under Section 6.2(b), sell, transfer, lease or
otherwise dispose of any of Borrower's assets except for fair consideration and
in the ordinary course of its business.

     6.4  LOANS/INVESTMENTS. Make or suffer to exist any loans, guaranties,
advances, or investments, except:

     (a)  Accounts receivable in the ordinary course of Borrower's business;

     (b)  Investments in domestic certificates of deposit issued by, and other
domestic investments with financial institutions organized under the laws of
the United States or a state thereof, having One Hundred Million Dollars
($100,000,000) in capital and a rating of at least "investment grade" or "A" by
Moody's or any successor rating agency."

     (c)  Investments in marketable obligations of the Untitled States of
America and in open market commercial paper given the highest credit rating by
a national credit agency and maturing not more than one year from the creation
thereof, and

     (d)  Temporary advances to cover incidental expenses to be incurred in the
ordinary course of business.

     6.5  TRANSACTION WITH RELATED PERSONS. Directly or indirectly enter into
any transaction with any Affiliate except for transactions that are in the
ordinary course of Borrower's business, upon fair and reasonable terms that are
no less favorable to Borrower that would be obtained in an arm's length
transaction with a non-Affiliate party and except for transactions with a
Subsidiary that are upon fair and reasonable terms and transactions constituting
permitted investments under Section 6.4.

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     6.6  OTHER BUSINESS. Engage in any material line of business other than
the business Borrower conducts as of the Closing Date.

     6.7  FINANCIAL COVENANTS. Fail to comply with any financial covenants or
tests set forth in the Supplement.

ARTICLE 7 - EVENTS OF DEFAULT

     7.1  EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended. The occurrence of any of the following (each, as "Event
of Default") shall terminate any obligation of Lender to make any additional
Loan; and shall, at the option of Lender (1) make all sums of Basic Interest
and principal, all Terminal Payments, and any Obligations and other amounts
owing under any Loan Documents immediately due and payable without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor or any other notices or demands, and (2) give Lender the right to
exercise any other right or remedy provided by contract or applicable law;

     (a)  Borrower shall fail to pay any principal, interest or Terminal
Payment under this Agreement, or fail to pay any fees or other charges when due
under any Loan Document, and such failure continues for five (5) Business Days
or more after the same first becomes due; or an Event of Default as defined in
any other Loan Document shall have occurred.

     (b)  Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document
shall prove to have been false or misleading in any material respect when made
or deemed made herein.

     (c)  Borrower shall fail to pay its debts generally as they become due or
shall commence any Insolvency Proceeding with respect to itself; an involuntary
Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar official, shall
be appointed to take possession, custody or control of the properties of
Borrower, and such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within sixty (60) days; or the
dissolution or termination of the business of Borrower.

     (d)  Borrower shall be in default beyond any applicable period of grace or
cure under any other agreement involving the borrowing of money, the purchase
of property, the advance of credit or any other monetary liability of any kind
to Lender or to any Person, exceeding the Threshold Amount or aggregate
indebtedness exceeding the sum of One Hundred Thousand Dollars ($100,000),
which results in the acceleration of payment of such obligation in an amount in
excess of the Threshold Amount.

     (e)  Any governmental or regulatory authority shall take any judicial or
administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, in the reasonable
judgment of Lender, might have a Material Adverse Effect.

     (f)  Except for a merger pursuant to Section 6.2, any sale, transfer or
other disposition of all or a substantial or material part of the assets of
Borrower, including without limitation to any trust or similar entity, shall
occur.

     (g)  Any judgment(s) singly or in the aggregate in excess of the Threshold
Amount shall be entered against Borrower which remain unsatisfied, unvacated or
unstayed pending appeal for ten (10) or more days after entry thereof.

     (h)  Except as provided for in Section 6.2, any Person or two or more
Persons acting in concert shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission) of twenty-five
percent (25%) or more of the outstanding shares of voting stock of Borrower.

     (i)  Borrower shall fail to perform or observe any covenant
contained in Article 6 of this Agreement.

     (j)  Borrower shall fail to perform or observe any covenant contained in
this Agreement or any other Loan Document (other than a covenant which is
dealt with specifically elsewhere in this Article 7) and the breach of such
covenant is not cured within 30 days after the sooner to occur of Borrower's
receipt of notice of such breach from Lender or the date on which such breach
first becomes known to any officer of Borrower, provided, however, that if such
breach is not capable of being cured within such 30-day period and Borrower

                                       8
<PAGE>   10
timely notifies Lender of such fact and Borrower diligently pursues such cure,
then the cure period shall be extended to the date requested by Borrower's
notice but in no event more than 90 days from the initial breach; provided,
further, that such additional 60-day opportunity to cure shall not apply in the
case of any failure to perform or observe any covenant which has been the
subject of a prior failure within the preceding 180 days or which is a willful
and knowing breach by Borrower.

     7.2 REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance
of an Event of Default, Lender shall be entitled to, at its option, exercise any
or all of the rights and remedies available to a secured party under the Uniform
Commercial Code or any other applicable law, and exercise any or all of its
rights and remedies provided for in this Agreement and in any other Loan
Document. The obligations of Borrower under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Obligations is rescinded or must otherwise be returned by Lender upon, on
account of, or in connection with, the insolvency, bankruptcy or reorganization
of Borrower or otherwise, all as though such payment had not been made.

     7.3 SALE OF COLLATERAL. Upon the occurrence and during the continuance of
an Event of Default, Lender may sell all or any part of the Collateral, at
public or private sales, to itself, a wholesaler, retailer or investor, for
cash, upon credit or for future delivery, and at such price or prices as Lender
may deem commercially reasonable. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption and any rights of stay or
appraisal which it has or may have under any applicable law in effect from time
to time. Any such public or private sales shall be held at such times and at
such place(s) as Lender may determine. In case of the sale of all or any part
of the Collateral on credit or for future delivery, the Collateral so sold may
be retained by Lender until the selling price is paid by the purchaser, but
Lender shall not incur any liability in case of the failure of such purchaser
to pay for the Collateral and, in case of any such failure, such Collateral may
be resold. Lender may, instead of exercising its power of sale, proceed to
enforce its security interest in the Collateral by seeking a judgment or decree
of a court of competent jurisdiction.

     7.4 BORROWER'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender after
the occurrence and during the continuance of an event of Default, Borrower will:

     (a)  Assemble and make available to Lender the Collateral at such place(s)
as Lender shall reasonably designate, segregating all Collateral so that each
item is capable of identification; and

     (b) Subject to the rights of any lessor, permit Lender, by Lender's
officers, employees, agents and representatives, to enter any premises where
any Collateral is located, to take possession of the Collateral, to complete
the processing, manufacture or repair of any Collateral, and to remove the
Collateral, or to conduct any public or private sale of the Collateral, all
without any liability of Lender for rent or other compensation for the use of
Borrower's premises.

ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS

     8.1 PERFORMANCE OF BORROWER'S OBLIGATIONS. Without having any obligation
to do so, upon reasonable prior notice to Borrower, Lender may perform or pay
any obligation which Borrower has agreed to perform or pay under this
Agreement, including, without limitation, the payment or discharge of taxes or
Liens levied or placed on or threatened against the collateral. In so
performing or paying, Lender shall determine the action to be taken and the
amount necessary to discharge such obligations. Borrower shall reimburse Lender
on demand for any amounts paid by Lender pursuant to this Section, which
amounts shall constitute Obligations secured by the Collateral and shall bear
interest from the date of demand at the Default Rate.

     8.2 POWER OF ATTORNEY. For the purpose of protecting and preserving the
Collateral and Lender's rights under this Agreement, Borrower hereby
irrevocably appoints Lender, with full power of substitution, as its
attorney-in-fact with full power and authority, after the occurrence and during
the continuance of an Event of Default, to do any act which Borrower is
obligated to do hereunder; to exercise such rights with respect to the
Collateral as Borrower might exercise; to use such Equipment, Fixtures or other
property as Borrower might use; to enter Borrower's premises; to give notice of
Lender's security interest in, and to collect the Collateral; and to execute
and file in Borrower's name any financing statements, amendments and
continuation statements necessary or desirable to perfect or continue the
perfection of

                                       9
<PAGE>   11
Lender's security interests in the Collateral. Borrower hereby ratifies all
that Lender shall lawfully do or cause to be done by virtue of this appointment.

     8.3  AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of
attorney created in Section 8.2 is a power coupled with an interest and shall
be irrevocable. The powers conferred on Lender hereunder are solely to protect
its interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act,
except for gross negligence or willful misconduct. After the occurrence and
during the continuance of an Event of Default, Lender may exercise this power
of attorney without notice to or assent of Borrower, in the name of Borrower,
or in Lender's own name, from time to time in Lender's sole discretion and at
Borrower's expense, provided that such expenses are reasonable and actually
incurred. To further carry out the terms of this Agreement, after the
occurrence and during the continuance of an Event of Default, Lender may:

     (a)  Sign and endorse any invoice, freight or express bills, bills of
loading, storage or warehouse receipts; drafts, certificates and statements
under any commercial or standby letter of credit relating to Collateral; or any
other documents relating to the Collateral, including without limitation the
Records.

     (b)  Use or operate Collateral or any other property of Borrower for the
purpose of preserving or liquidating Collateral.

     (c)  File any claim or take any other action or proceeding in any court of
law or equity or as otherwise deemed appropriate by Lender for the purpose of
collecting any and all monies due or securing any performance to be rendered
with respect to the Collateral.

     (d)  Commence, prosecute or defend any suits, actions or proceedings or as
otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral.

     (e)  Prepare, adjust, execute, deliver and receive payment under insurance
claims, and collect and receive payment of and endorse any instrument in
payment of loss or returned premiums or any other insurance refunds or return,
and apply such amounts at Lender's sole discretion toward repayment of the
Obligation or replacement of the Collateral.

     8.4  APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Lender pursuant to the terms of this Agreement or any Loan Document
may be applied by Lender first to the payment of expenses of collection,
including without limitation reasonable attorney's fees, and then to the
payment of the Obligations in such order of application as Lender may elect.

     8.5  DEFICIENCY. If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Obligations, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.

     8.6  LENDER TRANSFER. Upon the transfer of all or any part of the
Obligations, Lender may transfer all or part of the Collateral and shall be
fully discharged thereafter from all liability and responsibility with respect
to such Collateral so transferred, and the transferee shall be vested with all
the rights and powers of Lender hereunder with respect to such Collateral so
transferred, but with respect to any Collateral not so transferred, Lender
shall retain all rights and powers hereby given.

     8.7  LENDER'S DUTIES.

     (a)  Lender shall use reasonable care in the custody and preservation of
any Collateral in its possession. Without limitation on other conduct which may
be considered the exercise of reasonable care, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Lender
accords its own property, or taking any necessary steps to preserve any rights
against any Person with respect to any Collateral. Under no circumstances shall
Lender be responsible for any injury or loss to the Collateral, or any part
thereof, arising from any cause beyond the reasonable control of Lender.

     (b)  Neither Lender, nor any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Lender shall be
liable for any claims, demands, losses or damages, of

                                       10
<PAGE>   12
any kind whatsoever, made, claimed, incurred or suffered by Borrower or any
other party through the ordinary negligence of Lender, or any of its directors,
officers, employees, agents, attorneys or any other person affiliated with or
representing Lender.

      8.8 TERMINATION OF SECURITY INTERESTS. Upon the payment in full of the
Obligations and if Lender has no further obligations under its Commitment, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Borrower. Upon any such termination, the Lender
shall, at Borrower's expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.

ARTICLE 9 - GENERAL PROVISIONS

      9.1 NOTICES. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile, or other authenticated
message, charges prepaid, to the other party's or parties' addresses shown on
the Supplement. Each party may change the address or facsimile number to which
notices, requests and other communications are to be sent by giving written
notice of such change to each other party. Notice given by hand delivery shall
be deemed received on the date delivered; if sent by overnight courier, on the
next business day after delivery to the courier service; if by first class
mail, on the third business day after deposit in the U.S. Mail; and if by
facsimile, on the date of transmission.

      9.2 BINDING EFFECT. The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower's rights
or obligations under any Loan Document, except to a person or entity into which
it has merged or which has otherwise succeeded to all or substantially all of
its business and assets to which this Agreement pertains, by merger
reorganization or otherwise, in accordance with Section 6.2 without Lender's
prior written consent. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Lender's rights and obligations under the Loan Documents. In connection with
any of the foregoing, Lender may disclose all documents and information which
Lender now or hereafter may have relating to the Loans, Borrower, or its
business; provided that any person who receives such information shall have
agreed in writing in advance to maintain the confidentiality of such
information on terms reasonably acceptable to Borrower.

      9.3 NO WAIVER. Any waiver, consent or approval by Lender of any Event of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan
Document. No failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan Document shall operate as a waiver thereof,
and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right
or privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.

      9.4 RIGHTS CUMULATIVE. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.

      9.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.

      9.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined
and prepared in accordance with GAAP.

      9.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect, defend
and indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively "Agents") against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, attorneys' fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the

                                       11
<PAGE>   13
matters contemplated by this Agreement or any other Loan Documents or (ii) any
contention that Borrower has filed to comply with any law, rule, regulation,
order or directive applicable to Borrower's business; PROVIDED, HOWEVER, that
this indemnification shall not apply to any of the foregoing incurred solely as
the result of Lender's or any Agent's gross negligence or willful misconduct.
This indemnification shall survive the payment and satisfaction of all of
Borrower's Obligations to Lender.

     9.8  REIMBURSEMENT. Borrower shall reimburse Lender for all reasonable
costs and expenses actually incurred, including without limitation reasonable
attorneys' fees and disbursements expended or incurred by Lender in any
arbitration, mediation, judicial reference, legal action or otherwise in which
Lender obtains a favorable judgement, award or other similar favorable outcome
and in connection with (a) the preparation and negotiation of the Loan
Documents, (b) the amendment and enforcement of the Loan Documents, including
without limitation during any workout, attempted workout, and/or in connection
with the rendering or legal advice as to Lender's rights, remedies and
obligations under the loan Documents, (c) collecting any sum which becomes due
Lender under any Loan Document, (d) any proceeding for declaratory relief, any
counterclaim to any proceeding, or any appeal or (e) the protection,
preservation or enforcement of any rights of Lender. For the purposes of this
section, attorney's fees shall include, without limitation, fees incurred in
connection with the following; (1) contempt proceedings; (12) discovery; (3)
any motion, proceeding or other activity of any kind in connection with an
Insolvency Proceeding; (4) garnishment, levy, and debtor and third party
examinations; and (5) postjudgment motions and proceedings of any kind,
including without limitation any activity taken to collect or enforce any
judgment. All of the foregoing costs and expenses shall be payable upon demand
by Lender, and if not paid within forty-five (45) days of presentation of
invoices shall bear interest at the highest applicable Default Rate.

     9.9  EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.

     9.10  ENTIRE AGREEMENT. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.

     9.11  GOVERNING LAW AND JURISDICTION.

     (a)  THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

     (b)  ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.

     9.12  WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OTHERWISE. BORROWER AND

                                       12
<PAGE>   14
LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY, WITHOUT LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY
OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR
THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

ARTICLE 10 - DEFINITIONS

     The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:

"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. "Control," "controlled
by" and "under common control with" mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise);
provided, that control shall be conclusively presumed when any Person or
affiliated group directly or indirectly owns five percent (5%) or more of the
securities having ordinary voting power for the election of directors of a
corporation.

"AGREEMENT" means this Loan and Security Agreement and each Supplement
thereto, as each may be amended or supplemented from time to time.

"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 191, et seq.), as amended.

"BASIC INTEREST" means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.

"BORROWING DATE" means the Business Day on which the proceeds of a Loan are
disbursed by Lender.

"BORROWING REQUEST" means a written request from Borrower in substantially the
form of Exhibit "B" to the Supplement, requesting the funding of one or more
Loans on a particular Business Date.

"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City or San Francisco are authorized or
required by law to close.

"CLOSING DATE" means the date of this Agreement.

"COLLATERAL" means all Borrower's Equipment now owned or hereafter acquired or
arising, wherever located, and whether held by Borrower or any third party, and
all proceeds and products thereof, including all insurance and condemnation
proceeds ("Proceeds"), and all monies now or at any time hereafter in the
possession or under the control of Lender or a bailee or affiliate of Lender,
including any cash collateral in any cash collateral or other account, and all
Records.

"COMMITMENT" means the obligation of Lender to make Loans to Borrower up to the
aggregate principal amount set forth in the Supplement.

"DEFAULT" means an event which with the giving of notice, passage of time, or
both would constitute an Event of Default.

"DEFAULT RATE" is defined in Section 2.7.

"DESIGNATED RATE" means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.

"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, each case
relating to environmental, health, or safety matters.

"EQUIPMENT" means all of Borrower's specific items of equipment described on
Schedule 1 attached to this Agreement and incorporated herein by this
reference (as such Schedule 1 may be amended or supplemented from time to
time), and all such property which is or is to become fixtures on real
property, and all improvements, replacements, accessions and additions thereto,
wherever located, and all proceeds thereof arising from the sale, lease, rental
or other use or

                                      13

<PAGE>   15
disposition of any such property, including all rights to payment with respect
to insurance or condemnation, returned premiums, or any cause of action
relating to any of the foregoing.

"EVENT OF DEFAULT" means any event described in Section 7.1.

"FIXTURES" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under real
property law, and improvements, replacements, parts, accessions and additions
thereto, and substitutions therefor.

"GAAP" means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.

"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors, undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.

"LIEN" means any voluntary or involuntary security interest, mortgage, pledge,
claim, charge, encumbrance, title retention agreement, or third party interest,
covering all or any part of the property of Borrower or any other Person.

"LOAN" means an extension of credit by Lender under this Agreement.

"LOAN DOCUMENTS" means individually and collectively, this Loan and Security
Agreement, each Supplement, each Note, and any other security or pledge
agreement(s), any Warrants issued by Borrower in connection with this Agreement,
and all other contracts, instruments, addenda and documents executed in
connection with this Agreement or the extensions of credit which are the subject
of this Agreement.

"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties, or condition (financial or otherwise) of Borrower; (b) a material
impairment of the ability of Borrower to perform under any Loan Document; or
(c) a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.

"MATURITY DATE" means, with regard to a Loan, the earlier of (i) its maturity
by reason of acceleration, or (ii) its stated maturity date; and is the date on
which payment of all outstanding principal, accrued interest, and the Terminal
Payment with respect to such Loan is due.

"NOTE" means a promissory note substantially in the form attached to the
Supplement as Exhibit "A", executed by Borrower evidencing each Loan.

"OBLIGATIONS" means all debts, obligations and liabilities of Borrower to
Lender currently existing or now or hereafter made, incurred or created under,
pursuant to or in connection with this Agreement, whether voluntary or
involuntary and however arising or evidenced, whether direct or acquired by
Lender by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly, or whether recovery upon such
debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys' fees and costs incurred by Lender in connection with the collection
and enforcement thereof as provided for in any Loan Document.

"PERMITTED LIEN" means

     (a) Involuntary Liens which, in the aggregate, would not have a Material
Adverse Effect and which in any event would not exceed the Threshold Amount;

     (b) Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are maintained;

                                       14
<PAGE>   16
     (c)  Liens in favor of Lender;

     (d)  materialmen's, mechanics', repairmen's, employees' or other like
Liens arising in the ordinary course of business and which are not delinquent
for more than 45 days or are being contested in good faith by appropriate
proceedings;

     (e)  any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof; and

     (f)  Any Liens existing on the Closing Date and disclosed in the Schedule
or arising under this Agreement or the other Loan Documents.

"PERSON" means any individual or entity.

"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten public
offering of Borrower's common stock with aggregate proceeds of not less than
$20,000,000 (prior to underwriting expenses and commissions).

"RECORDS" means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Equipment.

"RELATED PERSON" means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.

"TERMINAL PAYMENT" means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the
original principal amount of such Loan specified in the Supplement.

"TERMINAL DATE" has the meaning specified in the Supplement.

"THRESHOLD AMOUNT" has the meaning specified in the Supplement.

"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.

                                       15
<PAGE>   17
                                   SUPPLEMENT
                                     TO THE
                    LOAN AND SECURITY AGREEMENT (EQUIPMENT)
                          DATED AS OF FEBRUARY 9, 1999
                                    BETWEEN
                          NEW FOCUS, INC. ("BORROWER")
                                      AND
                 VENTURE LENDING & LEASING II, INC. ("LENDER")
________________________________________________________________________________

                This is a Supplement identified in the document entitled Loan
and Security Agreement (Equipment) dated as of February 9, 1999 between Borrower
and Lender. All capitalized terms used in this Supplement and not otherwise
defined in this Supplement have the meanings ascribed to them in Section 10 of
the Loan and Security Agreement, which is incorporated in its entirety into
this Supplement. In the event of any inconsistency between the provisions of
that document and this Supplement, this Supplement is controlling. Execution of
this Supplement by the Lender and Borrower shall constitute execution of the
Loan and Security Agreement.

                In addition to the provisions of the Loan and Security
Agreement, the parties agree as follows:

1.              - ADDITIONAL DEFINITIONS:

                "COMMITMENT": Lender commits to make Loans to Borrower up to the
aggregate, original principal amount of Two Million Dollars ($2,000,000.00).

                "DESIGNATED RATE": The Designated Rate is eight and 40/100
percent (8.40%) per annum.

                "TERMINAL PAYMENT": Each Terminal Payment shall be an amount
equal to ten percent (10%) of the original principal amount of the associated
Loan.

                "TERMINATION DATE": The Termination Date is the earlier of (a)
the date Lender may terminate making Loans or extending other credit pursuant
to the rights of Lender under Article 7 of the Agreement, or (b) December 31,
1999.

                "THRESHOLD AMOUNT": Fifty Thousand Dollars ($50,000.00).

2.              - Additional Terms and Conditions:

         A.     ISSUANCE OF WARRANT TO LENDER. As additional consideration for
the making of the Loans under the Agreement, upon the making of, and as a
condition to, the initial Loan, Lender shall be entitled to receive a warrant to
purchase 35,000 shares of Series D Preferred Stock of Borrower ("Warrant
Shares") with an aggregate initial exercise price of $140,000 and a per share
exercise price of $4.00 which is determined on the basis of the per share price
of the preferred stock issued in the most recent round of venture capital equity
financing prior to the Closing Date. The warrant under this Agreement shall be
in substantially the form attached hereto as Exhibit "D"; shall be transferable
by Lender, subject to compliance with applicable securities laws; shall expire
not earlier than December 31, 2004; and shall include piggy-back registration
rights, "net issuance" provisions, and anti-dilution protections reasonably
satisfactory to Lender and its counsel.

                                     Page 1
<PAGE>   18

     B.   LIMITATION ON REIMBURSEMENT OF DOCUMENTATION COSTS. Notwithstanding
anything to the contrary in Section 9.8 of the Loan and Security Agreement,
Borrower's obligation to reimburse Lender its attorneys' fees and costs of
documenting this transaction shall not exceed $1,000.00.

     C.   LIMITATION ON EQUIPMENT LOANS. Each Loan shall be in an amount not to
exceed one hundred percent (100%) of the amount paid or payable by Borrower to
a non-affiliated manufacturer, vendor or dealer for an item of equipment as
shown on an invoice therefor (excluding any commissions and any portion of the
payment which relates to the servicing of the equipment and sales taxes payable
by Borrower upon acquisition, and delivery charges). Used equipment purchased
by Borrower may be financed at the depreciated value of the equipment purchase
price (excluding any commissions and any portion of the payment which relates
to the servicing of the equipment and sales taxes payable by Borrower upon
acquisition, and delivery charges). Lender has the right to approve individual
items of Equipment for funding. Each Loan requested by Borrower to be made on a
single Business Day shall be for a minimum principal amount equal to $50,000
except to the extent the remaining Commitment is a lesser amount.

3.   - ADDITIONAL REPRESENTATIONS:

     Borrower represents and warrants that as of the Closing Date:

     Its chief executive office is located at:  2630 Walsh Avenue, Santa Clara,
     CA 95051-0905
     Its Equipment is located at:  Same
     Its Records are located at:   Same

     In addition to its chief executive office, Borrower maintains offices or
     operates its business at the following locations: Madison, WI (Fab
     Facility)

     Other than its full corporate name and the name of its fully-owed
     subsidiary Focused Research, Borrower has conducted business using the
     following trade names or fictitious business names: None

4.   - ADDITIONAL LOAN DOCUMENTS:
     Schedule 1 to the Loan and Security Agreement
     Form of Note                                    Exhibit "A"
     Form of Borrowing Request                       Exhibit "B"
     Form of Compliance Certificate                  Exhibit "C"
     Form of Warrant                                 Exhibit "D"

                                     Page 2

<PAGE>   19

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

BORROWER:                            LENDER:

NEW FOCUS, INC.                      VENTURE LENDING & LEASING II, INC.

By:   /s/ KENNETH E. WESTRICK        By:   /s/ SALVADOR O. GUTIERREZ
     ---------------------------          ---------------------------
Name: KENNETH E. WESTRICK            Name: SALVADOR O. GUTIERREZ
     ---------------------------          ---------------------------
Title: President & CEO               Title: President
       --------------------------           --------------------------

Address for Notices:
Attn: Chief Financial Officer        Attn: Chief Financial Officer
      2630 Walsh Avenue                    2010 North First Street, Suite 310
      Santa Clara, Ca 95051                San Jose, CA 95131
Fax # 408-980-8883                   Fax # (408) 436-8625

                                     Page 3

<PAGE>   20

                                   EXHIBIT A

                                                                [Note No. X-XXX]

                            FORM OF PROMISSORY NOTE

$[Face Amount of Note]                                               [Note Date]
                                                            San Jose, California

      The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("Lender") at its office at
2010 North First Street, Suite 310, San Jose, California 95131, or at such
other place as Lender may designate in writing, in lawful money of the United
States of America, the principal sum of _____________________ Dollars ($______),
with Basic Interest thereon from the date until maturity, whether scheduled or
accelerated, at a fixed rate per annum of eight and 40/100 percent (8.40%), and
a Terminal Payment in the sum of [10% of face amount] Dollars ($_______)
payable on the Maturity Date.

      This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan and Security Agreement dated [Agreement Date], between
Borrower and Lender (the "Loan Agreement"). Each capitalized term not otherwise
defined herein shall have the meaning set forth in the Loan Agreement. The Loan
Agreement contains provisions for the acceleration of the maturity of this Note
upon the happening of certain stated events.

      Principal of and interest on this Note shall be payable as follows:

      On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for
the period from the Borrowing Date through [THE LAST DAY OF THE SAME MONTH];
and (ii) a first (1st) amortization installment of principal and Basic Interest
in the amount of _______________, in advance for the month of [first full month
after Borrowing Date] and (iii) a 36th [last] amortization installment of
principal and Basic Interest in the amount of $________________, in advance for
the month [date of last regular amortization payment].

      Commencing of the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in [thirty-three
(33) equal consecutive installments of ___________________ Dollars ($________)
each, with a [thirty-fourth (34th)] installment equal to the entire unpaid
principal balance and accrued Basic Interest on ___________, 2000_. The
Terminal Payment amount shall be payable on [ONE MONTH LATER], 200_.

      Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest on
demand.

      Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.

      If Borrower is late in making any payment under this Note by more than
five (5) days, Borrower agrees to pay a "late charge" of five percent (5%) of
the installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses

<PAGE>   21
incidental to the handling of such delinquent amounts. Borrower acknowledges
that such late charge represents a reasonable sum considering all of the
circumstances existing on the date of this Note and represents a fair and
reasonable estimate of the costs that will be sustained by Lender due to the
failure of Borrower to make timely payments. Borrower further agrees that proof
of actual damages would be costly and inconvenient. Such late charge shall be
paid without prejudice to the right of Lender to collect any other amounts
provided to be paid or to declare a default under this Note or any of the other
Loan Documents or from exercising any other rights and remedies of Lender.

     This Note shall be governed by, and construed in accordance with, the laws
of the State of California.

                                        NEW FOCUS, INC.

                                        By: ___________________________________

                                        Name: _________________________________

                                        Its: __________________________________

<PAGE>   22

                                   EXHIBIT B

                               BORROWING REQUEST

                                                           _______________, ___

Venture Lending & Leasing II, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131

     Re: NEW FOCUS, INC.

Gentlemen:

     Reference is made to the two Loan and Security Agreement dated as of
_________ (as the same have been and may be amended from time to time, the
"Loan Agreement", the capitalized terms used herein as defined therein),
between Venture Lending & Leasing II, Inc. on one hand and New Focus, Inc. (the
"Company") on the other.

     The undersigned is an Officer of the Company, authorized to borrow under
The Loan Agreement, and hereby requests Loan under the Loan Agreement, and in
that connection certifies as follows:

     1.   The aggregate amount of the proposed Loan is $________. The Business
Day of the proposed Loan is ________, 199X.

     2.   As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loan, and the
representations and warranties of the Company contained in the Loan Agreement
are true and correct.

     3.   No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.

     The Company agrees to notify you promptly before the funding of the Loan
if any of the matters to which I have certified above shall not be true and
correct on the Borrowing Date.

                                        Very Truly Yours,

                                        By: ___________________________________

                                        Name: _________________________________

                                        Its: __________________________________

<PAGE>   23
                                   EXHIBIT C

                             COMPLIANCE CERTIFICATE

Venture Lending & Leasing II, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131

     Re:_________________

Gentlemen:

     Reference is made to the two Loan and Security Agreement dated as of
______ (as the same have been and may be amended from time to time, the "Loan
Agreement", the capitalized terms used herein as defined therein), between
Venture Lending & Leasing II, Inc. on one hand and __________ (the "Company")
on the other.

The undersigned authorized representative of the Company hereby certifies that
in accordance with the terms and conditions of the Loan Agreement, the Company
is in complete compliance for the period ending _____ of all required
conditions and terms except as noted below. Attached herewith are the required
documents supporting the above certification. The representative further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles and are consistent from one period to the next except as
explained below.

         Indicate compliance status by circling Yes/No under "Complies"

<TABLE>
<CAPTION>
REPORTING REQUIREMENT             REQUIRED                  COMPLIES
---------------------             --------                  --------
<S>                               <C>                       <C>
Interim Financial Statements      Monthly within 45 days    YES/NO
Audited Financial Statements      FYE within 90 days        YES/NO

FINANCIAL COVENANTS               REQUIRED                  COMPLIES
-------------------               --------                  --------
</TABLE>

REQUIRED EXPLANATIONS:

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

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

                                             Very Truly Yours,

                                             By:    ____________________

                                             Name:  ____________________

                                             Its:   ____________________
<PAGE>   24
                                   EXHIBIT D

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

                              WARRANT TO PURCHASE

                  35,000 SHARES OF SERIES D PREFERRED STOCK OF

                                NEW FOCUS, INC.

                         (Void after December 31, 2004)

This certifies that VENTURE LENDING & LEASING II, INC., a Maryland corporation,
or assigns (the "Holder"), for value received, is entitled to purchase from NEW
FOCUS, INC., a California corporation (the "Company"), 35,000 fully paid and
nonassessable shares of the Company's Series D Preferred Stock ("Preferred
Stock") for cash at a price of $4.00 per share (the "Stock Purchase Price") at
any time or from time to time up to and including 5:00 p.m. (Pacific time) on
December 31, 2004 (the "Expiration Date"), upon surrender to the Company at its
principal office at 2630 Walsh Avenue, Santa Clara, CA 95051-0905, (or at such
other location as the Company may advise Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and upon payment in cash or by check of the aggregate Stock Purchase
Price for the number of shares for which this Warrant is being exercised
determined in accordance with the provisions hereof. The Stock Purchase Price
and the number of shares purchasable hereunder are subject to adjustment as
provided in Section 4 of this Warrant.

This Warrant is subject to the following terms and conditions:

     1.   Exercise; Issuance of Certificates; Payments for Shares.

          (a)  Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or any
portion of the shares of Preferred Stock (but not for a fraction of a share)
which may be purchased hereunder for the Stock Purchase Price multiplied by the
number of shares to be purchased. In the event, however, that pursuant to the
Company's Articles of Incorporation, as amended, an event causing automatic
conversion of the Company's Preferred Stock shall have occurred prior to the
exercise of this Warrant, in whole or in part, then this Warrant shall be
exercisable for the number of shares of Common Stock of the Company into which
the Preferred Stock not purchased upon any prior exercise of the Warrant would
have been so converted (and, where the context requires, reference to
"Preferred Stock" shall be deemed to include such Common Stock). The Company
agrees that the shares of Preferred Stock purchased under this Warrant shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which the form of
subscription shall have been delivered and payment made for such shares.
Subject to the provisions of Section 2, certificates for the shares of
Preferred Stock so purchased, together with any other securities or property to
which the Holder hereof is entitled upon such exercise, shall be delivered to
the Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised.
Except as provided in clause (b) of this Section 1, in case of a purchase of
less than all the shares which may be purchased under this Warrant, the Company
shall cancel this Warrant and execute and deliver a new Warrant or Warrants of
like tenor for the balance of the shares purchasable under the Warrant
surrendered upon such purchase to the Holder hereof within a reasonable time.
Each stock certificate so delivered shall be in such denominations of

<PAGE>   25
Preferred Stock as may be requested by the Holder hereof and shall be
registered in the name of such Holder or such other name as shall be designated
by such Holder, subject to the limitations contained in Section 2.

            (b)   The Holder, in lieu of exercising this Warrant by the
payment of the Stock Purchase Price pursuant to clause (a) of this Section 1,
may elect, at any time on or before the Expiration Date, to receive that
number of shares of Preferred Stock equal to the quotient of: (i) the
difference between (A) the Per Share Price (as hereinafter defined) of the
Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied
by the number of shares of Preferred Stock the Holder would otherwise have
been entitled to purchase hereunder pursuant to clause (a) of this Section 1
(or such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price. Election to
exercise under this section (b) may be made by delivering a signed form of
subscription to the Company via facsimile, to be followed by delivery of the
warrant.

            (c)   For purposes of clause (b) of this Section 1, "Per Share
Price" means the product of: (i) the greater of (A) the closing price of the
Company's Common Stock as quoted by NASDAQ or listed on any exchange,
whichever is applicable, as published in the Western Edition of the Wall
Street Journal for the trading day immediately prior to the date of the
Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross
sales price of one share of the Company's Common Stock pursuant to a
registered public offering or that amount which shareholders of the Company
will receive for each share of Common Stock pursuant to a merger,
reorganization or sale of assets; and (ii) that number of shares of Common
Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
Per Share Price of the Preferred Stock (or the equivalent number of shares of
Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as such price
shall be agreed upon by the Holder and the Company or, if agreement cannot be
reached within ten (10) business days of the Holder's election hereunder, as
such price shall be determined by a panel of three (3) appraisers, one (1) to
be chosen by the Company, one (1) to be chosen by the Holder and the third to
be chosen by the first two (2) appraisers. If the appraisers cannot reach
agreement within 30 days of the Holder's election hereunder, then each
appraiser shall deliver its appraisal and the appraisal which is neither the
highest nor the lowest shall constitute the Per Share Price. In the event
either party fails to choose an appraiser within 30 days of the Holder's
election hereunder, then the appraisal of the sole appraiser shall constitute
the Per Share Price. Each party shall bear the cost of the appraiser selected
by such party and the cost of the third appraiser shall be borne one-half by
each party. In the event either party fails to choose an appraiser, the cost
of the sole appraiser shall be borne one-half by each party.

      2.    Limitation on Transfer.

            (a)   The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act of
1933, as amended (the "Securities Act"). Each holder of this Warrant or the
Preferred Stock issuable hereunder will cause any proposed transferee of the
Warrant or Preferred Stock to agree to take and hold such securities subject to
the provisions and upon the conditions specified in this Section 2.

            (b)   Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect to the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of this Section 2 or unless such securities have been registered
under the Securities Act or sold under Rule 144) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities laws):

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR

                                       2
<PAGE>   26
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

          (c)  The Holder of this Warrant and each person to whom this Warrant
is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time of
issuance thereof) except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of securities), or
(iii) an opinion of counsel, reasonably satisfactory to counsel for the
Company, that an exemption from such registration is available.

     3.   Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees that all shares of Preferred Stock which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof (other than taxes in respect of transfer
occurring contemporaneously or as otherwise specified herein). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of share of authorized but unissued Preferred Stock, or other securities
and property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Preferred Stock may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of any domestic securities exchange upon which the Preferred
Stock may be listed. The Company will not take any action which would result in
any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i)
if the total number of shares of Preferred Stock issuable after such action
upon exercise of all outstanding warrants, together with all shares of Preferred
Stock then outstanding and all shares of Preferred Stock then issuable upon
exercise of all options and upon the conversion of all convertible securities
then outstanding, would exceed the total number of shares of Preferred Stock
then authorized by the Company's Articles of Incorporation, or (ii) if the
total number of shares of Common Stock issuable after such action upon the
conversion of all such shares of Preferred Stock together with all shares of
Common Stock then outstanding and then issuable upon exercise of all options
and upon the conversion of all convertible securities then outstanding would
exceed the total number of shares of Common Stock then authorized by the
Company's Articles of Incorporation.

     4.   Adjustment of Stock Purchase Price Number of Shares. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Stock Purchase Price resulting from such adjustment.

          4.1  Subdivision or Combination of Stock. In case the Company shall
at any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

          4.2  Dividends in Preferred Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,

               (a)  Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or

                                       3
<PAGE>   27
options to subscribe for, purchase or otherwise acquire any of the foregoing by
way of dividend or other distribution, or

          (b)  any cash paid or payable otherwise than as a cash dividend, or

          (c)  Preferred Stock or other or additional stock or other securities
or property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Preferred Stock issued as a stock split, adjustments in respect of which shall
be covered by the terms of Section 4.1 above).

Then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and property
(including cash in the cases referred to in clauses (b) and (c) above) which
such Holder would hold on the date of such exercise had he been the holder of
record of such Preferred Stock as of the date on which holders of Preferred
Stock received or became entitled to receive such shares and/or all other
additional stock and other securities and property.

     4.3  Reorganization, Reclassification, Consolidation, Merger or Sale. If
any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Preferred Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Preferred Stock
(Corporate Event), then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive (in lieu of the shares of the Preferred Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Preferred Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, provided, however, in the event that 1) the effective
price of such Corporate Event is in excess of the exercise price hereof
effective at the time of the Corporate Event, 2) the consideration received in
such Corporate Event is cash or shares that are of a publicly traded company
listed on a national market or exchange, without restrictions within 90 days of
the close of such Corporate Event, except for those of Rule 144 or 145, and 3)
the Company's shareholders own less than 50% of the voting securities of the
surviving entity, then this Warrant shall be deemed exercised in accordance with
the provisions of section 1(b) upon the closing of the Corporate Event. In any
such case, appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Stock Purchase
Price and of the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may be possible,
in relation to any share of stock, securities or assets thereafter deliverable
upon the exercise hereof.

     4.4  Sale or Issuance Below Purchase Price. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a
consideration per share less than the Stock Purchase Price in effect
immediately prior to the time of such issue or sale, the Conversion ratio shall
be adjusted in accordance with the Company's Articles of Incorporation.

     4.5  Notice of Adjustment. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company. The
notice, which may be substantially in the form of Exhibit "A" attached hereto,
shall be signed by the Company's chief financial officer and shall state the
Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which calculation is based.

                                       4
<PAGE>   28
          4.6  Other Notices. If at any time:

               (a)  the Company shall declare any cash dividend upon its
Preferred Stock;

               (b)  the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;

               (c)  the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;

               (d)  there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation;

               (e)  there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or

               (f)  the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;

then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 20 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Preferred Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.

          4.7  Certain Events. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.

     5.   Issue Tax. The issuance of certificates for shares of Preferred Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.

     6.   Closing of Books. Provided that the Holder shall be in compliance
with the terms of this Agreement, including but not limited to, Section 2, the
Company will at no time close its transfer books against the transfer of any
Warrant or of any shares of Preferred Stock issued or issuable upon the
exercise of any warrant.

                                       5
<PAGE>   29
     7.   No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares
of Preferred Stock, and no mere enumeration herein of the rights or privileges
of the Holder hereof, shall give rise to any liability of such Holder for the
Stock Purchase Price or as a shareholder of the Company, whether such liability
is asserted by the Company or by its creditors.

     8.   Intentionally Omitted.

     9.   Registration Rights.  The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to, and bound by, all of the registration
rights and obligations set forth in the First Amended and Restated Registration
Rights Agreement dated as of July 31, 1998 to the same extent and on the same
terms and conditions as possessed by the Investors thereunder. The Company
shall take such action as may be reasonably necessary to assure that the
granting of such registration rights to the Holder does not violate the
provisions of such agreement or any of the Company's charter documents or rights
of prior Grantees of registration rights.

     10.  Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6 and 9 shall survive the exercise of this Warrant.

     11.  Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

     12.  Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three business
days after deposit in the US mail, with postage prepaid and certified or
registered, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant.

     13.  Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors or assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the Holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Common Stock) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the Holder hereof in respect to such rights.

     14.  Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.

                                       6

<PAGE>   30
      15.   Lost Warrants or Stock Certificates. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.

      16.   Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.

      17.   Representations of Holder. With respect to this Warrant, Holder
represents and warrants to the Company as follows:

            17.1  Experience. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it understands
that investment in the Warrant involves substantial risks; it has made detailed
inquiries concerning the Company, its business and services, its officers and
its personnel; the officers of the Company have made available to Holder any
and all written information it has requested; the officers of the Company have
answered to Holder's satisfaction all inquiries made by it; in making this
investment it has relied upon information made available to it by the Company;
and it has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of investment in the Company
and it is able to bear the economic risk of that investment.

            17.2  Investment. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.

            17.3  Rule 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act.

            17.4  Access to Data. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.

      18.   Additional Representations and Covenants of the Company. The
Company hereby represents, warrants and agrees as follows:

            18.1  Corporate Power. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and
perform its obligations hereunder.

            18.2  Authorization. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.

            18.3  Offering. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting on
its behalf will take any action hereafter that would cause the loss of such
exemptions.

                                      7
<PAGE>   31
          18.4 Stock Issuance. Upon exercise of the Warrant, the Company will
use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.

          18.5 Articles and By-Laws. The Company has provided Holder with true
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document
setting, forth any rights, preferences and privileges of Company's capital
stock, each as amended and in effect on the date of issuance of this Warrant.

          18.6 Conversion of Preferred Stock. As of the date hereof, each share
of the Preferred Stock is convertible into one share of the Common Stock.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officers, thereunto duly authorized this 1st day of February, 1999.

NEW FOCUS, INC.

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

                                       8

<PAGE>   32
                              FORM OF SUBSCRIPTION

                  (To be signed only upon exercise of Warrant)

To:
    ------------------------------

     The undersigned, the holder of the within Warrant, hereby irrevocably
     elects to exercise the purchase right represented by such Warrant for, and
     to purchase thereunder, (1) See Below ______________________ (________)
     shares (the "Shares") of Stock of _______ and herewith makes payment of
     ______________ Dollars ($_____) therefor, and requests that the
     certificates for such shares be issued in the name of, and delivered to,
     ____________, whose address is ________________________.

     The undersigned hereby elects to convert ___ percent (___%) of the value of
     the Warrant pursuant to the provisions of Section 1(b) of the Warrant.

The undersigned represents that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.

               Dated   ______________________
               Holder: ______________________
               By:     ______________________
               Its:    ______________________

               (Address)

               ______________________________

               ______________________________

(1) Insert here the number of shares called for on the face of the Warrant (or,
    in the case of a partial exercise, the portion thereof as to which the
    Warrant is being exercised), in either case without making any adjustment
    for additional Preferred Stock or any other stock or other securities or
    property or cash which, pursuant to the adjustment provisions of the
    Warrant, may be deliverable upon exercise.

                                       9

<PAGE>   33

                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, unto:

<TABLE>
<CAPTION>
Name of Assignee              Address                              No. of Shares
--------------------------------------------------------------------------------
<S>                           <C>                                  <C>

</TABLE>

Dated:
        -----------------------------------
Holder:
        -----------------------------------
By:
        -----------------------------------
Its:
        -----------------------------------

                                       10
<PAGE>   34
                                  EXHIBIT "A"

                         [On letterhead of the Company]

                Reference is hereby made to that certain Warrant dated
________________________, 199__, issued by ____________________________________,
a ______________________________ corporation (the "Company"), to VENTURE
LENDING & LEASING II, INC., a Maryland corporation (the "Holder").

        [IF APPLICABLE] The Warrant provides that the actual number of shares
of the Company's capital stock issuable upon exercise of the Warrant and the
initial exercise price per share are to be determined by reference to one or
more events or conditions subsequent to the issuance of the Warrant. Such
events or conditions have now occurred or lapsed, and the Company wishes to
confirm the actual number of shares issuable and the initial exercise price.
The provisions of this Supplement to Warrant are incorporated into the Warrant
by this reference, and shall control the interpretation and exercise of the
Warrant.

        [IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the
Warrant that the following adjustment(s) have been made to the Warrant:
[describe adjustments, setting forth details regarding method of calculation
and facts upon which calculation is based].

        This certifies that the Holder is entitled to purchase from the Company
______________________________ (__________________________) fully paid and
nonassessable shares of the Company's ___________ Stock at a price of
______________________________ Dollars ($________________) per share (the
"Stock Purchase Price"). The Stock Purchase Price and the number of shares
purchasable under the Warrant remain subject to adjustment as provided in
Section 4 of the Warrant.

        Executed this ___ day of ________________________, 199___.

                                             [COMPANY]

                                             By: _______________________________

                                             Name: _____________________________

                                             Title: ____________________________

                                       11
<PAGE>   35
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

                              WARRANT TO PURCHASE

                  35,000 SHARES OF SERIES D PREFERRED STOCK OF

                                NEW FOCUS, INC.

                         (Void after December 31, 2004)

This certifies that VENTURE LENDING & LEASING II, INC., a Maryland corporation,
or assigns (the "Holder"), for value received, is entitled to purchase from NEW
FOCUS, INC., a California corporation (the "Company"), 35,000 fully paid and
nonassessable shares of the Company's Series D Preferred Stock ("Preferred
Stock") for cash at a price of $4.00 per share (the "Stock Purchase Price") at
any time or from time to time up to and including 5:00 p.m. (Pacific time) on
December 31, 2004 (the "Expiration Date"), upon surrender to the Company at its
principal office at 2630 Walsh Avenue, Santa Clara, CA 95051-0905, (or at such
other location as the Company may advise Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and upon payment in cash or by check of the aggregate Stock Purchase
Price for the number of shares for which this Warrant is being exercised
determined in accordance with the provisions hereof. The Stock Purchase Price
and the number of shares purchasable hereunder are subject to adjustment as
provided in Section 4 of this Warrant.

This Warrant is subject to the following terms and conditions:

      1.        Exercise; Issuance of Certificates; Payment for Shares.

                (a)       Unless an election is made pursuant to clause (b) of
this Section 1, this Warrant shall be exercisable at the option of the Holder,
at any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price multiplied
by the number of shares to be purchased. In the event, however, that pursuant
to the Company's Articles of Incorporation, as amended, an event causing
automatic conversion of the Company's Preferred Stock shall have occurred prior
to the exercise of this Warrant, in whole or in part, then this Warrant shall
be exercisable for the number of shares of Common Stock of the Company into
which the Preferred Stock not purchased upon any prior exercise of the Warrant
would have been so converted (and, where the context requires, reference to
"Preferred Stock" shall be deemed to include such Common Stock). The Company
agrees that the shares of Preferred Stock purchased under this Warrant shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which the form of
subscription shall have been delivered and payment made for such shares.
Subject to the provisions of Section 2, certificates for the shares of
Preferred Stock so purchased, together with any other securities or property to
which the Holder hereof is entitled upon such exercise, shall be delivered to
the Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised.
Except as provided in clause (b) of this Section 1, in case of a purchase of
less than all the shares which may be purchased under this Warrant, the Company
shall cancel this Warrant and execute and deliver a new Warrant or Warrants of
like tenor for the balance of the shares purchasable under the Warrant
surrendered upon such purchase to the Holder hereof within a reasonable time.
Each stock certificate so delivered shall be in such denominations of
<PAGE>   36
Preferred Stock as may be requested by the Holder hereof and shall be
registered in the name of such Holder or such other name as shall be designated
by such Holder, subject to the limitations contained in Section 2.

          (b)  The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect,
at any time on or before the Expiration Date, to receive that number of shares
of Preferred Stock equal to the quotient of: (i) the difference between (A) the
Per Share Price (as hereinafter defined) of the Preferred Stock, less (B) the
Stock Purchase Price then in effect, multiplied by the number of shares of
Preferred Stock the Holder would otherwise have been entitled to purchase
hereunder pursuant to clause (a) of this Section 1 (or such lesser number of
shares as the Holder may designate in the case of a partial exercise of this
Warrant); over (ii) the Per Share Price. Election to exercise under this
section (b) may be made by delivering a signed form of subscription to the
Company via facsimile, to be followed by delivery of the warrant.

          (c)  For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the closing price of the Company's
Common Stock as quoted by NASDAQ or listed on any exchange, whichever is
applicable, as published in the Western Edition of The Wall Street Journal for
the trading day immediately prior to the date of the Holder's election hereunder
or, (B) if applicable at the time of or in connection with the exercise under
clause (b) of this Section 1, the gross sales price of one share of the
Company's Common Stock pursuant to a registered public offering or that amount
which shareholders of the Company will receive for each share of Common Stock
pursuant to a merger, reorganization or sale of assets; and (ii) that number of
shares of Common Stock into which each share of Preferred Stock is convertible.
If the Company's Common Stock is not quoted by NASDAQ or listed on an exchange,
the Per Share Price of the Preferred Stock (or the equivalent number of shares
of Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for shares
sold by the Company from authorized but unissued shares as such price shall be
agreed upon by the Holder and the Company or, if agreement cannot be reached
within ten (10) business days of the Holder's election hereunder, as such price
shall be determined by a panel of three (3) appraisers, one (1) to be chosen by
the Company, one (1) to be chosen by the Holder and the third to be chosen by
the first two (2) appraisers. If the appraisers cannot reach agreement within 30
days of the Holder's election hereunder, then each appraiser shall deliver its
appraisal and the appraisal which is neither the highest nor the lowest shall
constitute the Per Share Price. In the event either party fails to choose an
appraiser within 30 days of the Holder's election hereunder, then the appraisal
of the sole appraiser shall constitute the Per Share Price. Each party shall
bear the cost of the appraiser selected by such party and the cost of the third
appraiser shall be borne one-half by each party. In the event either party fails
to choose an appraiser, the cost of the sole appraiser shall be borne one-half
by each party.

     2.   Limitation on Transfer.

          (a)  The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act of
1933, as amended (the "Securities Act"). Each holder of this Warrant or the
Preferred Stock issuable hereunder will cause any proposed transferee of the
Warrant or Preferred Stock to agree to take and hold such securities to the
provisions and upon the conditions specified in this Section 2.

          (b)  Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect to the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of this Section 2 or unless such securities have been registered
under the Securities Act or sold under Rule 144) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities laws):

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES. THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR

                                       2
<PAGE>   37
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

          (c)  The Holder of this Warrant and each person to whom this Warrant
is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time of
issuance thereof) except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of securities), or
(iii) an opinion of counsel, reasonably satisfactory to counsel for the Company,
that an exemption from such registration is available.

          3.   Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof (other than taxes in respect of transfer
occurring contemporaneously or as otherwise specified herein). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized and reserved, for the purpose of issue or transfer upon exercise of
the subscription rights evidenced by this Warrant, a sufficient number of shares
of authorized but unissued Preferred Stock, or other securities and property,
when and as required to provide for the exercise of the rights represented by
this Warrant. The Company will take all such action as may be necessary to
assure that such shares of Preferred Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
any domestic securities exchange upon which the Preferred Stock may be listed.
The Company will not take any action which would result in any adjustment of the
Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of
shares of Preferred Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Preferred Stock then
outstanding and all shares of Preferred Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Preferred Stock then authorized by
the Company's Articles of Incorporation, or (ii) if the total number of shares
of Common Stock issuable after such action upon the conversion of all such
shares of Preferred Stock together with all shares of Common Stock then
outstanding and then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding would exceed the total
number of shares of Common Stock then authorized by the Company's Articles of
Incorporation.

     4.   Adjustment of Stock Purchase Price Number of Shares. The Stock
Purchase Price and the number of shares purchaseable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchaseable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Stock Purchase Price resulting from such adjustment.

          4.1  Subdivision or Combination of Stock. In case the Company shall
at any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

          4.2  Dividends in Preferred Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,

               (a)  Preferred Stock or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or

                                       3

<PAGE>   38

options to subscribe for, purchase or otherwise acquire any of the foregoing by
way of dividend or other distribution, or

               (b)  any cash paid or payable otherwise than as a cash dividend,
or

               (c)  Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above).

Then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and property
(including cash in the cases referred to in clauses (b) and (c) above) which
such Holder would hold on the date of such exercise had he been the holder of
record of such Preferred Stock as of the date on which holders of Preferred
Stock received or became entitled to receive such shares and/or all other
additional stock and other securities and property.

          4.3  Reorganization, Reclassification, Consolidation, Merger or Sale.
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Preferred Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Preferred Stock (Corporate Event), then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive (in lieu of the shares of the Preferred Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby) such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Preferred Stock equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby, provided, however, in the event that 1) the
effective price of such Corporate Event is in excess of the exercise price
hereof effective at the time of the Corporate Event, 2) the consideration
received in such Corporate Event is cash or shares that are of a publicly
traded company listed on a national market or exchange, without restrictions
within 90 days of the close of such Corporate Event, except for those of Rule
144 or 145, and 3) the Company's shareholders own less than 50% of the voting
securities of the surviving entity, then this Warrant shall be deemed exercised
in accordance with the provisions of section 1(b) upon the closing of the
Corporate Event. In any such case, appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be possible, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof.

          4.4  Sale or Issuance Below Purchase Price. If the Company shall at
any time or from time to time issue or sell any of its Common stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a
consideration per share less than the Stock Purchase Price in effect
immediately prior to the time of such issue or sale, the Conversion ratio shall
be adjusted in accordance with the Company's Articles of Incorporation.

          4.5  Notice of Adjustment. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company. The
notice, which may be substantially in the form of Exhibit "A" attached hereto,
shall be signed by the Company's chief financial officer and shall state the
Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

                                       4
<PAGE>   39
          4.6  Other Notices. If at any time:

               (a)  the Company shall declare any cash dividend upon its
Preferred Stock;

               (b)  the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;

               (c)  the Company shall offer for subscription pro rata to the
holders of its preferred Stock any additional shares of stock of any class or
other rights;

               (d)  there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;

               (e)  there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or

               (f)  the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;

               then, in any one or more of said cases, the Company shall give,
by first class mail, postage prepaid, addressed to the holder of this Warrant at
the address of such holder as shown on the books of the Company, (i) at least 20
day's prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Preferred Stock shall be
entitled thereto. Any notice given in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.

          4.7  Certain Events. If any change in the outstanding Preferred Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall make an adjustment in the number and class of
shares available under the Warrant, the Stock Purchase Price and/or the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had he
continued to hold such shares until after the event requiring adjustment.

     5.   Issue Tax. The issuance of certificates for share of Preferred Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.

     6.   Closing of Books. Provided that the Holder shall be in compliance
with the terms of this Agreement, including but not limited to, Section 2, the
Company will at no time close its transfer books against the transfer of any
Warrant or of any shares of Preferred Stock issued or issuable upon the
exercise of any warrant.

                                       5
<PAGE>   40
     7.   No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Preferred Stock, and no more enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.

     8.   Intentionally Omitted.

     9.   Registration Rights. The Holder hereof shall be entitled, with respect
to the shares of Preferred Stock issued upon exercise hereof or the shares of
Common Stock or other securities upon conversion of such Preferred Stock as the
case may be, to, and bound by, all of the registration rights and obligations
set forth in the First Amended and Restated Registration Rights Agreement dated
as of July 31, 1998 to the same extent and on the same terms and conditions as
possessed by the Investors thereunder. The Company shall take such action as may
be reasonably necessary to assure that the granting of such registration rights
to the Holder does not violate the provision of such agreement or any of the
Company's charter documents or rights of prior Grantees of registration rights.

     10.  Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6 and 9 shall survive the exercise of this Warrant.

     11.  Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

     12.  Notices. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be deemed to
have been given (i) upon receipt if delivered personally or by courier (ii)
upon confirmation of receipt if by telecopy or (iii) three business days after
deposit in the US mail, with postage prepaid and certified or registered, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant.

     13.  Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof. The Company will, at the time of
the exercise of this Warrant in whole or in part, upon request of the Holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the Holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Common Stock) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the Holder hereof in respect of such rights.

     14.  Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.

                                       6

<PAGE>   41
          15.     Lost Warrants or Stock Certificates. The Company represents
and warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.

          16.     Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.

          17.     Representations of Holder. With respect to this Warrant,
Holder represents and warrants to the Company as follows:

                  17.1     Experience. It is experienced in evaluating and
investing in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services, its
officers and its personnel; the officers of the Company have made available to
Holder any and all written information it has requested; the officers of the
Company have answered to Holder's satisfaction all inquiries made by it; in
making this investment it has relied upon information made available to it by
the Company; and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment.

                  17.2     Investment. It is acquiring the Warrant for
investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof. It understands that the Warrant, the
shares of Preferred Stock issuable upon exercise thereof and the shares of
Common Stock issuable upon conversion of the Preferred Stock, have not been
registered under the Securities Act of 1933, as amended, nor qualified under
applicable state securities laws.

                  17.3     Rule 144. It acknowledges that the Warrant, the
Preferred Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act.

                  17.4     Access to Data. It has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.

          18.     Additional Representations and Covenants of the Company. The
Company hereby represents, warrants and agrees as follows:

                  18.1     Corporate Power. The Company has all requisite
corporate power and corporate authority to issue this Warrant and to carry out
and perform its obligations hereunder.

                  18.2     Authorization. All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.

                  18.3     Offering. Subject in part to the truth and accuracy
of Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting on
its behalf will take any action hereafter that would cause the loss of such
exemptions.

                                       7
<PAGE>   42
     18.4 Stock Issuance. Upon exercise of the Warrant, the Company will use
its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.

     18.5 Articles and By-Laws. The Company has provided Holder with true and
complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document
setting, forth any rights, preferences and privileges of Company's capital
stock, each as amended and in effect on the date of issuance of this Warrant.

     18.6 Conversion of Preferred Stock. As of the date hereof, each share of
the Preferred Stock is convertible into one share of the Common Stock.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officers, thereunto duly authorized this 1st day of February, 1999.

NEW FOCUS, INC.

By:    /s/ KENNETH E. WESTRICK
       -------------------------
Title: President & CEO
       -------------------------

                                       8
<PAGE>   43
                              FORM OF SUBSCRIPTION

                  (To be signed only upon exercise of Warrant)

To:___________________

     The undersigned, the  holder of the within Warrant, hereby irrevocably
     elects to exercise the purchase right represented by such Warrant for, and
     to purchase thereunder, (1) See Below _________ (____) shares (the
     "Shares") of Stock of ________ and herewith makes payment of _________
     Dollars ($______) therefor, and requests that the certificates for such
     shares be issued in the name of, and delivered to, ________, whose address
     is _________.

     The undersigned hereby elects to convert _____ percent (__%) of the value
     of the Warrant pursuant to the provisions of Section 1(b) of the Warrant.

The undersigned represents that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with
any distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.

                              Dated   __________________

                              Holder: __________________

                              By:     __________________

                              Its:
                                      __________________

                              (Address)

                              __________________________

                              __________________________

(1)  Insert here the number of shares called for on the face of the Warrant (or,
     in the case of a partial exercise, the portion thereof as to which the
     Warrant is being exercised), in either case without making any adjustment
     for additional Preferred Stock or any other stock or other securities or
     property or cash which, pursuant to the adjustment provisions of the
     Warrant, may be deliverable upon exercise.

                                       9
<PAGE>   44
                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, unto:

Name of Assignee                   Address                  No. of Shares
--------------------------------------------------------------------------------

                              Dated ______________________

                              Holder: ____________________

                              By: ________________________

                              Its: _______________________

                                       10

<PAGE>   45
                                  EXHIBIT "A"

                         [On letterhead of the Company]

     Reference is hereby made to that certain Warrant dated ________, 199__,
issued by ____________, a __________ corporation (the "Company"), to VENTURE
LENDING & LEASING II, INC., a Maryland corporation (the "Holder").

     [IF APPLICABLE] The Warrant provides that the actual number of shares of
the Company's capital stock issuable upon exercise of the Warrant and the
initial exercise price per share are to be determined by reference to one or
more events or conditions subsequent to the issuance of the Warrant. Such
events or conditions have now occurred or lapsed, and the Company wishes to
confirm the actual number of shares issuable and the initial exercise price.
The provisions of this Supplement to Warrant are incorporated in the Warrant by
this reference, and shall control the interpretation and exercise of the
Warrant.

     [IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the
Warrant that the following adjustment(s) have been made to the Warrant:
[describe adjustments, setting forth details regarding method of calculation
and facts upon which calculation is based].

     This certifies that the Holder is entitled to purchase from the Company
____________ (________) fully paid and nonassessable shares of the Company's
________ Stock at a price of _________________ Dollars ($______) per share (the
"Stock Purchase Price"). The Stock Purchase Price and the number of shares
purchasable under the Warrant remain subject to adjustment as provided in
Section 4 of the Warrant.

     Executed this ___ day of ________, 199__.

                                   [COMPANY]

                                   By: ______________________________

                                   Name: ____________________________

                                   Title: ___________________________

                                       11

<PAGE>   46
            SECRETARY'S CERTIFICATE AS TO INCUMBENCY AND RESOLUTIONS

The undersigned certifies that he is the duly elected Secretary of New Focus,
Inc., a California corporation (the "Company"), and that, as such, he is
authorized to execute this Certificate on behalf of the Company, and further
certifies that:

     (a)  Attached hereto is a true and correct copy of the resolutions duly
adopted by the Board of Directors of the Company on February 9, 1999 by
proceedings in accordance with the Articles or Certificate of Incorporation and
bylaws of the Company, and that said resolutions have not been amended and are
in full force and effect on the date hereof:

     (b)  Each of the offices of the Company listed below is held by the person
whose name is indicated opposite such office, each such person has been duly
elected to such office, and the signatures opposite their respective names are
their authentic signatures:

<TABLE>
<CAPTION>
Office                    Name                         Signature
------                    ----                         ---------
<S>                       <C>                          <C>
President                 Kenneth E. Westrick          /s/ KENNETH E. WESTRICK
                          -----------------------      -------------------------

Vice President
Controller                DAVID A. SHOQUIST            /s/ DAVID A. SHOQUIST
                          -----------------------      -------------------------

Secretary                 Judith M. O'Brien
                          -----------------------      -------------------------
</TABLE>

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company as of the 9th day of February, 1999

               /s/ JUDITH M. O'BRIEN
               -------------------------   Secretary

<PAGE>   47
                                  RESOLUTIONS
                                       OF
                           THE BOARD OF DIRECTORS OF
                                NEW FOCUS, INC.

WHEREAS, it is in the best interest of the Corporation to enter into like Loan
Agreements (the "Agreements") with VENTURE LENDING & LEASING II, INC., as
Lender ("Lender") providing for equipment or other financing, and as partial
consideration therefor, to grant to Lender warrants to purchase shares of the
Corporation's Series D Preferred Stock.

WHEREAS, it is also in the interests of the Corporation to avail itself from
time to time during the Agreement of managerial assistance offered by Lenders
or its agents or affiliates, in areas such as advice on equipment financing,
cash flow management, and general financing opportunities.

NOW, THEREFORE, BE IT RESOLVED that the President, any Vice President or Chief
Financial Officer be, and they each hereby are, acting singly, authorized,
empowered and directed, on the Corporation's behalf, to:

1)   execute, deliver and perform the Agreement and Promissory Notes and other
     documents related, and

2)   execute and deliver Warrants for 35,000 shares of the Corporation's Series
     D Preferred Stock thereto,

under the terms contemplated in the Commitment letter dated November 13, 1998
and to enter into any arrangement with Lenders or other third parties for
consulting services relating to the Corporation's management, operations or
business objectives, on such terms and conditions as any such officer may deem
necessary or appropriate.

FURTHER RESOLVED, that the officers of the Corporation be, and they each hereby
are, authorized, empowered and directed to do and perform any and all other
acts and deeds that they (or any one of them) may deem necessary or appropriate
to carry out and give effect to the foregoing resolution, including (but not
limited to) pledging such cash collateral or other security as may be required
from time to time under the Agreement and from time to time entering into,
executing and delivering, on behalf of the Corporation, any Promissory Notes
and/or other documents now or hereafter required by Lender in connection with
the Agreement, providing for the authorization and reservation for issuance of
shares of Preferred Stock issuable upon exercise of the Warrants and shares of
its Common Stock issuable upon conversion of such Preferred Stock.

FURTHER RESOLVED, that Lender is authorized to rely upon the foregoing
resolutions until receipt by it of written notice of any change, which changes
of whatever nature shall not be effective as to such Lender to the extent that
it has theretofore relied upon the foregoing resolutions as set forth above.

<PAGE>   48
RESOLVED: That the officers of the Company are authorized and directed to enter
into a Loan and Security Agreement (the "Agreement") with Venture Lending &
Leasing II, Inc. (the "Lender") on substantially the terms presented to this
Board of Directors with such changes as the officers of the Company may deem
necessary or appropriate;

RESOLVED FURTHER: That pursuant to the Agreement, the officers of the Company
are authorized and directed to issue a warrant (the "Warrant") to the Lender to
purchase 35,000 shares of the Company's Series D Preferred Stock with an
exercise price of $4.00 per share.

RESOLVED FURTHER: That the Company hereby reserves an aggregate of 35,000
shares of Series D Preferred Stock for issuance upon exercise of the Warrant.

RESOLVED FURTHER: That the Company hereby reserves an aggregate of 35,000
shares of Common Stock to provide for the issuance of such shares upon the
conversion of the Series D Preferred Stock.

RESOLVED FURTHER: That, subject to obtaining all applicable consents, at the
time of the Company's next round of financing, the shares of Common Stock
issuable upon conversion of the shares shall be included as "Registrable
Securities" under an amendment to the Company's First Amended and Restated
Registration Rights Agreement, and the officers of the Company are hereby
authorized and directed to obtain such consents to such amendment.

RESOLVED FURTHER: That the resolutions attached hereto as Exhibit __ and
incorporated herein by this reference are hereby approved.

RESOLVED FURTHER: That the officers of the Company are hereby authorized and
directed to take whatever other actions they deem necessary or appropriate,
including the filing of all applications, exhibits, fees, notices and other
documents and amendments as may be required by federal and state securities
laws, to fulfill the intent of the foregoing resolutions and whatever actions
the officers have previously taken are hereby ratified and approved.

<PAGE>   49

                     CERTIFICATE CONCERNING CAPITALIZATION

     As Chief Financial Officer or other authorized officer of New Focus, Inc.
("Borrower"), I hereby certify that as of the date hereof the following shares
of the Borrower's securities (listed by common and preferred by series) were
issued and outstanding:

<TABLE>
                                             Number of Shares*
                                             -----------------
          <S>                                     <C>
          PREFERRED STOCK SERIES A                3,790,000

          PREFERRED STOCK SERIES B                  250,000

          PREFERRED STOCK SERIES C                  150,000

          PREFERRED STOCK SERIES D                  994,250

          Options Outstanding                     1,995,897

          COMMON STOCK                              573,813
                                                  ---------

               TOTAL                              7,753,960
                                                  =========
</TABLE>

Signature: /s/ KENNETH E. WESTRICK
          ------------------------
Title: President & CEO
      ----------------------------
As of Date: 3 Feb 99
           -----------------------

--------------------------------------------------------------------------------
* Number of shares of Preferred Stock are stated in terms of number of shares
  of Common Stock into which each series is convertible.

<PAGE>   50

                         INSURANCE AUTHORIZATION LETTER

In accordance with the insurance coverage requirements of the Loan and Security
Agreement dated February 1, 1999 (the "Agreement") between VENTURE LENDING &
LEASING II, INC. ("Lender"), and NEW FOCUS, INC. ("Borrower"), coverage is to
be provided as set forth below:

COVERAGE:      All risk including liability and property damage covering
               equipment financed under the Agreement.

INSURED:       NEW FOCUS, INC.
               2630 Walsh Avenue
               Santa Clara, CA 95051

LOCATION(s) OF
EQUIPMENT:     Madison, WI (Fab Facility)

Insuring Agent:     PAT STROUD, TANNER INS. BROKERS
                    ---------------------------------
       Address:     4670 WILLOW RD, SUITE 250
                    ---------------------------------
                    PLEASANTON, CA 94588
                    ---------------------------------
  Phone Number:     (925) 463-9672
                    ---------------------------------

ADDITIONAL INSURED AND LOSS PAYEE:

               Lenders and their Assignees, as their respective interests may
               appear.

LENDERS:       VENTURE LENDING & LEASING II, INC.
               2010 North First Street, Suite 310
               San Jose, CA 95131

ASSIGNEE:      FLEET BANK N.A. AS AGENT
(if any)       1185 Avenue of the Americas, 16th Floor
               New York, NY 10036
               Attn: John Topolovec

The above coverage is to be provided prior to funding the Agreement. Borrower
hereby agrees to pay for the coverage above and by signing below acknowledges
its obligation to do so.

Signature:     /s/ KENNETH E. WESTRICK
               ---------------------------------
Title:             Kenneth E. Westrick
               ---------------------------------
Date:              3 Feb '99
               ---------------------------------

<PAGE>   51
                                                            Note No. 2060-001

                               PROMISSORY NOTE

$800,000.00                                                 February 26, 1999
                                                         San Jose, California

      The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("Lender") at its office at
2010 North First Street, Suite 310, San Jose, California 95131, or at such
other place as Lender may designate in writing, in lawful money of the United
States of America, the principal sum of Eight Hundred Thousand Dollars
($800,000.00), with Basic Interest thereon from the date hereof until maturity,
whether scheduled or accelerated, at a fixed rate per annum of eight and 40/100
percent (8.40%), and a Terminal Payment in the sum of Eighty Thousand Dollars
($80,000.00) payable on the Maturity Date.

      This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan and Security Agreement dated February 9, 1999, between
Borrower and Lender (the "Loan Agreement"). Each capitalized term not otherwise
defined herein shall have the meaning set forth in the Loan Agreement. The Loan
Agreement contains provisions for the acceleration of the maturity of this Note
upon the happening of certain stated events.

      Principal of and interest on this Note shall be payable as follows:

      On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for
the period from the Borrowing Date through February 28, 1999; and (ii) a first
(1st) amortization installment of principal and Basic Interest in the amount of
$25,040.00, in advance for the month of March, 1999 and (iii) a 36th last
amortization installment of principal and Basic Interest in the amount of
$25,040.00, in advance for the month of February, 2002.

      Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in thirty-three (33)
equal consecutive installments of Twenty Five Thousand Forty Dollars
($25,040.00) each, with a thirty-fourth (34th) installment equal to the entire
unpaid principal balance and accrued Basic Interest on January 1, 2002. The
Terminal Payment amount shall be payable on March 1, 2002.

      Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest on
demand.

      Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.

      If Borrower is late in making any payment under this Note by more than
five (5) days, Borrower agrees to pay a "late charge" of five percent (5%) of
the installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses incidental to the handling of such delinquent
amounts. Borrower acknowledges that such late charge represents a reasonable
sum considering all of the circumstances existing on the date of this Note and
represents a fair and reasonable estimate of the costs that will be sustained
by Lender due

<PAGE>   52
to failure of Borrower to make timely payments. Borrower further agrees that
proof of actual damages would be costly and inconvenient. Such late charge
shall be paid without prejudice to the right of Lender to collect any other
amounts provided to be paid or to declare a default under this Note or any of
the other Loan Documents or from exercising any other rights and remedies of
Lender.

     This Note shall be governed by, and construed in accordance with, the laws
of the State of California.

                                        NEW FOCUS, INC.

                                        By: /s/ DAVID A. SHOQUIST

                                        Name: David A. Shoquist

                                        Its: Controller
<PAGE>   53
                               BORROWING REQUEST

                                                               February 23, 1999

Venture Lending & Leasing II, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131

     Re: NEW FOCUS, INC.

Gentlemen:

     Reference is made to the two Loan and Security Agreement dated as of
February 9, 1999 (as the same have been and may be amended from time to time,
the "Loan Agreement", the capitalized terms used herein as defined therein),
between Venture Lending & Leasing II, Inc. on one hand and New Focus, Inc. (the
"Company") on the other.

     The undersigned is an Officer of the Company, authorized to borrow under
The Loan Agreement, and hereby requests Loan under the Loan Agreement, and in
that connection certifies as follows:

     1.  The aggregate amount of the proposed Loan is $800,000.00. The Business
Day of the proposed Loan is February 26, 1999.

     2.  As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loan, and the
representations and warranties of the Company contained in the Loan Agreement
are true and correct.

     3.  No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.

     The Company agrees to notify you promptly before the funding of the Loan
if any of the matters to which I have certified above shall not be true and
correct on the Borrowing Date.

                                        Very Truly Yours,

                                        By: /s/ DAVID A. SHOQUIST

                                        Name: David A. Shoquist

                                        Its: Controller

<PAGE>   54
                    CERTIFICATE OF CHIEF FINANCIAL OFFICER

     As Chief Financial Officer of New Focus, Inc. ("Borrower") hereby certify
that all financial statements heretofore and hereafter delivered to VENTURE
LENDING & LEASING II, INC. ("LENDER"), by or upon behalf of Borrower, and any
statements and data submitted in writing to Lender in connection with a Loan and
Security Agreement dated February 9, 1999 (the "Agreement"), are true and
correct and fairly present the financial condition of Borrower for the periods
involved, and have been prepared in accordance with generally accepted
accounting principles consistently applied. Furthermore, since the date of the
financial statements dated December 31, 1998, I am certifying that there has
been no material adverse change in the condition, financial or otherwise, of the
Borrower.

     Signature:  /s/ DAVID A. SHOQUIST
               ----------------------------

     Title:        Controller
               ----------------------------

     Date:         2/24/99
               ----------------------------

<PAGE>   55
                   [WESTERN TECHNOLOGY INVESTMENT LETTERHEAD]

February 23, 1999

Mr. David Shoquist
Controller
New Focus, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051-0905

RE:  Loan and Security Agreement dated February 9, 1999 between New Focus, Inc.,
     as Borrower, and VENTURE LENDING & LEASING II, INC., as Lender and related
     Note No. 2060-001 dated February 26, 1999 for $800,000.00 ("Note")

Dear David:

Pursuant to the above referenced Note, Principal and Basic Interest and
Terminal payments are due as follows:

Advance Payments - Due at Funding:

<TABLE>
<CAPTION>
Description                             Payments            Payment Date
-----------                             --------            ------------
<S>                                    <C>                  <C>
  Partial Interim Payment                  560.00           Due in Advance
  Principal and Basic Interest          50,080.00           Due in Advance
  First and Last
  Expenses Collected                     1,000.00           Due at First Funding
                                       ----------
                                       $51,640.00
</TABLE>

For a term of thirty-six (36) months followed by 1 final payment, commencing on
March 1, 1999 through March 1, 2002, thirty-seven (37) consecutive installments
of principal and Basic Interest payments and Terminal Payment payable on the
first day of the month as indicated for Loan No. 2060-001 on the attached
Payment Summaries which will be amended with each additional funding.

Commencing on April 1, 1999, please send your remittance to the following
addresses using the loan transaction Numbers indicated below on each remittance.
Your checks should be made payable to Venture Lending & Leasing II, Inc. If you
prefer to make paymentS by wire transfer in the future, please let us know so it
can be arranged.
<PAGE>   56

                      VENTURE LENDING AND LEASING II, INC.
                                NEW FOCUS, INC.
                         PAYMENT SUMMARY AS OF 03/01/99

<TABLE>
<CAPTION>
<S>               <C>        <C>                <C>        <C>
      LOAN         TOTAL      TOTAL PAYMENT      TOTAL       TOTAL
     NUMBER       PAYMENT         DUE           PAYMENT     PAYMENT
# TO REFERENCE      DUE       04/01/99 THRU       DUE         DUE
    ON CHECK       3/1/99        1/1/02          2/1/02      3/1/02
-----------------------------------------------------------------------
    2060-001      $     -      $25,040.00       $     -    $80,000.00
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
      REGULAR MAIL:                             OVERNIGHT DELIVERY ADDRESS:
--------------------------------------------------------------------------------
<S>                                             <C>
BANK OF BOSTON                                  BANK OF BOSTON
LOCKBOX 414334                                  LOCK BOX DEPARTMENT
BOSTON, MA 02241-4334                           2 MORRISEY BLVD.
                                                DORCHESTER, MA 02125
                                                REF: LOCKBOX#414334
--------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
*PAYMENT IS DUE ON THE FIRST OF EACH MONTH
--------------------------------------------------------------------------------

IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT 408-436-8577 EXT 12

                                     Page 1
<PAGE>   57
Mr. David Shoquist
2/23/99
Page 2

     Loan Payment Remittance Address:

     Bank of Boston
     Lockbox 414334
     Boston, MA 02241-4334
     Loan Transaction No. 2060-001

PLEASE BE ADVISED THAT THIS IS THE ONLY PAYMENT NOTICE YOU WILL RECEIVE. WE DO
NOT PROCESS MONTHLY INVOICES.

Please acknowledge your receipt of this letter by signing the enclosed
counterpart of this letter where indicated below.

Sincerely,

/s/ Linda White
-----------------
Linda White

Acknowledged and agreed to:

NEW FOCUS, INC.

    /s/ DAVID A. SHOQUIST
By: ____________________________________

       CONTROLLER
Title: _________________________________

      2/24/99
Date: __________________________________<PAGE>   1
                                                                   EXHIBIT 10.15

                                LEASE AGREEMENT

This Lease Agreement is made and entered into by and between HERMAN CHRISTENSEN,
JR. AND RAYMOND P. CHRISTENSEN, jointly, the Landlord, and MMC NETWORKS, INC., a
Delaware corporation, Tenant as of this 7th day of January, 2000.

1. DEMISE: In consideration of the rents and all other charges and payments
payable by Tenant, and for the agreements, terms and conditions to be performed
by Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES
HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below (the
"Premises"), upon the agreements, terms and conditions of this Lease for the
Term hereinafter stated.

2. PREMISES: The Premises demised by this Lease are approximately 128,154 square
feet of space in the building at 1144 East Arques Avenue, Sunnyvale, California
as shown on attached Exhibit A being in "as is" condition together with the
outside areas to the extent set forth in paragraph 44 below and parking set
forth in paragraph 45 below. No easement for light or air is incorporated in the
Premises.

The Premises demised by this Lease shall also include the existing Tenant
Improvements on the terms and conditions set forth.

3. TERM: The term of this Lease (the "Term") shall be for a period of 60 months
commencing on May 15, 2000.

4. RENT:

      (a) BASE RENT. Tenant shall pay to Landlord, in advance on the first day
of each calendar month, without further notice or demand and without offset or
deduction, the base monthly rent of $226,833.00.

            (1) The base monthly rent of $226,833.00 for May 15, 2000 - May 31,
2000 shall be pro-rated and be in the amount of $124,392.26.

            (2) The base monthly rental shall be adjusted at the end of each
TWELVE (12) month period within the lease term measured from the first day of
the calendar month containing the commencement date of the lease. The new base
monthly rental shall be determined by adjusting the base monthly rental for the
previous month by a percentage equal to the percentage that the Consumer Price
Index (San Francisco-Oakland-San Jose, All Urban Consumers, All Items
1982-84=100) most recently published by the U.S. Department of Labor, Bureau of
Labor Statistics, prior to the date that the rent adjustment is to be effective
has increased over the same index published twelve (12) months before said most
recently published index.

            If said consumer price index, as now constituted, shall cease to be
compiled and/or published, comparable statistics on the purchasing power of the
consumer dollar as published at the time of said discontinuance by a responsible
financial authority shall be used for making such computation. If the parties
hereto are unable to agree upon suitable substitute statistics, the rental for
the extended portion of the term shall be determined under the rules of the
American Arbitration Association with the arbitrators instructed to set an Index
based on the intent of this clause.

            In no event shall any adjustment of rental be effective to reduce
the base monthly rental below the base monthly rental for the prior month.

      Upon execution of this Lease, Tenant shall pay to Landlord the Security
Deposit in the amount and at the time hereafter set forth.

                                                                               1
<PAGE>   2
     (b)  ADDITIONAL RENT. In addition to the Base Rent, Tenant shall pay to
Landlord, in accordance with this Paragraph 4, Tenant's proportionate share of
the following items related to the Building, the Property, and/or the Outside
Areas (as defined in Paragraph 4 (b)(3))(the "Additional Rent").

          (1)  TAXES AND ASSESSMENTS. All real estate taxes and assessments
applicable to the Term. Real estate taxes and assessments shall include any form
of assessment, license, fee, tax, levy, penalty (if a result of Tenant's
delinquency), or tax (other than net income, estate, succession, inheritance,
transfer or franchise taxes), imposed by any authority having the direct or
indirect power to tax or by any city, county, state or federal government or any
Improvement or other district or division thereof, whether such tax is (i)
determined by the area of the Premises, the Building or the Property, or any
part thereof or the Rent and other sums payable hereunder by Tenant, including,
but not limited to, any gross income or excise tax levied by any of the
foregoing authorities with respect to receipt of Rent or other sums due under
this Lease; (ii) upon any legal or equitable interest of Landlord in the
Premises, the Building or the Property, or any part thereof; (iii) upon this
transaction or any document to which Tenant is a party creating or transferring
any interest in the Premises, the Building or the Property; (iv) levied or
assessed in lieu of, in substitution for, or in addition to, existing or
additional taxes against the Premises, the Building or the Property, whether or
not now customary or within the contemplation of the parties; or (v) surcharge
against the parking area. Tenant and Landlord acknowledge that Proposition 13
was adopted by the voters of the State of California in the June, 1978 election
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such purposes as fire protection, street, sidewalk,
road, utility construction and maintenance, refuse removal and for other
governmental services which may formerly have been provided without charge to
property owners or occupants. It is the intention of the parties that all new
and increased assessments, taxes, fees, levies and charges due to Proposition 13
or any other cause are to be included within the definition of real property
taxes for purposes of this Lease.

          (2)  INSURANCE. All insurance premiums, including premiums for "all
risk", fire and extended coverage (not including earthquake endorsements)
insurance for the Building, public liability insurance, other insurance as
Landlord deems necessary, and any deductibles paid under policies of any such
insurance.

          (3)  OUTSIDE AREAS EXPENSES. All costs to operate, manage, maintain,
repair, supervise, insure (including provision of public liability insurance)
and administer the areas outside of the Building ("Outside Areas"), including
but not limited to watering, fertilizing, landscaping, tree work, spraying,
window washing of exterior window surfaces, plant and tree replacement,
lighting, building alarm system, repair of paving and sidewalks, striping,
clean-up and sweeping.

          (4)  PARKING CHARGES. Any parking charges or other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any governmental
authority or insurer in connection with the use or occupancy of the Building,
the Outside Areas and/or the Property. The charge shall be the smallest amount
required by law.

          (5)  MAINTENANCE AND REPAIR OF BUILDING. All costs to maintain,
repair, and replace the building, including but not limited to the roof
coverings including the metal roofing, the floor slab, and the exterior walls
(including the painting and crack sealing thereof) of the Building, and all
costs to maintain, repair and replace all utility and plumbing systems, fixtures
and equipment located outside the Building. Notwithstanding said provisions, the
cost of any improvement or replacement to the building under this sub-paragraph,
which exceeds $25,000.00 in cost and which has a useful life of more than 5
years, shall be amortized on a straight-line basis together with interest hereon
at the rate of 10% per annum, and only the amortized portion of such cost and
interest shall be included in costs recoverable by Landlord. Also
notwithstanding anything to the contrary, Landlord shall not recover any costs
for repair or replacement incurred in maintaining, repairing or replacing for
structural integrity the load bearing part of the exterior walls (other than for
painting or crack sealing), interior

                                                                               2
<PAGE>   3
structural columns, foundation, and structural components of the roof unless
said repair or replacement was necessitated by acts of Tenant.

          (6)  MANAGEMENT AND ADMINISTRATION.  All costs for management and
administration of the Building and the Property, including a property
management fee, accounting, auditing, billing, postage, employee benefits,
payroll taxes, etc. All such expenses shall be reasonable and in accordance
with good management practices and shall not exceed 2% of annual Base Rent.

     (c)  ALLOCATION OF COSTS.

          (1)  If said real estate taxes and assessments are assessed against
the entire building and building site, each of greater extent than the
"Premises", the taxes and assessments allocated to the leased premises shall be
pro-rated on a square footage or other equitable basis, as calculated by
Landlord, such as the tax assessor's relative valuations. If the assessed
value of the Landlord's premises is increased by the inclusion therein of a
value placed upon the personal property or improvements of the Tenant, and if
the Landlord pays the taxes based on such increased assessment, the Tenant
shall, upon demand, repay to the Landlord the portion of such taxes resulting
from such increase in assessment. In the event the Premises and any improvements
installed therein by Tenant or Landlord are valued by the assessor
disproportionately higher or lower than those of other Tenants in the building
or parcel, Tenant's share of the property taxes shall be readjusted upwards or
downwards accordingly, and Tenant agrees to such readjusted share. Such
determination shall be made by Landlord from the respective valuations assigned
in the assessor's work sheet or such other information as may be reasonably
available. Landlord's reasonable determination thereof, in good faith, shall
be conclusive. Increase in real estate taxes due to reappraisal because of
transfer of Landlord's interest to a third party, shall not be charged to
Tenant under this sub-paragraph (c) (1).

          (2)  Insurance, Outside Areas Expenses, Parking Charges, Maintenance
and repair of building, and management and administration expense shall be
charged to Tenant in proportion to that portion of the total rentable building
area on the site rented by Tenant hereunder. Until further buildings on the
site are completed, Tenant's share shall be calculated as 128,154 square
feet/163,706 square feet or 78.283%.

     (d)  PAYMENT OF ADDITIONAL RENT.

          (1)  By April 15, 2000, Landlord shall submit to Tenant an estimate
of monthly Additional Rent for the period between May 15, 2000 - December 31,
2000 and Tenant shall pay such estimated Additional Rent in advance on a
monthly basis concurrently with the payment of the Base Rent.  Tenant shall
continue to make said monthly payments until notified by Landlord of a change
therein. By March 1 of each calendar year, Landlord shall endeavor to provide
to Tenant a statement showing the actual Additional Rent due to Landlord for
the prior calendar year, prorated from the Commencement Date during the first
year. If the total of the monthly payments of Additional Rent that
Tenant has made for the prior calendar year (or portion thereof during which
this Lease was in effect) is less than the actual Additional Rent chargeable to
Tenant for such prior calendar year, then Tenant shall pay the difference in a
lump sum with thirty (30) days after receipt of such statement from Landlord.
Any overpayment by Tenant of Additional Rent for the prior calendar year shall
be promptly refunded to Tenant no later than April 15.

          (2)  The actual Additional Rent for the prior calendar year shall be
used for purposes of calculating Tenant's monthly payment of estimated
Additional Rent for the current year, subject to adjustment as provided above,
except that in any year in which resurfacing of the parking area, exterior
painting, or material roof repairs are planned, Landlord may include the
estimated cost of such work in the estimated monthly Additional Rent. Landlord
shall make final determination of Additional Rent for the year in which this
Lease terminates as soon as possible after termination. Tenant shall remain
liable for payment of any amount due to Landlord in excess of the estimated
Additional Rent previously paid by Tenant, and, conversely, Landlord shall
promptly return to Tenant any overpayment, even though the Term has expired
and Tenant has

                                                                               3

<PAGE>   4
vacated the Premises. Failure of Landlord to submit statements as called for
herein shall not be deemed a waiver of Tenant's obligation to pay Additional
Rent as herein provided. Tenant shall have the right to review and audit
Landlord's records relating to Additional Rent at Tenant's expense, at
Landlord's business office, provided Tenant has given Landlord reasonable prior
notice.

     (e)  GENERAL PAYMENT TERMS.  The Base Rent, Additional Rent and all other
sums payable by Tenant to Landlord hereunder are referred to as the "Rent". All
Rent shall be paid without deduction, offset or abatement in lawful money of
the United States of America. Rent for any partial month during the Term shall
be prorated for the portion thereof falling due within the Term.

5.   LATE CHARGE:  Notwithstanding any other provision of this Lease, Tenant
hereby acknowledges that late payment to Landlord of Rent, or other amounts
due hereunder will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. If
any Rent or other sums due from Tenant are not received by Landlord or by
Landlord's designated agent within ten (10) days after their due date, then
Tenant shall pay to Landlord a late charge equal to six percent (6%) of such
overdue amount, plus any attorneys' fees incurred by Landlord by reason of
Tenant's failure to pay Rent and/or other charges when due hereunder. Landlord
and Tenant hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of Tenant's late
payment. Landlord's acceptance of such late charges shall not constitute a
waiver of Tenant's default with respect to such overdue amount or estop Landlord
from exercising any of the other rights and remedies granted under this Lease.

          Initials:
                    Landlord ________________    Tenant ________________

5.   SECURITY DEPOSIT:  Tenant shall deposit with Landlord the Security Deposit
in the amount of $226,833.00 as security for the full and faithful performance
of each and every term, covenant and condition of this Lease. $115,000.00 of
said Security Deposit shall be paid with the execution of this Lease and the
balance of $111,833.00 shall be paid by April 14, 2000. Landlord may use,
apply or retain the whole or any part of the Security Deposit as may be
reasonably necessary (a) to remedy Tenant's default in the payment of any Rent,
(b) to repair damage to the Premises caused by Tenant, (c) to clean the
Premises upon termination of this Lease, (d) to reimburse Landlord for the
payment of any amount which Landlord may reasonably spend or be required to
spend by reason of Tenant's default, or (e) to compensate Landlord for any
other loss or damage which Landlord may suffer by reason of Tenant's default.
Should Tenant faithfully and fully comply with all of the terms, covenants and
conditions of this Lease, within thirty days following the expiration of the
Term, the Security Deposit or any balance thereof shall be returned to Tenant
or, at the option of Landlord, to the last assignee of Tenant's interest in
this Lease. When the Security Deposit has been paid in full, Landlord shall
deposit said Security Deposit in a savings account in a bank or savings and loan
institution, and Tenant will be entitled to Interest thereon at the rate
paid by savings institution, payable to Tenant at the termination of the lease.
If Landlord so uses or applies all or any portion of said deposit, within ten
(10) days after written demand therefor Tenant shall deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to the full extent of
the above amount, and Tenant's failure to do so shall be a default under this
Lease. No part of the Security Deposit shall be considered to be held in trust,
to bear interest or another increment for its use, or to be prepayment for any
moneys to be paid by Tenant under this Lease. In the event Landlord transfers
its interest in this Lease, Landlord shall transfer the then remaining amount of
the Security Deposit to Landlord's successor in interest, and thereafter
Landlord shall have no further liability to Tenant with respect to such
Security Deposit.

7.   POSSESSION:

     (a)  TENANT'S RIGHT OF POSSESSION.  Tenant shall be entitled to early
access to the vacant part of the premises on April 15, 2000 for work as
specified in paragraph 48

                                                                               4
<PAGE>   5
below. It is understood that certain subtenants of One World Systems may hold
over and become subtenants of Tenant subject to the terms and conditions of
this lease.

     (b)  DELAY IN DELIVERING POSSESSION. If Landlord cannot deliver possession
of the Premises to Tenant at the commencement of the Term, this Lease shall not
be void or voidable, nor shall Landlord, or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom. Tenant shall not be liable
for Rent until Landlord delivers possession of the Premises to Tenant. The
expiration date of the Term shall be extended by the same number of days that
Tenant's possession of the Premises is delayed. In the event that possession of
the premises cannot be delivered by July 15, 2000, Landlord may at its option
by notice in writing to Tenant within ten days thereafter, cancel this Lease,
in which event the Parties shall be discharged from all obligations hereunder.

     (c)  If the Premises suffer a casualty loss prior to the commencement of
this Lease, such that the Tenant will be denied the use of a material portion
of the Premises, then Tenant shall have the option of terminating this Lease
upon written notice to Landlord.

8.   USE OF PREMISES:

     (a)  PERMITTED USES. The Premises shall be used only for general office,
engineering, research and development, service and repair, and storage of
computer hardware and software products and components, to the extent permitted
by governmental regulations. No printed circuit board manufacture or wafer
fabrication shall be permitted, or any activities involving toxic substances,
except that Tenant shall be permitted to use customary office products and
cleansers and minor quantities of cleaners and solvents in connection with its
business, but as to such cleaners and solvents subject to the prior written
consent of Landlord, which shall not be unreasonably withheld.

     (b)  COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at Tenant's
expense, faithfully observe and comply with all Municipal, State and Federal
statutes, rules, regulations, ordinances, requirements, and orders, now in
force or which may hereafter be in force pertaining to the Premises or Tenant's
use thereof, including without limitation, any statutes, rules, regulations,
ordinances, requirements, or orders requiring installation of fire sprinkler
systems, and removal of asbestos placed on the Premises by Tenant, whether
substantial in cost or otherwise, and all recorded covenants, conditions and
restrictions affecting the Property ("Private Restrictions") now in force or
which may hereafter be in force; provided that no such future Private
Restrictions shall materially affect Tenant's use and enjoyment of the Premises
or Property and provided, however, that Tenant shall not be required to make
structural changes to the Premises or Building not related to Tenant's specific
use of the Premises unless the requirement for such changes is imposed as a
result of any improvements or additions made or proposed to be made at Tenant's
request. The judgement 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 rule, regulation,
ordinance, statute or Private Restrictions, shall be conclusive of that fact as
between Landlord and Tenant.

9.   ACCEPTANCE OF PREMISES: By execution hereof, Tenant accepts the Premises as
suitable for Tenant's intended use and as being in good and sanitary operating
order, condition, and repair, AS IS, and without representation or warranty by
Landlord as to the condition, or use or occupancy which may be made thereof. Any
exceptions in the foregoing must be by written agreement executed by Landlord
and Tenant, and specifically set forth in Addendum One.

10.  SURRENDER: Tenant agrees that on the termination of this Lease, Tenant
shall surrender the premises in the same condition as herein agreed they have
been received by Tenant. Damage caused by war, earthquake and ordinary wear and
tear excepted but with carpets vacuumed and other floors "broom clean." At the
time of termination of this lease, Landlord may require any or all of the
alterations or additions installed by Tenant or by Landlord for the benefit of
Tenant at Tenant's request, to be removed and

                                                                               5
<PAGE>   6
the premises restored to their original condition, whether or not said
alterations or additions have become part of the premises under paragraph 11
hereof. Upon surrender of the premises, either at the expiration of the term of
otherwise, Lessee agrees to remove all personal property and rubbish from the
premises; but if not so removed by Tenant, Landlord may have the same removed
at Tenant's expense. All property of Tenant not so removed, unless such
non-removal is consented to by Landlord, shall be deemed abandoned by Tenant,
provided that in such event Tenant shall remain liable to Landlord for all
costs incurred in storing and disposing of such abandoned property of
Tenant. If the Premises are not surrendered at the end of the term or sooner
termination of this lease, Tenant hereby indemnifies Landlord against loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay. In the event of surrender of this lease, Landlord shall have the
option of terminating all existing sub-leases or of assigning said subleases to
Landlord.

11.  ALTERATIONS AND ADDITIONS:

     (a)  Except for non-structural interior alterations and additions costing
less than $20,000.00 per alteration or addition. Tenant shall not make, or
permit to be made, any alteration or addition to the Premises, or any part
thereof, without the prior written consent of Landlord, such consent not to be
unreasonably withheld. Landlord's failure to disapprove proposed alterations or
additions within 10 working days after Landlord's receipt of the request for
approval, shall be deemed approval. Normal repair and maintenance work shall
not be deemed to be an alteration or addition to the Premises.

     (b)  Any alteration or addition to the Premises (including those in
subparagraph (a)) shall be at Tenant's sole cost and expense, in compliance
with all applicable laws and requirements requested by Landlord, and in
accordance with plans and specifications submitted in writing to Landlord and
approved as to alterations and additions costing over $20,000.00.

     (c)  All additions, alterations or improvements, including, but not
limited to, heating, lighting, electrical, air conditioning, fire
extinguishers, lighting fixtures, ballasts, light globes, and tubes, hot water
heaters, fixed partitioning, drapery, wall covering and paneling, built-in
cabinet work and carpeting installations made by Tenant, together with all
property that has become an integral part of the Building, shall at once be and
become the property of Landlord, and shall not be deemed trade fixtures, but
any or all are subject to removal pursuant to paragraph 10 hereof.
Notwithstanding the foregoing, the following Tenant improvements, if paid for
by Tenant and not included in any Tenant improvements, if paid for by Tenant
and not included in any Tenant Improvement Allowance, namely a warehouse cage
and telecommunication and computer-related equipment, including specialized
flooring, cabling, air conditioning equipment (for the sale purpose of cooling
said computers), may be removed by Tenant so long as Tenant repairs any damage
caused by such removal.

     (d)  Tenant agrees not to proceed to make such alterations or additions,
notwithstanding consent from Landlord to do so, until five (5) days after
Tenant's receipt of such consent.

12.  MAINTENANCE OF PREMISES:

     (A)  MAINTENANCE BY TENANT. Throughout the Term, Tenant shall, at its sole
expense and at all times (whether or not such portion of the Premises requiring
repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Tenant's use, any prior use, the elements, or the age of such portion
of the Premises), (1) keep and maintain in good order, condition, and repair,
and to repair and to replace the Premises, and every part thereof, including
glass, windows, window frames, skylights, door closers, locks, storefronts,
interior and exterior doors and door frames, and the interior of the Premises,
(excepting only those portions of the Building to be maintained by Landlord, as
provided in Paragraph 12(c) below), (2) keep and maintain in good order and
condition, repair, and replace all utility lighting, and plumbing systems,
fixtures and equipment, including without limitation, electricity, gas, fire
sprinkler and stand pipes, fire alarms, smoke detection, HVAC, water, and
sewer, located in or on the Premises, and furnish all

                                                                               6
<PAGE>   7

expendable, including fluorescent tubes, ballasts, light bulbs, paper goods and
soaps, used in the Premises, (3) repair all damage to the Building or the
Outside Areas caused by the negligence or willful misconduct of Tenant or its
agents, employees, contractors or invitees or other persons, including vandals.
Tenant shall not do anything to cause any damage, deterioration or unsightliness
to the Building and the Outside Areas. Tenant also agrees to maintain and pay
for a service contract which meets the manufacturer's recommendations of the air
conditioning, heating and ventilating systems installed in the leased premises
and which is approved by Landlord. Landlord reserves the right to hire a
licensed HVAC contractor to inspect annually the air conditioning, heating, and
ventilating system. If this contractor finds deficiencies in the condition of
this system, Tenant agrees to make all repairs and corrections within a
reasonable period of time at Tenant's expense, and after 30 days notice pay the
cost of the inspections by Landlord's contractor. If no deficiencies are found,
Landlord shall pay for the cost of the inspections.

      (b) LANDLORD'S RIGHT TO MAINTAIN AND REPAIR AT TENANT'S EXPENSE.
Notwithstanding the foregoing, Landlord shall have the right, but not the
obligation, at Tenant's expense, to enter the Premises and perform Tenant's
maintenance, repair and replacement work. Within thirty (30) days after invoice
therefor from Landlord, Tenant shall pay all reasonable costs and expenses
incurred by Landlord in connection with such maintenance, repair and replacement
work. Landlord shall have the right to perform Tenant's maintenance, repair and
replacement work only if Tenant fails to take appropriate remedial action within
ten (10) days after receiving written notice from Landlord specifying the nature
of Tenant's failure to comply with Paragraph 12(a) of the Lease. Notwithstanding
the foregoing, if Tenant's failure to maintain, repair or replace as required by
Paragraph 12(a) of the Lease creates an immediate danger of material further
damage to the Premises, Landlord shall not be required to give the notice to
Tenant set forth in the previous sentence.

      (c) MAINTENANCE BY LANDLORD. Subject to the provisions of Paragraphs
12(a), 22 and 23, and further subject to Tenant's obligation under Paragraph 4
to reimburse Landlord, in the form of Additional Rent, for Tenant's Share of the
cost and expense of the following items, Landlord agrees to repair and maintain
the following items: the roof coverings (provided that Tenant installs no
additional air conditioning or other equipment on the roof that damages the
roof coverings), the floor slab, and the exterior walls (excluding any glass
therein but including the painting thereof) of the Building; the utility and
plumbing systems, (including fountain and sewer lines), fixtures and equipment
located outside the Building; and the parking areas, landscaping, sprinkler
systems, alarm system, sidewalks, driveways, curbs, and lighting systems in the
Outside Areas. Subject to the provisions of Paragraphs 4, 22, and 23, Landlord
shall maintain, repair, or replace for structural integrity the load bearing
part of exterior walls, interior structural columns, the foundation, and the
structural components of the roof (providing that Tenant installs no additional
air conditioning or other equipment on the roof that damages these components).
Landlord shall not be obligated to repair minor settlement cracks on walls or
floor of the leased premises, and shall not be responsible for the leaking of
said walls due thereto or as a result of porosity thereof. Landlord shall not be
required to repair or maintain conditions due to any act, negligence or omission
of Tenant or its agents, contractors, employees or invitees. Landlord's
obligation hereunder to repair and maintain is subject to the condition
precedent that Landlord shall have received written notice of the need for such
repairs and maintenance. Tenant shall promptly report in writing to Landlord any
defective condition known to it which Landlord is required to repair. All work
by and for Landlord shall be performed during normal working hours and not on
weekends, holidays, and after normal working hours at overtime, holiday, or
premium pay.

      (d) TENANT'S WAIVER OF RIGHTS. Tenant hereby expressly waives all rights
to make repairs at the expense of Landlord or to terminate this Lease, as
provided for in California Civil Cod Sections 1941 and 1942, and 1932 (1),
respectively, and any similar or successor statute or law in effect or any
amendment thereof during the Term.

13. LANDLORD'S INSURANCE: Landlord shall purchase and keep in force fire,
extended coverage and "all risk" insurance covering the Building, and earthquake
coverage at the option of the Landlord. Tenant shall, at its sole cost and
expense,

                                                                               7
<PAGE>   8
comply with any and all reasonable requirements pertaining to the Premises of
any insurer necessary for the maintenance of reasonable fire and public
liability insurance, covering Building and appurtenances. Landlord, at Tenant's
cost, may maintain "Loss of Rents" insurance, insuring that the Rent will be
paid in a timely manner to Landlord for a period of at least twelve (12) months
if the Premises are destroyed or rendered unusable or inaccessible by any cause
insured against under this Lease. The premium for such Loss of Rents insurance
shall be Additional Rent as set forth in Paragraph 4(b)(2).

14.  TENANT'S INSURANCE:

     (a) PUBLIC LIABILITY INSURANCE. Tenant shall, at Tenant's expense secure
and keep in force a "broad form" public liability insurance and property damage
policy covering the Premises and the Outside Areas, insuring Tenant, and naming
Landlord and its lenders as additional insureds, against any liability arising
out of the ownership, use, occupancy or maintenance of the Premises and all
Outside Areas. The minimum limit of coverage of such policy shall be in the
amount of not less than One Million Dollars ($1,000,000.00) for injury or death
of one person in any one accident or occurrence and in the amount of not less
than One Million Dollars ($1,000,000.00) for injury or death of more than one
person in any one accident or occurrence, shall include an extended liability
endorsement providing contractual liability coverage (which shall include
coverage for Tenant's indemnification obligations in this Lease), and shall
contain a severability of interest clause or a cross liability endorsement. Such
insurance shall further insure Landlord and Tenant against liability for
property damage of at least One Million Dollars ($1,000,000.00). The limit of
any insurance shall not limit the liability of tenant hereunder. No policy shall
be cancelable or subject to reduction of coverage, without at least thirty (30)
days prior written notice to Landlord, and loss payable clauses shall be subject
to Landlord's approval. Such policies of insurance shall be issued as primary
policies and not contributing with or in excess of coverage that Landlord may
carry, by any insurance company authorized to do business in the State of
California for the issuance of such type of insurance coverage and rate A:XIII
or better in BEST'S KEY RATING GUIDE. A copy of said policy or a certificate
evidencing to Landlord's reasonable satisfaction that such insurance is in
effect shall be delivered to Landlord upon commencement of the Term, and
thereafter whenever said policies are renewed or modified, and also whenever
Landlord shall reasonably request.

     (b)  PERSONAL PROPERTY INSURANCE. Tenant shall maintain in full force and
effect on all of its fixtures and equipment on the Premises, a policy or
policies of fire and extended coverage insurance with standard coverage
endorsement to the extent of the full replacement cost thereof. During the term
of this Lease the proceeds from any such policy or policies of insurance shall
be used for the repair or replacement of the fixtures and equipment so insured.
Landlord shall have no interest in the insurance upon Tenant's equipment and
fixtures and will sign all documents reasonably necessary in connection with the
settlement of any claim or loss by Tenant. Landlord will not carry insurance on
Tenant's possessions. Tenant shall furnish Landlord with a certificate
evidencing to Landlord's reasonable satisfaction that such insurance is
currently in effect, and whenever required, shall satisfy Landlord that such
policy is in full force and effect.

15.  INDEMNIFICATION:

     (a) OF LANDLORD. Tenant shall indemnify and hold harmless Landlord and
agents, employees, partners, shareholders, directors, invitees, and independent
contractors (collectively "Agents") of Landlord against and from any and all
claims, liabilities, judgments, costs, demands, causes of action and expenses
(including, without limitation, reasonable attorneys' fees) arising from (1)
Tenant's use of the Premises or from any activity done, permitted or suffered by
Tenant, its agents, employees or independent contractors in and about the
Premises, the Building or the Property, and (2) any act, neglect, fault, willful
misconduct or omission of Tenant, or Tenant's Agents and invitees or from any
breach or default in the terms of this Lease by Tenant, and (3) any action or
proceeding brought on account of any matter in items (1) or (2). If any action
or proceeding is brought against Landlord by reason of any such claim, upon
notice from Landlord, Tenant shall defend the same at Tenant's expense by
counsel

                                                                               8
<PAGE>   9
reasonably satisfactory to Landlord. As a material part of the consideration to
Landlord, Tenant hereby assumes all risk of damage to property or injury to
persons in or about the Premises from any cause whatsoever (except that which
is caused by the sole active negligence or willful misconduct by Landlord or its
Agents or by the failure of Landlord to observe any of the terms and conditions
of this Lease), if such failure has persisted for an unreasonable period of time
after written notice of such failure, and Tenant hereby waives all claims in
respect thereof against Landlord. The obligations of Tenant under this
Paragraph 15 shall survive any termination of this Lease.

     (b) NO IMPAIRMENT OF INSURANCE. The foregoing indemnity shall not relieve
any insurance carrier of its obligations under any policies required to be
carried by either party pursuant to this Lease, to the extent that such policies
cover the peril or occurrence that results in the claim that is subject to the
foregoing indemnity.

16. SUBROGATION: Subject to the approval of its respective insurance carrier,
Landlord and Tenant hereby mutually waive any claim against the other during
the Term for any injury to person or loss or damage to any of their property
located on or about the Premises, the Building or the Property that is caused
by or results from perils covered by insurance carried by the respective
parties, to the extent of the proceeds of such insurance actually received with
respect to such injury, loss or damage, whether or not due to the negligence of
the other party or its agents. Because the foregoing waivers will preclude the
assignment of any claim by way of subrogation to an insurance company or any
other person, each party now agrees to immediately give to its insurer written
notice of the terms of these mutual waivers. Nothing in this Paragraph 16 shall
relieve a party of liability to the other for failure to carry insurance
required by this Lease.

17. ABANDONMENT: Tenant shall not abandon the Premises at any time during the
Term. In the event of abandonment, the rights and remedies of Tenant and
Landlord shall be determined in accordance with the applicable California
statutes in effect at the time of abandonment.

18. FREE FROM LIENS: Tenant shall keep the Premises and the Property free from
any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant.

19. ADVERTISEMENTS AND SIGNS: Tenant shall not place or permit to be placed in,
upon, or about the Premises or the Property any signs, advertisements or
notices without obtaining Landlord's prior written consent or without complying
with applicable law, and will not conduct, or permit to be conducted, any sale
by auction on the Premises or otherwise on the Property. Tenant shall remove any
sign, advertisement or notice placed on the Premises by Tenant upon the
expiration of the Term or sooner termination of this Lease, and Tenant shall
repair any damage or injury to the Premises or the Property caused thereby, all
at Tenant's expense. If any signs are not removed, or necessary repairs not
made, Landlord shall have the right to remove the signs and repair any damage
or injury to the Premises at Tenant's sole cost and expense.

20. UTILITIES: Tenant shall pay for all water, sewer, gas, heat, light, power,
telephone service and all other materials and services supplied to the
Premises. If Tenant fails to pay for any of the foregoing when due, Landlord
may pay the same and add such amount to the Rent.

It is further understood that certain utility services, including water, and
sewer are not separately metered to the Premises, but also serve other adjoining
premises. Landlord and Tenant agree that Landlord shall submit at regular
billing intervals, when utility bills are received, an allocation of the
monthly charges applicable to each user by area occupied by each. Said allocated
charges shall constitute additional rent. Landlord and Tenant agree that such
allocation shall cease as to any service for which Landlord shall arrange for a
separate meter for the Premises. The allocated costs shall also include the
expense of maintenance, repair and replacement of equipment providing
distribution of said utility services, which shall be charged on the same area
basis.

                                                                               9
<PAGE>   10
21.  ENTRY BY LANDLORD: Tenant shall permit Landlord and its Agents to enter
into and upon the Premises at all reasonable times, upon reasonable notice of no
less than twenty four (24) hours, (except in the case of an emergency, for which
no notice shall be required), and subject to Tenant's reasonable security
arrangements, for the purpose of inspecting the same or showing the Premises to
prospective purchasers, lenders or tenants or to alter, improve, maintain and
repair the Premises as required or permitted of Landlord under the terms hereof,
without any liability to Tenant for any loss of occupation of quiet enjoyment of
the Premises thereby occasioned (except for actual damages resulting from the
negligence or willful misconduct of Landlord or its agents); and Tenant shall
permit Landlord to post notices of non-responsibility and ordinary "for sale" or
"for lease" signs, provided that Landlord may post such "for lease" signs and
exhibit the Premises to prospective tenants only during the six (6) months prior
to termination of this Lease. No such entry shall be construed to be a forcible
or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant
from the Premises.

22.  DESTRUCTION AND DAMAGE:

     (a)  If the Building is damaged by fire or other perils covered by
extended coverage insurance, Landlord shall, at Landlord's option:

          (1)  In the event of total destruction (which shall mean destruction
or damage in excess of twenty-five percent (25%) of the full insurable value
thereof) of the Building, elect either to commence promptly to repair and
restore the Building and prosecute the same diligently to completion, in which
event this lease shall remain in full force and effect; or not to repair or
restore the Building, in which event this Lease shall terminate, Landlord shall
give Tenant written notice of its intention within sixty (60) days after the
occurrence of such destruction. If Landlord elects not to restore the Building,
this Lease shall be deemed to have terminated as of the date of such total
destruction.

          (2)  In the event of a partial destruction (which shall mean
destruction or damage to an extent not exceeding twenty-five percent (25%) of
the full insurable value thereof) of the Building for which Landlord will
receive insurance proceeds sufficient to cover the cost to repair and restore
such partial destruction and, if the damage thereto is such that the Building
may be substantially repaired or restored to its condition existing immediately
prior to such damage or destruction within one hundred eighty (180) days from
the date of such destruction, Landlord shall commence and proceed diligently
with the work of repair and restoration, in which event the Lease shall continue
in full force and effect. If such repair and restoration requires longer than
one hundred eighty (180) days or if the insurance proceeds therefor (plus any
amounts Tenant may elect or is obligated to contribute) are not sufficient to
cover the cost of such repair and restoration, Landlord may elect either to so
repair and restore, in which event the Lease shall continue in full force and
effect, or not to repair or restore, in which event the Lease shall terminate.
In either case, Landlord shall give written notice to Tenant of its intention
within sixty (60) days after the destruction occurs. If Landlord elects not to
restore the Building, this Lease shall be deemed to have terminated as of the
date of such partial destruction.

          (3)  Notwithstanding anything to the contrary contained in this
Paragraph 22, in the event of damage to the Building or the Premises occurring
during the last twelve (12) months of the Term, Landlord may elect to terminate
this Lease by written notice of such election given to Tenant within thirty (30)
days after the damage occurs.

     (b)  If the Building is damaged by any peril not covered by extended
coverage insurance, and the cost to repair such damage exceeds any amount Tenant
may agree to contribute, Landlord may elect either to commence promptly to
repair and restore the Building and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
repair or restore the Building, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the occurrence of such damage. If Landlord elects not to restore the
Building, this Lease shall be deemed to have terminated as of the date on which
Tenant surrenders possession of the Premises to Landlord, except that if the
damage to the Premises materially impairs Tenant's ability to continue its
business

                                                                              10

<PAGE>   11
operations in the Premises, then this Lease shall be deemed to have terminated
as of the date such damage occurred.

     (c) In the event of repair and restoration as herein provided, the monthly
installments of Base Rent shall be abated proportionately in the ratio which
Tenant's use of the Premises is impaired during the period of such repair or
restoration, unless the damage was caused by the negligent or willful acts of
omissions of Tenant, in which event there shall be abatement of Base Rent only
to the extent of rental abatement insurance proceeds received by Landlord.
Tenant shall not be entitled to any compensation or damages for loss of use of
the whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair or restoration.

     (d) If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall repair or restore only those portions of the Building
and Premises which were originally provided at Landlord's expense,
substantially to their condition existing immediately prior to the occurrence
of the damage or destruction; and Tenant shall promptly repair and restore, at
Tenant's expense, Tenant's fixtures, improvements, alterations and additions in
and to the Premises or Building which were not provided at Landlord's expense.

     (e) Tenant hereby waives the provisions of California Civil Code Section
1932(2) and Section 1933(4) which permit termination of a lease upon
destruction of the leased premises, and the provisions of any similar law now
or hereinafter in effect, and the provisions of this Paragraph 22 shall govern
exclusively in case of such destruction.

     (f) Notwithstanding the provisions of Paragraph 22 of the Lease to the
contrary, in the event Landlord elects to repair or restore the Premises and
such repair or restoration is reasonably estimated by Landlord to require more
than one hundred eighty (180) days from the date of destruction, Landlord shall
notify Tenant and Tenant shall have ten (10) days after receipt of such notice
to elect to terminate the Lease by giving written notice of such election to
Landlord. If Tenant so elects to terminate the Lease, such termination shall be
effective as of (i) if Tenant is in possession of the Premises following such
damage or destruction the date Tenant surrenders possession of the Premises to
Landlord following Tenant's election to terminate the Lease or (ii) if Tenant
is unable to occupy the Premises following such damage and destruction, the
date on which the damage or destruction occurred.

23. CONDEMNATION: If twenty-five percent (25%) or more of the Building or the
parking area for the Premises is taken for any public or quasipublic purpose by
any lawful governmental power or authority, by exercise of the right of
appropriation, inverse condemnation, condemnation or eminent domain, or sold to
prevent such taking (each such event being referred to as a "Condemnation"),
Landlord or Tenant may, at its option, terminate this Lease as of the date
title vests in the condemning party. If the Building after any Condemnation and
any repairs by Landlord would be untenantable for the conduct of Tenant's
business operations, Tenant shall have the right to terminate this Lease as of
the date title vests in the condemning party. If either party elects to
terminate this Lease as provided herein, such election shall be made by written
notice to the other party given within thirty (30) days after the nature and
extent of such Condemnation have been finally determined. Tenant shall not
because of such taking assert any claim against Landlord. Landlord shall be
entitled to receive the proceeds of all Condemnation awards (except separate
awards for trade fixtures and relocation expense), and Tenant hereby assigns to
Landlord all of its interest in such awards. If less than twenty-five percent
(25%) of the Building or the parking area is taken, Landlord at its option may
terminate this Lease. If neither Landlord nor Tenant elects to terminate this
Lease to the extent permitted above, Landlord shall promptly proceed to restore
the Premises, to the extent of any Condemnation award received by Landlord, to
substantially their same condition as existed prior to such Condemnation,
allowing for the reasonable effects of such Condemnation, and a proportionate
abatement shall be made to the Base Rent corresponding to the time during
which, and to the portion of the floor area of the Building (adjusted for any
increase thereto resulting from any reconstruction) of which, Tenant is
deprived on account of such Condemnation and restoration. The provisions of
California Code of Civil Procedure Section 1265.130,

                                                                              11

<PAGE>   12
which allows either party to petition the Superior Court to terminate the Lease
in the event of a partial taking of the Premises, and any other applicable law
now or hereinafter enacted, are hereby waived by Landlord and Tenant.

24.   ASSIGNMENT AND SUBLETTING:

      (a) Tenant shall not voluntarily or by operation of law, (1) mortgage,
pledge, hypothecate or encumber this Lease or any interest herein, (2) assign
or transfer this Lease or any interest herein, sublet the Premises or any part
thereof, or any right or privilege appurtenant thereto, or allow any other
person (the employees, agents and Invitees of Tenant excepted) to occupy or use
the Premises, or any portion thereof, without first obtaining the written
consent of Landlord. A change in control of Tenant shall constitute an
assignment requiring Landlord's consent to the transfer, on a cumulative basis,
of more the fifty percent (50%) of the voting control of Tenant shall
constitute a change in control for this purpose. When Tenant requests
Landlord's consent to such assignment or subletting, it shall notify Landlord
in writing of the name and address of the proposed assignee or subtenant and
the nature and character of the business of the proposed assignee or subtenant
and shall provide current financial statements for the proposed assignee or
subtenant prepared in accordance with generally accepted accounting principles.
Tenant shall also provide Landlord with a copy of the proposed sublet or
assignment agreement, including all material terms and conditions thereof.
Landlord shall have the option, to be exercised within thirty (30) days of
receipt of the foregoing, to (1) cancel this Lease as of the commencement date
stated in the proposed sublease or assignment, (2) acquire from Tenant the
interest, or any portion thereof, in this Lease and/or the Premises that Tenant
proposes to assign or sublease, on the same terms and conditions as stated in
the proposed sublet or assignment agreement, (3) consent to the proposed
assignment or sublease, or (4) refuse its consent to the proposed assignment or
sublease, providing that such consent shall not be unreasonably withheld.

      (b) Without otherwise limiting the criteria upon which Landlord may
withhold its consent, Landlord may take into account the reputation and credit
worthiness of the proposed assignee or subtenant, the character of the business
proposed to be conducted in the Premises or portion thereof sought to be
subleased, and the potential impact of the proposed assignment or sublease on
the economic value of the Premises. In any event, Landlord may withhold its
consent to any assignment or sublease, if (1) the actual use proposed to be
conducted in the Premises or portion thereof conflicts with the provisions of
Paragraph 8(a) or (b) above or with any other lease which restricts the use to
which any space in the Building may be put, or (2) the proposed assignment or
sublease requires unreasonable alterations, improvements or additions to the
Premises or portions thereof.

      (c) If Landlord approves an assignment or subletting as herein provided,
Tenant shall pay to Landlord, as Additional Rent, fifty percent (50%) of the
difference, if any, between (1) the Base Rent plus Additional Rent allocable to
that part of the Premises affected by such assignment or sublease pursuant to
the provisions of this Lease, and (2) the rent and any additional rent paid by
the assignee or sublessee to Tenant, after deducting the costs of a real estate
commission, if any, incurred by Tenant in connection with any such assignment
or sublease. If the sublease is "full service" sublease, the costs of providing
full service allocable to the part of the premises being subleased shall be
added to 1) The Base Rent plus Additional rent in determining the difference.
It is agreed that "full service" subleases at a rate of $2.50 per square foot
or lower shall not be subject to any additional payment to Landlord. The
assignment or sublease agreement, as the case may be, after approval by
Landlord, shall not be amended without Landlord's prior written consent, and
shall contain a provision directing the assignee or subtenant to pay the rent
and other sums due thereunder directly to Landlord upon receiving written
notice from Landlord that Tenant is in default under this Lease with respect to
the payment of Rent. Landlord's collection of such rent and other sums shall
not constitute an acceptance by Landlord of attornment by such assignee or
subtenant. A consent to one assignment subletting, occupation or use, and
consent to any assignment or subletting shall in no way relieve Tenant of any
liability under this Lease. Any assignment or subletting without Landlord's
consent shall be void, and shall, at the option of Landlord, constitute a
Default under this Lease.

                                                                              12
<PAGE>   13
     (d)  Tenant shall pay Landlord's reasonable fees, not to exceed Five
Hundred Dollars ($500.00) per transaction, incurred in connection with
Landlord's review and processing of documents regarding any proposed assignment
or sublease.

     (e)  Tenant acknowledges and agrees that the restrictions, conditions and
limitations imposed by this Paragraph 24 on Tenant's ability to assign or
transfer this Lease or any interest therein, to sublet the Premises or any part
thereof, to transfer or assign any right or privilege appurtenant to the
Premises, or to allow any other person to occupy or, use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the
time that the Lease was entered into, and shall be deemed to be reasonable at
the time that Tenant seeks to assign or transfer this Lease or any interest
herein, to sublet the Premises or any part thereof, or transfer or assign any
right or privilege appurtenant to the Premises, or to allow any other person to
occupy or use the Premises or any portion thereof.

25.  TENANT'S DEFAULT: The occurrence of any one of the following events shall
constitute an event of default on the part of Tenant ("Default"):

     (a)  The abandonment of the Premises by Tenant;

     (b)  Failure to pay any installment of Rent or to any other monies due
and payable hereunder, said failure continuing for a period of 10 calendar days
after the same is due;

     (c)  A general assignment by Tenant for the benefit of creditors;

     (d)  The filing of a voluntary petition in bankruptcy by Tenant, the
filing of a voluntary petition for an arrangement, the filing of a petition,
voluntary or involuntary, for reorganization, or the filing of an involuntary
petition by Tenant's creditors, said involuntary petition remaining
undischarged for a period of sixty (60) days;

     (e)  Receivership, attachment, or other judicial seizure of substantially
all of Tenant's assets on the Premises, such attachment or other seizure
remaining undismissed or undischarged for a period of sixty (60) days after the
levy thereof;

     (f)  Failure of Tenant to execute and deliver to Landlord any estoppel
certificate, subordination agreement, or lease amendment within the time
periods and in the manner required by Paragraph 30 or 31 or 40;

     (g)  An assignment or sublease, or attempted assignment or sublease, of
this Lease or the Premises by Tenant contrary to the provision of Paragraph 24,
unless such assignment or sublease is expressly conditioned upon Tenant having
received Landlord's consent thereto;

     (h)  Failure of Tenant to restore the Security Deposit to the amount and
within the time period provided in Paragraph 6 above;

     (i)  Failure in the performance of any of Tenant's covenants, agreements or
obligations hereunder (except those failures specified as events of Default in
other Paragraphs of this Paragraph 25, which shall be governed by such other
Paragraphs), which failure constitutes for ten (10) calendar days after written
notice thereof from Landlord to Tenant provided that, if Tenant has exercised
reasonable diligence to cure such failure and such failure cannot be cured
within such ten (10) day period despite reasonable diligence. Tenant shall not
be in default under this subparagraph unless Tenant fails thereafter diligently
and continuously to prosecute the cure to completion; and

     (j)  Chronic delinquency by Tenant in the payment of Rent, or any other
periodic payments required to be paid by Tenant under this Lease. "Chronic
Delinquency" shall mean failure by Tenant to pay Rent, or any other payments
required to be paid by Tenant under this Lease within (5) calendar days after
written notice thereof for any

                                                                              13
<PAGE>   14
three (3) months (consecutive or nonconsecutive) during any twelve (12) month
period. In the event of a Chronic Delinquency, in addition to Landlord's other
remedies for Default provided in this Lease, at Landlord's option, Landlord
shall have the right to require that Rent be paid by Tenant quarterly, in
advance.

Tenant agrees that any notice given by Landlord pursuant to Paragraph 25(b), (i)
or (j) above shall satisfy the requirements for notice under California Code of
Civil Procedure Section 1161, and Landlord shall not be required to give any
additional notice in order to be entitled to commence an unlawful detainer
proceeding.

26. LANDLORD'S REMEDIES:

     (a) TERMINATION. In the event of any Default by Tenant, then in addition to
any other remedies available to Landlord at law or in equity and under this
Lease, Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such Intention to
terminate. In the event that Landlord shall elect to so terminate this Lease,
then Landlord may recover from Tenant:

          (1) the worth at the time of award of any unpaid Rent and any other
sums due and payable which have been earned at the time of such termination;
plus

          (2) the worth at the time of award of the amount by which the unpaid
Rent and any other sums due and payable which would have been earned after
termination until the time of award exceeds the amount of such rental loss
Tenant proves could have been reasonably avoided; plus

          (3) the worth at the time of award of the amount by which the unpaid
Rent and any other sums due and payable for the balance of the term of this
Lease after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; plus

          (4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom, including, without limitation, any costs or expenses reasonably and
necessarily incurred by Landlord (i) in retaking possession of the Premises;
(ii) in maintaining, repairing, preserving, restoring, replacing, cleaning,
altering or rehabilitating the Premises or any portion thereof, including such
acts for reletting to a new tenant or tenants; (iii) for leasing commissions; or
(iv) for any other costs necessary or appropriate to relet the Premises; plus

          (5) such reasonable attorneys' fees incurred by Landlord as a result
of a Default, and costs in the event suit is filed by Landlord to enforce such
remedy; and plus

          (6) at Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable law.

     As used in subparagraphs (1), (2), and (3) above, the "worth at the time of
award" is computed by allowing interest at an annual rate equal to ten percent
(10%) per annum or the maximum rate permitted by law, whichever is less. Tenant
waives redemption of relief from forfeiture under California Code of Civil
Procedure Sections 1174 and 1179, or under any other present or future law, in
the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any Default of Tenant hereunder.

     (b) CONTINUATION OF LEASE. In the event of any Default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the remedy described in California Civil
Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's
Default and abandonment and recover Rent as it becomes due, provided Tenant has
the right to sublet and assign, subject only to reasonable limitations).

                                                                              14
<PAGE>   15
     (c) RE-ENTRY. In the event of any Default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, in compliance with
applicable law, to re-enter the Premises and remove all persons and property
from the Premises; such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of Tenant.

     (d) RELETTING. in the event of the abandonment of the Premises by Tenant or
in the event that Landlord shall elect to re-enter as provided in Paragraph
26(b) or shall take possession of the Premises pursuant to legal proceeding or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease as provided in Paragraph 26(a), Landlord may from time to
time, without terminating this Lease, relet the Premises or any part thereof for
such term or terms and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable with the right
to make alterations and repairs to the Premises. In the event that Landlord
shall elect to so relet, then rentals received by Landlord from such reletting
shall be applied in the following order: (1) to reasonable attorneys' fees
incurred by Landlord as a result of a Default and costs in the event suit is
filed by Landlord to enforce such remedies; (2) to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; (3) to the
payment of any reasonable costs of such reletting; (4) to the payment of the
costs of any reasonable alterations and repairs to the Premises; (5) to the
payment of Rent due and unpaid hereunder; and (6) the residue, if any, shall be
held by Landlord and applied in payment of future Rent and other sums payable by
Tenant hereunder as the same may become due and payable hereunder. Should that
portion of such rentals received from such reletting during any month, which is
applied to the payment of Rent hereunder, be less than the Rent payable during
the month by Tenant hereunder, then Tenant shall pay such deficiency to
Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any costs and expenses reasonably
and necessarily incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such reletting.

     (e) TERMINATION. No re-entry or taking of possession of the Premises by
Landlord pursuant to his Paragraph 26 shall be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by Landlord
because of any Default by Tenant, Landlord may at any time after such reletting
elect to terminate this Lease for any such Default.

     (f) CUMULATIVE REMEDIES. The remedies herein provided are not exclusive and
Landlord shall have any and all other remedies provided herein or by law or in
equity.

     (g) NO SURRENDER. No act or conduct of Landlord, whether consisting of the
acceptance of the keys to the Premises, or otherwise, shall be deemed to be or
constitute an acceptance of the surrender of the Premises by Tenant prior to the
expiration of the Term, and such acceptance by Landlord or surrender by Tenant
shall only flow from and must be evidenced by a written acknowledgment of
acceptance of surrender signed by Landlord. The surrender of this Lease by
Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects
in writing that such merger takes place, but shall operate as an assignment to
Landlord of any and all existing subleases, or Landlord may, at its option,
elect in writing to treat such surrender as a merger terminating Tenant's estate
under this Lease, and thereupon Landlord may terminate any or all such subleases
by notifying the sublessee of its election so to do within (5) days after such
surrender.

27. ATTORNEY'S FEES: In the event any legal action or proceeding, including
arbitration and declaratory relief, is commenced for the purpose of enforcing
any rights or remedies pursuant to this Lease, the prevailing party shall be
entitled to recover from the non-prevailing party reasonable attorneys' fees, as
well as costs or suit, in said action or proceeding, whether or not such action
is prosecuted to judgment.

28. TAXES: Tenant shall be liable for and shall pay, prior to delinquency, all
taxes levied against personal property and trade or business fixtures of Tenant.
If any alteration, addition or improvement installed by Tenant pursuant to
Paragraph 11, or

                                                                              15
<PAGE>   16
any personal property, trade fixture or other property of Tenant, is assessed
and taxed with the Property, Tenant shall pay such taxes to Landlord within
fifteen (15) days after delivery to Tenant of a statement therefor.

29. EFFECT OF CONVEYANCE: The Term "Landlord" as used in this Lease, means only
the owner for the time being of the Property containing the Building, so that,
in the event of any sale of the Property or the Building, Landlord shall be and
hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder accruing from and after transfer, and it shall be deemed and
construed, without further agreement between the parties and the purchaser at
any such sale, that the purchaser of the Property or the Building has assumed
and agreed to carry out any and all covenants and obligations of Landlord
hereunder.

30. TENANT'S ESTOPPEL CERTIFICATE: From time to time, upon written request of
Landlord, Tenant shall execute, acknowledge and deliver to Landlord or its
designee, a written certificate stating (a) the date this Lease was executed,
the Commencement Date of the Term and the date the Term expires; (b) the date
Tenant entered into occupancy of the Premises; (c) the amount of Rent and the
date to which such Rent has been paid; (d) that this Lease is in full force and
effect and has not been assigned, modified, supplemented or amended in any way
(or, if assigned, modified, supplemented or amended, specifying the date and
terms of any agreement so affecting this Lease); (e) that this Lease represents
the entire agreement between the parties with respect to Tenant's right to use
and occupy the Premises (or specifying such other agreements, if any); (f) that
all obligations under this Lease to be performed by Landlord as of the date of
such certificate have been satisfied (or specifying those as to which Tenant
claims that Landlord has yet to perform); (g) that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been received (or
stating exceptions thereto); (h) to the best of Tenant's knowledge that on such
date there exist no defenses or offsets that Tenant has against the enforcement
of this Lease by Landlord (or stating exceptions thereto; (i) that no Rent or
other sum payable by Tenant hereunder has been paid more than one (1) month in
advance (or stating exceptions thereto); (j) that security has been deposited
with Landlord, stating the amount thereof; and (k) any other matters evidencing
the status of this Lease that may be required either by a lender making a loan
to Landlord to be secured by a deed of trust covering the Premises or by a
purchaser of the Premises. Any such certificate delivered pursuant to this
Paragraph 30 may be relied upon by a prospective purchaser of Landlord's
interest or a mortgagee of Landlord's interest or assignee of any mortgage upon
Landlord's interest in the Premises. If Tenant shall fail to provide such
certificate within ten (10) days of receipt by Tenant of a written request by
Landlord as herein provided, such failure shall, at Landlord's election,
constitute a Default under this Lease, and Tenant shall be deemed to have given
such certificate as above provided without modification and shall be deemed to
have given such certificate as above provided without modification and shall be
deemed to have admitted the accuracy of any information supplied by Landlord to
a prospective purchaser or mortgagee.

31. SUBORDINATION: Landlord shall have the right to cause this Lease to be and
remain subject and subordinate to any and all mortgages, deeds of trust
("Encumbrances") that are now or may hereafter be executed covering the
Premises, or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided only that in the event of the foreclosure of any such mortgage
or deed of trust, so long as Tenant is not in default, the holder thereof
("Holder") shall agree to recognize Tenant's rights under this Lease as long as
Tenant shall pay the Rent and observe and perform all the provisions of this
Lease to be observed and performed by Tenant. Within ten (10) days after
Landlord's written request, Tenant shall execute, acknowledge and deliver any
and all reasonable documents required by Landlord or the Holder to effectuate
such subordination. If Tenant fails to do so, such failure shall constitute a
Default by Tenant under this Lease. Notwithstanding anything to the contrary set
forth in this Paragraph 31, Tenant hereby attorns and agrees to attorn to any
person or entity purchasing or otherwise acquiring the Premises at any sale or
other proceeding or pursuant to the exercise of any other rights, powers or
remedies under such Encumbrance.

                                                                              16
<PAGE>   17
32.   ENVIRONMENTAL COVENANTS:

      (a) As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property, including all of those materials and substances designated
as hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency, the Consumer Product Safety Commissions, the
Food and Drug Administration, the California Water Resources Control Board, the
Regional Water Quality Control Board, San Francisco Bay Region, the California
Air Resources Board, CAL/OSHA Standards Board, Division of Occupational Safety
and Health, the California Department of Food and Agriculture, the California
Department of Health Services, and any federal agencies that have overlapping
jurisdiction with such California agencies, or any other governmental agency
now or hereafter authorized to regulate materials and substances in the
environment. Without limiting the generality of the foregoing, the term
"Hazardous Material" shall include all of those materials and substances
defined as "hazardous materials" or "hazardous waste" in Sections 66680 through
66685 of Title 22 of the California Administrative Code, Division 4, Chapter
30, as the same products, fractions, constituents and sub-constituents of
petroleum or petroleum-related substances, asbestos, and any other materials
requiring remediation now or in the future under federal, state or local
statutes, ordinances, regulations or policies.

      (b) Tenant represents, warrants and covenants (i) that subject to above
paragraph 8a it will use and store in, on or about the Premises, only those
Hazardous Materials that are necessary for Tenant to conduct its business
activities on the Premises, (ii) that, with respect to any such Hazardous
Materials, Tenant shall comply with all applicable federal, state and local
laws, rules, regulations, policies and authorities relating to the storage, use,
disposal or cleanup of Hazardous Materials, including, but not limited to, the
obtaining of proper permits, and (iii) that it will not dispose of any Hazardous
Materials in, on or about the Premises under any circumstances.

       (c) Tenant shall immediately notify Landlord of any inquiry, test,
investigation or enforcement proceeding by or against Tenant, Landlord or the
Premises concerning a Hazardous Material. Tenant acknowledges that Landlord, as
the owner of the Premises, shall have the right to negotiate, defend, approve
and appeal, any action taken or order issued with regard to Hazardous Material
by an applicable governmental authority. Landlord shall immediately notify
Tenant of any inquiry, test, investigation or enforcement proceeding against the
Premises concerning a Hazardous Material on the Premises. Tenant shall pay
Landlord's cost of negotiating, defending or appealing any action or order
issued with regard to Hazardous Material by an applicable governmental authority
if Tenant caused, permitted or suffered such Hazardous Material to come onto the
Premises. Landlord agrees to indemnify, defend and hold Tenant harmless from and
against the cost and expense of any remediation or cleanup work required by any
governmental agency to be performed on the Premises as a result of any Hazardous
Materials existing on the Premises on the date of this Lease.

      (d) If Tenant's storage, use or disposal of any Hazardous Material in, on
or adjacent to the Premises results in any contamination of the Premises, the
soil or surface of groundwater (1) requiring remediation under federal, state
or local statutes, ordinances, regulations, or policies, or (2) at levels which
are unacceptable to Landlord, in Landlord's reasonable judgment, Tenant agrees
to clean up said contamination. Tenant further agrees to indemnify, defend and
hold Landlord harmless from and against any claims, liabilities, suits, causes
of action, costs, expenses or fees, including reasonable attorneys' fees and
costs arising out of or in connection with any remediation, cleanup work,
inquiry or enforcement proceeding in connection therewith, and any Hazardous
Materials currently or hereafter used, stored or disposed of by Tenant or its
agents, employees, contractors or invitees in, on or adjacent to the Premises.

      (e) Notwithstanding any other right of entry granted to Landlord under
this Lease, Landlord shall have the right upon reasonable prior written notice
(except in an

                                                                              17
<PAGE>   18
emergency or in a situation where there is a danger of immediate further
contamination, in which case no prior notice will be required) to enter the
Premises or to have consultants enter the Premises throughout the term of this
Lease for the purpose of (1) determining whether the premises are in conformity
with federal, state and local statues, regulations, ordinances, and policies
including those pertaining to the environmental condition of the Premises, (2)
conducting an environmental audit or investigation of the Premises for purposes
of sale, transfer, conveyance or financing, (3) determining whether Tenant has
complied with this Paragraph 32, and (4) determining the corrective measures, if
any, required of Tenant to ensure the safe use, storage and disposal of
Hazardous Materials, or to remove Hazardous Materials (except to the extent
used, stored or disposed of by Tenant or its agents, employees, contractors or
invitees in compliance with applicable law). Tenant agrees to provide access and
reasonable assistance for such inspections. Such inspections may include, but
are not limited to, entering the Premises or adjacent property with drill rigs
or other machinery for the purpose of obtaining laboratory samples. Landlord
shall not be limited in the number of such inspections during the term of this
Lease. To the extent such inspection disclose the presence of Hazardous
Materials used, stored or disposed of other than in accordance with subparagraph
(b)(ii) above, Tenant shall reimburse Landlord for the reasonable cost of such
inspections within ten (10) days of receipt of a written statement thereof. If
such consultants determine that the Premises are contaminated with Hazardous
Materials used, stored or disposed of by Tenant or its agents, employees,
contractors or invitees, Tenant shall, in a timely manner, at its expense,
remove such Hazardous Materials or otherwise comply with the recommendations of
such consultants to the reasonable satisfaction of Landlord and any applicable
governmental agencies. The right granted to Landlord herein to inspect the
Premises shall not create a duty on Landlord's part to inspect the Premises, or
liability of Landlord for Tenant's use, storage or disposal of Hazardous
Materials, it being understood that Tenant shall be solely responsible for all
liability in connection therewith. Landlord shall be liable for the gross
negligence or willful misconduct of Landlord or its agents, employees or
consultants in conducting the aforementioned inspections.

     (f) Tenant shall surrender the Premises to Landlord upon the expiration or
earlier termination of this Lease free of debris, waste and Hazardous Materials
used, stored or disposed of by Tenant or its agents, employees, contractors or
invitees, and in a condition which complies with all governmental statutes,
ordinances, regulations and policies, recommendations of consultants hired by
Landlord, and such other reasonable requirements as may be imposed by Landlord.

     (g) Tenant's obligations under this Paragraph 32 shall survive termination
of this Lease, and tenant waives the Statute of Limitations, as to Landlord,
applicable to any action brought hereunder.

     (h) Landlord hereby discloses to Tenant that the Premises and the Property
are in an area in which contamination of soils or groundwater by Hazardous
Materials may exist. If Tenant desires more definite information regarding the
existence or possible existence of contamination by Hazardous Materials of soils
or groundwater of or beneath the Premises, the Property, or other real property
in the general area of the Property, then tenant shall investigate such matters.

33.  NOTICES: All notices and demands which may or are to be required or
permitted to be given to either party by the other hereunder shall be in writing
and shall be sent by United States mail, postage prepaid, certified, or by
personal delivery or overnight courier, addressed to the addressee at the
address for such addressee as specified herein, or to such other place as such
party may from time to time designate in a notice to the other party given as
provided herein. Notice shall be deemed given upon the earlier of actual receipt
or the date on which delivery was attempted if Tenant refuses to receive.

34.  WAIVER: The waiver of any breach of any term, covenant or condition of this
Lease shall not be deemed to be a waiver of such term, covenant or condition or
any subsequent breach of the same or any other term, covenant or condition
herein contained. The subsequent acceptance of Rent by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant, other than the failure
of Tenant to pay the

                                                                              18

<PAGE>   19
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent. No delay or omission in
the exercise of any right or remedy of Landlord on any Default by Tenant shall
impair such a right or remedy or be construed as a waiver. Any waiver by
landlord of any Default must be in writing and shall not be a waiver of any
other Default concerning the same or any other provisions of this Lease.

24.  HOLDING OVER: Any holding over after the expiration of the Term, without
the express written consent of Landlord, shall constitute a Default and,
without limiting Landlord's remedies provided in this Lease, such holding over
shall be construed to be a tenancy at sufferance, at a rental rate of one
hundred twenty percent (120%) of the Base Rent last due in this Lease, plus
Additional Rent, and shall otherwise be on the terms and conditions herein
specified, so far as applicable.

36.  SUCCESSORS AND ASSIGNS: The terms, covenants and conditions of this Lease
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto. If
Tenant shall consist of more than one entity or person, the obligations of
Tenant under this Lease shall be joint and several.

37.  TIME: Time is of the essence of this Lease and each and every term,
condition and provision herein.

38.  BROKERS: Landlord represents and warrants to Tenant that neither it nor
its officers or agents nor anyone acting on its behalf has dealt with any real
estate broker and Tenant represents to Landlord that it nor its officers or
agents nor anyone acting on its behalf has dealt with any real estate broker on
this transaction. Each party agrees to indemnify and hold harmless the other
from any claim or claims, and costs and expenses, including attorney's fees,
incurred by the indemnified party in conjunction with any such claim or claims
of any broker or brokers to a commission in connection with this Lease as a
result of the actions of the indemnifying party.

39.  RULES AND REGULATIONS: Tenant agrees to comply with such reasonable rules
and regulations as Landlord may adopt from time to time for the orderly and
proper operating of the Building and parking and other common areas. Such rules
may include but shall not be limited to the following: (a) restriction of
employee parking to a limited, designated area or areas; and (b) regulation of
the removal, storage and disposal of Tenant's refuse and other rubbish at the
sole cost and expense of Tenant. The rules and regulations shall be binding
upon Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the failure of any other person to observe and abide
by any of said rules and regulations.

40.  MORTGAGE PROTECTION:

     (a) MODIFICATIONS FOR LENDER. If, in connection with obtaining financing
for the Premises or any portion thereof, Landlord's lender shall request
reasonable modifications to this Lease as a condition to such financing. Tenant
shall not unreasonably withhold, delay or defer its consent to such
modifications, provided such modifications do not materially adversely affect
Tenant's rights or increase Tenant's obligations under this Lease.

     (b) RIGHTS TO CURE. Tenant agrees to give any trust deed or mortgage
holder ("Holder") by registered mail, at the same time as it is given to
Landlord, a copy of any notice of default given to Landlord, provided that
prior to such notice Tenant has been notified, in writing, (by way of notice of
assignment of rents and leases, or otherwise) of the address of such Holder.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this Lease, then the Holder shall have an
additional twenty (20) days after expiration of such period, or after receipt
of such notice from Tenant (if such notice to the Holder is required by this
Paragraph 42(b)), whichever shall last occur, within which to cure such default
or if such default cannot be cured within that time, then such additional time
as may be necessary if within such twenty (20) days any Holder has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of

                                                                              19
<PAGE>   20
foreclosure proceedings, if necessary to effect such cure), in which event this
Lease shall not be terminated.

41. ENTIRE AGREEMENT: This Lease, including the Exhibits and any Addenda
attached hereto, which are hereby incorporated herein by this reference,
contains the entire agreement of the parties hereto, and no representations,
inducements, promises or agreements, oral or otherwise, between the parties,
not embodied herein or therein, shall be of any force and effect.

42. CONSTRUCTION: This Lease shall be construed and interpreted in accordance
with the laws of the State of California. The parties acknowledge and agree
that not rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall be employed in the interpretation of
this Lease, including the Exhibits and any Addenda attached hereto. All
captions in this Lease are for reference only and shall not be used in the
interpretation of this Lease. Whenever required by the context of this Lease,
the singular shall include the plural, the masculine shall include the
feminine, and vice versa. If any provision of this Lease shall be determined to
be illegal or unenforceable, such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full
force and effect.

43. REPRESENTATIONS AND WARRANTIES OF TENANT: Tenant hereby makes the following
representations and warranties, each of which is material and being relied upon
by Landlord, is true in all respects as of the date of this Lease, and shall
survive the expiration or termination of the Lease.

     (a) If Tenant is an entity, Tenant is duly organized, validly existing and
in good standing under the laws of the state of its organization and the
persons executing this Lease on behalf of Tenant have the full right and
authority to execute this Lease on behalf of Tenant and to bind Tenant without
the consent or approval of any other person or entity. Tenant has full power,
capacity, authority and legal right to execute and deliver this Lease and to
perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Tenant, enforceable in accordance with its terms.

     (b) Tenant has not (1) made a general assignment for the benefit of
creditors, (2) filed any voluntary petition in bankruptcy or suffered the
filing of an involuntary petition by any creditors, (3) suffered the
appointment of a receiver to take possession of all of substantially all of its
assets, (4) suffered the attachment or other judicial seizure of all or
substantially all of its assets, (5) admitted in writing its ability to pay its
debts as they come due, or (6) made an offer of settlement, extension or
composition to its creditors generally.

Landlord and tenant have executed and delivered this Lease as of the date first
hereinabove set forth.

44. OUTSIDE AREAS:

     (a) Subject to the terms and conditions of this lease and such rules and
regulations as Landlord may from time to time prescribe, Tenant and Tenant's
employees, invitees, guests and customers shall have the nonexclusive right to
use the access roads, parking areas, and facilities provided and designated by
Landlord for the general use and convenience of the occupants of the building in
which the premises are located, which areas and facilities are referred to
herein as "Outside Area". This right shall terminate upon the termination of
this Lease. Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of "Outside Area:, and in painting
of exterior walls, Landlord further reserves the right to promulgate such
reasonable rules and regulations relating to the use of the "Outside Area", and
any part or parts thereof, as Landlord may deem appropriate for the best
interests of the occupants of the building. The rules and regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall
abide by them and cooperate in their observance. Such rules and regulations may
be amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Tenant
agrees to require its employees, executives,

                                                                              20
<PAGE>   21
invitees, guests and customers to abide by such rules and regulations including
parking regulations.

     (b)  Landlord shall operate, manage and maintain the "Outside Areas", and
landscaping and the surface of the exterior walls. The manner in which the
"Outside Area" shall be maintained and the expenditures for such maintenance
shall be at the discretion of Lessor.

     (c)  No materials, supplies, equipment, finished products or semi-
finished products, raw materials or articles of any nature shall be stored upon
or permitted to remain on any portion of the leased premises outside of the
building constructed thereon, except with the prior written consent of the
Landlord. No waste materials or refuse shall be dumped upon or permitted to
remain unreasonable upon any part of the leased premises outside of building
proper, unless approved by Landlord.

     (d)  Tenant shall not use solid hard tires on any fork lifts or dollies on
paved parking, truck loading or driveway areas, and in the event Tenant
violates this provision, Tenant shall be responsible for the cost of
resurfacing the entire area.

45.  PARKING: Motor vehicle parking shall be non-exclusive, subject to
reallocation by Landlord from time to time. Landlord reserves the right to
designate from time to time the parking spaces for vehicles of Tenant and its
guests and invitees. Said spaces shall total 474. The designation of 474 spaces
is shown on attached Exhibit B. Tenant agrees that Landlord shall have no
responsibility for policing these parking spaces or seeing that they are used
exclusively by Tenant's employees, guests, or invitees. Tenant shall not at any
time park or permit the parking of Tenant's trucks or other vehicles, or the
trucks or other vehicles of others in driveways or adjacent to loading areas as
to interfere in any way with the use of such areas, nor shall Tenant at any time
park or permit the parking of Tenant vehicles or trucks, or the vehicles or
trucks of Tenant's suppliers or invitees in any portion of the "Parking Area"
not designated by Landlord for such use by Tenant. Tenant shall not park or
permit to be parked inoperative vehicles or equipment on any portion of the
"Outside Area" and agrees that no vehicle will be parked on the "Outside Area"
for longer than sixty-six (66) hours in any seventy-two (72) hour period.

46.  CALCULATION OF AREA:

The square footage of the leased premises (approximately 128,154 square feet as
set forth in Paragraph 2) has been calculated in this manner; the area of the
leased building, measured from the outer extent (drip line) of metal and
built-up roofed areas, or the outer walls. The Premises shall be deemed for all
purposes and agreed to consist of 128,154 square feet.

47.  INTEREST OF PAST-DUE OBLIGATIONS: Any monetary payment due Landlord
hereunder, other than late charges, not received by Landlord within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 10% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 5.

48.  EARLY ACCESS AND REFURBISHMENT ALLOWANCE:

     (a) The Tenant accepts the premises in "as is" condition with the
following work to be performed by the Landlord at its cost:

          (1)  a new roof to replace the existing roof shall be installed
during the period April 15 - May 14, 2000

          (2)  the work on the roof-top HVAC equipment shown in Exhibit C shall
be completed prior to May 14, 2000.

     (b)  Landlord represents to Tenant that to the best of Landlord's
recollection, it has not received notice from any governmental agency regarding
code deficiencies in the premises. Landlord makes no representation with regard
to code conformance and

                                                                              21

<PAGE>   22
advises Tenant to thoroughly Inspect the premises and satisfy itself prior to
executing this lease.

     (c)  The vacant parts of the premises shall be accessible to Tenant
without the payment of rent under this Lease for the period April 15 - May 14,
2000, for the purposes of refurbishment and moving in. Landlord shall provide
an allowance for refurbishment of up to $200,000.00, which shall be reimbursed
to Tenant by Landlord within thirty days of receipt of paid invoices evidencing
such work. Refurbishment shall include repainting, recarpeting, alterations
approved by Landlord, governmental code conformance, and other similar work but
not any costs of procuring, constructing, or installing in the Premises any of
Tenant's personal property or trade fixtures. All of said refurbishment work
entitled to reimbursement of Tenant by Landlord must be completed by December
1, 2000, and Tenant shall forfeit any right to reimbursement as of February 1,
2001. No adjustment in rent or other terms of this Lease shall be made if the
full amount of the $200,000.00 refurbishment allowance is not reimbursed to
Tenant by February 1, 2001.

     (d)  Notwithstanding anything to the contrary above, rent for the period
April 15 - May 14, 2000 shall be paid to Landlord by Tenant for the space in
the premises currently occupied by Tenant under a sub-lease. Said rent shall be
at the same rate currently paid by Tenant less the mutually agreed upon cost of
any services deleted by Landlord.

Landlord and Tenant have executed and delivered this Lease as of the date first
hereinabove set forth.

LANDLORD                           TENANT

Herman Christensen, Jr.            MMC Networks, Inc.
and Raymond P. Christensen

/s/ HERMAN CHRISTENSEN            by: /s/ Douglas C. Spreng
------------------------------       -----------------------------------
Herman Christensen, Jr.

/s/ RAYMOND P. CHRISTENSEN        Printed
------------------------------       Name:   /s/ DOUGLAS C. SPRENG
Raymond P. Christensen                    ------------------------------

by: Herman Christensen              Title:        President & CEO
his attorney-in-fact                      ------------------------------

801 American Street
San Carlos, CA 94070-4174          By: /s/ Sena Reddy
                                      ----------------------------------

                                  Printed
                                     Name:   SENA REDDY
                                          ------------------------------

                                   Title: Executive V.P., Operations
                                         -------------------------------

                                                                              22
<PAGE>   23
                                                                      EXHIBIT 13

                                      MAP

                               CENTRAL EXPRESSWAY

                                    PHASE II

<PAGE>   24
                                                                       EXHIBIT A

                                      MAP

                               CENTRAL EXPRESSWAY

                                    PHASE II

<PAGE>   25
                                                                       EXHIBIT B

                                    [CHART]

<PAGE>   26
                                                                      EXHIBIT C

                [LETTERHEAD OF PENINSULA AIR CONDITIONING, INC.]

November 18, 1999

Herman Christensen
HERMAN CHRISTENSEN AND SONS
801 American Street
San Carlos, CA 94070

RE:  1144 East Arques
     Sunnyvale, Ca.

Dear Herman:

We have inspected the rooftop equipment at the above mentioned address and
found the equipment to be in good condition. The equipment is fifteen years old
and with good maintenance should have a five to ten year life expectancy.

We did find a couple of items that need attention:

Item #1: Condenser and evaporator coils should be cleaned on all A/C units.

Item #2: The first stage compressor in A/C unit #1 is noisy and needs to be
         checked out, additionally the evaporator coil was observed to be iced
         up and needs to be checked out.

Item #3: A/C unit #5 is discharging condensate water directly onto the roof, a
         drainpipe needs to be installed.

Item #4: Some of the rooftop A/C units have broken grease seals on the supply
         and relief fan bearings and need to be replaced.

If you have any questions, please give me a call.

Sincerely,

PENINSULA AIR CONDITIONING, INC.

/s/ ERNST HAEMMERLING
----------------------------
Ernst Haemmerling
President

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