Document:

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                                                                   Exhibit 10.21

Loan No. 950114107

                           LOAN AND SECURITY AGREEMENT

          THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of
March 30, 2001 by and between FREMONT INVESTMENT & LOAN, a California industrial
loan association ("Lender"), and ZHONE TECHNOLOGIES CAMPUS, LLC, a California
limited liability company ("Borrower"), with respect to the following Recitals:

                                    RECITALS

          A.   Borrower is the owner of that certain real property described on
Exhibit A attached hereto (the "Property"), together with the improvements now
or hereafter located thereon (the "Improvements").

          B.   Borrower desires to borrow from Lender, and Lender is willing to
loan to Borrower, the maximum principal amount of Thirty-Five Million Dollars
($35,000,000) for the purposes and upon the terms set forth herein.

          NOW THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE 1

                               GENERAL DEFINITIONS

          When used herein, the following initially-capitalized terms shall have
          the following meanings:

          "Affiliate" means, with respect to any Person, any other Person which
controls, is controlled by, or is under common control with the Person in
question. For the purposes of the foregoing definition, "controls" (and its
correlative terms "controlled by" and "under common control with") means
possession by the applicable Person of the power to direct or cause the
direction of the management and policies thereof, whether through the ownership
of voting securities, by contract, or otherwise.

          "Agreement" means this Loan and Security Agreement, together with all
supplements, amendments and modifications hereto and all extensions and renewals
hereof.

          "Application Information" means all financial information and
statements and other information submitted to Lender in connection with the
application for the Loan, including, without limitation, information relating to
the tenants, leases and rent payment history and the information set forth on
the Borrower Questionnaire delivered to Lender.

          "Assignment of Rents" means that certain Assignment of Rents and
Leases of even date herewith executed by Borrower, as assignor, in favor of
Lender, as assignee, to be recorded on the Closing Date in the Official Records
of the County in which the Project is situated.

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          "Attorneys' Fees," "Attorneys' Fees and Costs," "attorneys' fees" and
"attorneys' fees and costs" mean the fees and expenses of counsel to the
applicable parties to the Loan Documents, which may include printing,
photostating, duplicating, facsimilating, messengering, filing and other
expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and expenses
incurred with respect to appeals, arbitrations, bankruptcy proceedings and any
post-judgment proceedings to collect any judgment, and whether or not any action
or proceeding is brought with respect to the matter for which such fees and
expenses were incurred. The recovery of post-judgment fees, costs and expenses
is separate and several and shall survive the merger of the applicable Loan
Documents into any judgment.

          "Average Loss" is defined in Section 7.6(F).

          "Bankruptcy Code" means Title 11 of the U.S. Code, as applicable, or
any similar federal or state laws for the relief of debtors, each as hereafter
amended.

          "Building 1" means that certain 31,289 net rentable square foot,
single-story office building located on the Property completed in August, 2000.

          "Building 2" means that certain 61,846 net rentable square foot,
two-story office building located on the Property completed in November, 2000.

          "Building 3" means that certain 91,167 net rentable square foot office
building currently under construction on the Property.

          "Business Day" means any day other than a Saturday, a Sunday, a legal
holiday under the laws of the State of California or a day on which commercial
banks in such state are authorized or required by law or other governmental
action to be closed.

          "Closing Date" means the date of the closing of the Loan and the
recordation of the Deed of Trust in the Official Records of the County in which
the Project is situated, but in no event later than the Termination Date.

          "Commitment Letter" means the Commitment Letter dated March 22, 2001
issued by Lender in connection with the Loan.

          "Completion Guarantor" means Zhone Technologies, Inc., a Delaware
corporation.

          "Completion Schedule" means a monthly construction disbursement
schedule which shall be completed by the construction manager and approved by
Lender detailing monthly disbursement from the construction budget on a line
item basis, which Completion Schedule shall provide for a total budget for
completion of the Work of not less than Nine Million Six Hundred Thousand
Dollars ($9,600,000). The Completion Schedule is comprised of two components:
(a) a cash flow schedule (the "Cash Flow Schedule"); and (b) a schedule for
completion of the Borrower's construction obligations relating to the Work (the
"Construction Obligations Schedule"). A copy of the Completion Schedule is
attached hereto as Exhibit C.

          "Contractor" means SRM Associates or other general contractor approved
by Lender.

          "Contractual Obligation" as applied to any Person means any provision
of any instrument, document or security issued by that Person or of any
indenture, mortgage, deed of trust, contract,

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undertaking, agreement or other instrument to which that Person is a party or by
which any of its properties is bound or to which it or any of its properties is
subject.

          "Deed of Trust" means that certain Deed of Trust and Fixture Filing of
even date herewith executed by Borrower, as trustor, to Fremont General Credit
Corporation, as trustee, and naming Lender, as beneficiary, to be recorded on
the Closing Date in the Official Records of the County in which the Project is
situated.

          "Default Interest Rate" is defined in the Note.

          "EBITDA" means the sum, determined in accordance with generally
accepted accounting principles consistently applied, as reflected in
consolidated financial statements, of the following:

          (a)  the net income (or net loss) of Zhone Technologies, Inc.;

          (b)  all amounts treated as expenses for real estate depreciation,
               interest expense and the amortization of intangibles of any kind
               to the extent included in the determination of such net income
               (or loss); and

          (c)  all accrued income taxes to the extent included in the
               determination of such net income (or loss);

provided, however, that net income (or loss) shall be computed for these
purposes without giving effect to extraordinary losses or extraordinary gains,
and provided, further, that each of the above shall be to the extent reported on
the financial statements of Zhone Technologies, Inc. submitted to Lender in
accordance with the Loan Documents.

          "Environmental Indemnity" means that certain Environmental Indemnity
of even date herewith executed by Borrower and the other parties named therein,
if any.

          "Environmental Laws" means any and all present and future federal,
state and local laws, ordinances, regulations, policies and any other
requirements of any Governmental Agency relating to health, safety, the
environment or to any Hazardous Substances, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), the Resource Conservation Recovery Act (RCRA), the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Endangered Species Act,
the Clean Water Act, the Occupational Safety and Health Act, the California
Environmental Quality Act and the applicable provisions of the California Health
and Safety Code, California Labor Code and the California Water Code, each as
hereafter amended from time to time, and the present and future rules,
regulations and guidance documents promulgated under any of the foregoing.

          "Event of Default" means any of the events specified in Section 8.1.

          "Formation Documents" means (a) as to any corporation, its articles of
incorporation and bylaws, (b) as to any limited partnership, its Certificate of
Limited Partnership and partnership agreement, (c) as to any general partnership
or joint venture, its Statement of Partnership and partnership agreement, (d) as
to any limited liability company, its articles or certificate of organization
and operating agreement, and (e) as to any trust, its trust agreement and a
certification of the current trustees thereof, each of the foregoing together
with all supplements, amendments and modifications.

          "General Partner" or "general partner" means the general partners of
the partnership in question, together with any constituent general partners of
such general partners.

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          "Governmental Agency" means any federal, state, municipal or other
governmental or quasi-governmental court, agency, authority or district.

          "Hazardous Substances" means (a) any chemical, compound, material,
mixture or substance that is now or hereafter defined or listed in, or otherwise
classified pursuant to, any Environmental Laws as a "hazardous substance",
"hazardous material", "hazardous waste", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "infectious waste", "biohazardous waste",
"toxic substance", "pollutant", "toxic pollutant", "contaminant" as well as any
formulation not mentioned herein intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "EP
toxicity", or'TCLP toxicity";
(b) petroleum, natural gas, natural gas liquids, liquefied natural gas,
synthetic gas usable for fuel (or mixtures of natural gas and such synthetic
gas) and ash produced by a resource recovery facility utilizing a municipal
solid waste stream, and drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, natural
gas, or geothermal resources;
(c) "hazardous substance" as defined in Section 25281(f) of the California
Health and Safety Code;
(d) "waste" as defined in Section 13050(d) of the California Water Code; (e)
asbestos in any form; (f) urea formaldehyde foam insulation; (g) polychlorinated
biphenyis (PCBs); (h) radon; and (i) any other chemical, material, or substance
exposure to which is limited or regulated by any Governmental Agency because of
its quantity, concentration, or physical or chemical characteristics, or which
poses a significant present or potential hazard to human health or safety or to
the environment if released into the workplace or the environment. "Hazardous
Substances" shall not include ordinary office supplies and repair, maintenance
and cleaning supplies maintained in reasonable and necessary quantities and used
in accordance with all Environmental Laws.

          "Indemnitees" means, collectively and individually, Lender, its
Affiliates and its and their directors, officers, agents, employees, successors
and assigns.

          "Laws" means all federal, state, county, municipal and other
governmental and quasi-governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting either the Project or
the occupancy, operation, ownership or use thereof, whether now or hereafter
enacted and in force including, without limitation, the Americans With
Disabilities Act, 42 U.S.C. (S)(S) 12101-12213 (1991) and all Environmental
Laws, any zoning or other land use entitlements and any requirements which may
require repairs, modifications or alterations in or to the Project, all Permits
and all covenants, agreements, restrictions and encumbrances running in favor of
any Person, contained in any instruments, either of record or known to Borrower,
at any time in force affecting the Project or the occupancy, operation,
ownership or use thereof.

          "Leases" is defined in the Assignment of Rents.

          "Lien" means any mortgage, deed of trust, pledge, security interest,
 encumbrance, lien, charge or claim of any kind (including any agreement to give
 any of the foregoing, any conditional sale or other title retention agreement,
 any lease in the nature thereof, and/or the filing of or agreement to give any
 financing statement under the Uniform Commercial Code of any jurisdiction) with
 respect to the Project or the Personal Property or any portion thereof or
 interest therein.

          "Loan" means the loan to Borrower as more particularly described in
Section 2.1.

          "Loan Amount" means Thirty-Five Million Dollars ($35,000,000).

          "Loan Documents" means the documents described in Section 3.1, and all
other documents securing, or executed in connection with, the Loan, together
with all renewals, substitutions, extensions, modifications or replacements
thereof, but excluding the Environmental Indemnity.

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     "Loan Fee" means a fee in the amount of one percent (1%) of the Loan
Amount.

     "Loan Year" shall mean the twelve (12) month period commencing on the first
day of the month following the Closing Date and each twelve (12) months
thereafter.

     "Major Lease" means a Lease of ten percent (10%) or more of the net
rentable square feet of space in the Project.

     "Master Lease" means a lease with Zhone Technologies, Inc., a Delaware
corporation, which (a) is in form and contains terms acceptable to Lender, (b)
has an initial term of at least ten (10) years (excluding any extension rights
or options), (c) has an effective annual rental rate (net of all concessions,
credits and other inducements including tenant improvement allowances) net, as
determined by Lender, of not less than Thirty Dollars and Sixty Cents ($30.60)
per net rentable square foot of space, (d) covers not less than the entire
square footage of the Project, (e) does not contain any extension rights in
favor of the tenant thereunder, except as approved by Lender, and (f) provides
that all construction work for the Project shall be completed in accordance with
the Completion Schedule.

     "Material Lease Provisions" is defined in Section 7.4(E).

     "Maturity Date" means the date set forth in the Note upon which the entire
principal amount of the Loan, together with all other amounts owing to Lender
under the Loan Documents, shall be due and payable.

     "Minimum Rent Loss Coverage" means Five Million Three Hundred Fifty
Thousand Dollars ($5,350,000).

     "Net Rentable Square Feet" and "net rentable square feet" shall be
calculated in accordance with the method of measuring net rentable area as
described in the Standard Method for Measuring Floor Area in Office Buildings,
ANSI Z65.1-1996, as promulgated by the Building Owners and Managers Association
(BOMA) International.

     "Note" means that certain Secured Promissory Note of even date herewith in
the principal amount of Thirty-Five Million Dollars ($35,000,000) executed by
Borrower, as maker, in favor of Lender, as holder, and any and all
modifications, extensions, renewals and replacements thereof.

     "Outside Completion Date" means December 31, 2001.

     "Outside Completion Date Requirements" means with respect to the Cash Flow
Schedule portion of the Completion Schedule, the completion of the following
matters by the Outside Completion Date, to the sole satisfaction of Lender: (a)
unconditional final lien releases from all contractors and subcontractors; (b)
proof of payment of all soft costs; (c) certifications of completion of the Work
from the architect and engineer; and (d) final reports from the applicable
testing consultants for the Project.

     "Permits" means all permits, licenses, franchises, approvals, variances and
land use entitlements necessary for the occupancy, operation, ownership and use
of the Project.

     "Person" means and includes natural persons, corporations, limited
liability companies, limited liability partnerships, limited partnerships,
general partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts, real
estate investment trusts or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions thereof.

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     "Personal Property" means all personal property in which Borrower now or
hereafter owns or acquires any interest or right and which is now or hereafter
located on and used or useful in the development, operation, ownership,
occupancy, use, maintenance, repairer restoration of the Project or any portion
thereof, together with all present and future attachments, accessions,
replacements, substitutions and additions thereto or therefor but excluding any
of Debtor's furniture or equipment which is not used or useful in the
development, operation, ownership, maintenance, repair or restoration of the
Project, and together with all insurance proceeds from any policy of insurance
covering any of the foregoing property now or hereafter acquired by Borrower.
"Personal Property" shall include, without limitation, the personal property
described in Exhibit B attached hereto and any leased personal property.

     "Potential Default" means a condition or event which, with the giving of
notice or passage of time, or both, would constitute an Event of Default under
any of the Loan Documents.

     "Principals" means individually and collectively Borrower, its general
partners, managing members and major shareholders, as applicable, and each of
such parties' constituent general partners, managing members and major
shareholders, as applicable.

     "Probable Maximum Loss" is defined in Section 7.6(F).

     "Project" means the Property and the Improvements, but excluding any
Improvements to be built on the Release Lot.

     "Project Documents" means (a) all agreements now or hereafter in effect
with any contractor, architect or engineer, including, without limitation, any
design architect, landscape architect, civil engineer, electrical engineer,
environmental engineer, soils engineer or mechanical engineer, in connection
with the Project; (b) all other agreements now or hereafter in effect with any
property manager or broker with respect to the management, leasing, or operation
of the Project; (c) all as-built plans and specifications and surveys for the
Project; (d) all Permits; and (e) all renewals, substitutions, extensions,
modifications or replacements of any of the foregoing.

     "Release Lot" means the Phase 3 Property described in Section 7.16 below,
consisting of approximately 3.625 acres, which is a portion of the Property
constituting a separate lawfully created parcel in accordance with applicable
law, which may be released from the lien of the Deed of Trust in accordance with
Section 2.6 below.

     "Replacement Cost" is defined in Section 7.6(F).

     "Related Parties" means Borrower, Principals, any Affiliate of Borrower or
Principals, any partnership of which Borrower or any Principal is a general
partner, and any limited liability company of which Borrower or any Principal is
a manager or managing member.

     "Scheduled Completion Date" means the September 30, 2001.

     "Scheduled Completion Date Requirements" means completion of Building 3 to
the requirements of the Construction Obligations Schedule portion of the
Completion Schedule by the Scheduled Completion Date and completion of the
following matters for Buildings 1 and 2 by the Scheduled Completion Date to the
sole satisfaction of Lender: (a) certificates of occupancy; (b) recorded Notice
of Completion; and (c) unconditional final lien releases.

     "Secured Obligations" is defined in the Deed of Trust.

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     "Seismic Principal Payment" is defined in Section 7.6(F).

     "Seismic Review" is defined in Section 7.6(F).

     "Tax Identification Number" means Borrower's employer identification number
or social security number, which is 94-3393000.

     "Termination Date" means April 16, 2001.

     "Title Company" means the title insurance company selected by Borrower and
approved by Lender in Lender's sole discretion to provide the Title Policy.

     "Title Policy" means an American Land Title Association Extended Coverage
Policy of Title Insurance (1970 version, amended 10/17/70 only), insuring Lender
that on the Closing Date Borrower owns fee simple title to the Project and that
the Deed of Trust is a valid first lien on the Project in the Loan Amount. The
Title Policy shall contain such endorsements as Lender reasonably requires and
shall be subject only to such exceptions to coverage as approved by Lender in
writing prior to the Closing Date.

     "Work" means: (a) completion of Building 3 to the requirements of the
Construction Obligations Schedule portion of the Completion Schedule; (b)
completion of Buildings 1 and 2 and any remaining work necessary to complete the
Project as a whole, other than on Building 3.

                                    ARTICLE 2

                                   LOAN TERMS

     2.1 Loan and Disbursements of Loan Proceeds.

         Subject to the terms and conditions of this Agreement, and in reliance
upon the representations and warranties of Borrower set forth in the Loan
Documents, Lender agrees to make to Borrower, and Borrower agrees to accept from
Lender, a loan (the "Loan") in the maximum principal amount of Thirty-Five
Million Dollars ($35,000,000).

     2.2 Evidence of Indebtedness and Maturity.

         Borrower shall execute and deliver to Lender, on or before the Closing
Date, the Note evidencing the Loan. Borrower agrees to repay the indebtedness
evidenced by the Note in accordance with the terms thereof and the terms hereof.
The outstanding principal balance of the Loan, together with accrued and unpaid
interest thereon and all other amounts payable by Borrower under the Loan
Documents shall be due and payable on the Maturity Date.

     2.3 Interest Rate.

         The Loan shall bear interest at the rate per annum specified in the
Note.

     2.4 Loan Fee and Payment of Expenses.

         Borrower acknowledges and agrees that any unpaid portion of the Loan
Fee has been fully earned by Lender and is due and payable upon the Closing of
the Loan. The Loan Fee shall be nonrefundable except as set forth in the
Commitment Letter. Borrower hereby authorizes Lender to

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disburse proceeds of the Loan to Lender or to any other party to pay the Loan
Fee, interest for any partial calendar month in which the Closing Date occurs,
and the fees and expenses of Lender's appraisers, engineers, consultants, legal
counsel and other third parties retained by Lender in connection with the Loan,
notwithstanding that Borrower may not have requested a disbursement of such
amounts. Borrower covenants to pay all such amounts within ten (10) days after
demand by Lender, if and to the extent not disbursed by Lender from proceeds of
the Loan. Borrower's payment of the Loan Fee is in addition to Borrower's
obligation to pay closing costs, brokers' commissions and any and all other sums
due hereunder, under the Commitment Letter or under any of the Loan Documents.

     2.5 Recourse.

         The Loan and the amounts payable to Lender under the Loan Documents
with respect tp_Borrower's obligations under the Loan shall be fully recourse to
Borrower.

     2.6 Partial Release.

         Notwithstanding anything to the contrary contained in the Loan
Documents, Lender will partially release its interest under the Deed of Trust
with respect to the Release Lot, upon the satisfaction of all of the following
conditions with respect to the release of the Release Lot:

         (a)  There shall be no Event of Default or Potential Default hereunder
              or under any of the other Loan Documents;

         (b)  Borrower has given Lender at least thirty (30) days prior written
              notice of Borrower's request for the release of the Release Lot;

         (c)  Borrower shall provide Lender with copies of any and all purchase
              agreements, escrow instructions and related documentation and
              information pertinent to the release and sale of the Release Lot;

         (d)  Lender has received evidence satisfactory to Lender that the
              portion of the Property remaining subject to the Deed of Trust
              Instrument (the "Remaining Parcel") (i) is a legally subdivided
              lot under all applicable Laws, (ii) will have the benefit of such
              easements and rights of way in, over and through the Release Lot
              as are, in Lender's judgment, necessary or desirable to provide or
              assure access to and from, utility service to, parking for and
              common wall maintenance and support to the Remaining Parcel, as
              applicable, (iii) complies, either by virtue of the location of
              the improvements or with a duly issued variance, with all
              applicable setback requirements, and (iv) constitutes a separately
              assessed parcel(s) for tax and assessment purposes;

         (e)  The Title Company has issued, at Borrower's expense, appropriate
              endorsements to the Title Policy which provide that,
              notwithstanding the release of the Deed of Trust from the Release
              Lot, the lien of the Deed of Trust will remain unaffected thereby
              and will continue to be a first lien upon the Remaining Parcel,
              subject to no exceptions to title other than those shown on the
              Title Policy;

         (f)  Borrower has satisfied such other terms and conditions to such
              release and reconveyance as Lender may reasonably require;

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                 (g)   Borrower has paid all costs associated with the release
                       of Lender's interest in the Release Lot, including,
                       without limitation, the cost of Lender's title policy
                       endorsements referred to above, escrow costs, demand and
                       reconveyance fees customarily charged by Lender in
                       similar transactions, and Lender's actual legal fees and
                       costs incurred in connection therewith;

                 (h)   No release price shall be required in connection with the
                       release of the Release Lot, so long as at the time of the
                       release: (i) the Scheduled Completion Date Requirements
                       have been satisfied; (ii) there is no material adverse
                       change in the financial condition of Completion
                       Guarantor; and (iii) there are no Events of Default under
                       the Loan Documents; and (iv) the final map has been
                       recorded for the subdivision of the Project into three
                       parcels: one for Building 1, one for Building 2 and 3 and
                       one for the Release Lot.;

                 (i)   The construction of the Work shall have been completed in
                       accordance with the provisions of the Loan Documents; and

                 (j)   Lender shall have received payment, in immediately
                       available funds of a non- refundable processing fee in
                       the amount of Five Hundred Dollars ($500), which amount
                       shall be fully earned by Lender upon Borrower's request
                       for the release of the Release Lot.

                                    ARTICLE 3

                               CONDITIONS TO LOAN

           3.1   Condition Precedent to Closing of Loan.

                 As a condition precedent to Lender's obligation to close the
Loan and disburse any Loan proceeds, on or before the Closing Date Borrower must
satisfy and fulfill each of the following conditions precedent to closing, to
the satisfaction of Lender:

                 A.    Loan Documents and Environmental Indemnity. Borrower
shall deliver to Lender the following documents, each duly executed and
acknowledged by a notary public where necessary, and in form and substance
satisfactory to Lender:

                 (i)   This Agreement;

                 (ii)  The Note;

                 (iii) The Deed of Trust;

                 (iv)  The Assignment of Rents;

                 (v)   A California UCC-1 Financing Statement relating to the
Personal Property, to be filed with the California Secretary of State, together
with UCC-1 Financing Statements for such other States as are required by Lender;

                 (vi)  The Environmental Indemnity;

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                 (vii)  A guaranty, on Lender's form, executed by the Completion
Guarantor, of the performance of Borrower's construction obligations under the
Loan Documents (the "Completion Guaranty");

                 (viii) A pledge and assignment of a cash collateral account in
the amount of Six Million Dollars ($6,000,000), on Lender's form, executed by
the Borrower (the "Pledge of Cash Collateral Account"); and

                 (ix)   A nondisturbance and attornment agreement, on Lender's
form, by and between Borrower, Lender and Completion Guarantor with respect to
the Master Lease (the "Master Lease N DA").

                 B.     Commitment Letter Conditions. Borrower shall have
satisfied all of the conditions set forth in the Commitment Letter, together
with any additional conditions imposed by Lender in connection with its final
approval of the Loan.

                 C.     Truth of Representations and Warranties. The
representations and warranties contained herein and in the other Loan Documents
shall be true, correct and complete in all material respects on the Closing
Date.

                 D.     No Default. As of the Closing Date, no event shall have
occurred or would result from the funding of the Loan that would constitute an
Event of Default or a Potential Default.

                 E.     Deal-Specific Conditions.

                        (i)  Execution and delivery of the Master Lease

                        (ii) Funding of the amount of $6,000,000 into the Cash
Collateral Account.

3.2    Termination of Agreement.

                 Lender's obligation to make the Loan and perform any of its
other obligations under the Loan Documents shall terminate unless all of the
conditions precedent set forth in Section 3.1 have been satisfied, and the
Closing Date has occurred, on or before the Termination Date.

                                    ARTICLE 4

                         ASSIGNMENT OF PROJECT DOCUMENTS

       4.1       Assignment of Documents.

                 A.     As security for the payment and performance of the
Secured Obligations, Borrower hereby grants, conveys, assigns and transfers to
Lender the Project Documents, and all rights of Borrower thereunder, together
with the immediate and continuing right to collect and receive all sums which
are now or hereafter due to Borrower thereunder or in connection therewith, and
all of Borrower's rights to receive the proceeds of any insurance, indemnity,
warranty or guaranty with respect to any of the Project Documents. The parties
expressly acknowledge and agree that Lender does not hereby assume any of
Borrower's obligations with respect to any of the Project Documents, including,
without limitation, any obligation to pay for any work done pursuant thereto,
unless Lender expressly assumes such obligations in accordance with Section 4.
KB). At Lender's request from time to time, Borrower shall deliver copies of the
Project Documents to Lender.

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                 B.  Lender shall not exercise its rights under this Section 4.1
until the occurrence of an Event of Default. Upon the occurrence of an Event of
Default under any of the Loan Documents, Lender may, at its option in its sole
discretion and without any obligation, exercise any or all of its rights and
remedies under Section 8.4 and/or upon written notice to Borrower and the other
parties to any or all of the Project Documents, exercise or enforce any or all
of the rights and remedies granted to Borrower under such Project Documents as
if Lender had been a party to or recipient of such Project Documents (and
Borrower hereby irrevocably constitutes and appoints Lender as its
attorney-in-fact, which power is coupled with an interest, to do so). Upon
giving such notice Lender may elect to assume all of the obligations of Borrower
thereafter accruing under any or all of the Project Documents; provided that in
no event shall Lender be responsible for any default by Borrower or any other
party occurring prior to any election by Lender to assume such obligations.

                 C.  The acceptance by Lender of the assignment contained in
this Section 4.1 and the rights granted to Lender hereunder and under Section
8.4 shall not, prior to Lender's assumption of the obligations under the Project
Documents as provided in Section 4.1(B). obligate Lender to assume any
obligations or liability under the Project Documents, to expend any money or
incur any expense in connection with the Project Documents or to perform any
obligation under any of the Project Documents.

           4.2   Performance under Project Documents.

                 Borrower shall at all times perform and discharge each of its
obligations under the Project Documents, diligently enforce its rights under the
Project Documents unless otherwise agreed by Lender, and, at Borrower's sole
cost and expense, appear in and defend Lender in any action or proceeding in any
way related to any of the Project Documents. Borrower shall, within ten (10)
days after demand by Lender, pay all reasonable costs and expenses incurred by
Lender in connection with any such action or proceeding, including, without
limitation, reasonable attorneys' fees and costs. Borrower's obligations under
this Section 4.2 shall expire upon Lender's assuming Borrower's obligations
under the Project Documents as provided in Section 4. KB), above, provided that
such obligations shall remain the responsibility of Borrower with respect to any
default by Borrower or any other party occurring prior to any election by Lender
to assume such obligations.

           4.3   Indemnification.

                 Borrower hereby indemnifies and agrees to defend and hold the
Indemnitees harmless from all expenses, loss, claims, damage or liability which
the Indemnitees may or might incur under any of the Project Documents or under
or by reason of the assignment set forth in Section 4.1 or by reason of any
alleged obligation or undertaking on Lender's part to perform or discharge any
covenants or agreements contained in any of the Project Documents; provided that
such indemnity shall not extend to expenses, loss, claims, damage or liability
arising from an Indemnitee's gross negligence or wilful misconduct or arising
after the date, if ever, that Lender assumes the obligations under the Project
Documents as provided in Section 4.1 (B).

                                    ARTICLE 5

                               SECURITY AGREEMENT

           5.1   Grant of Security Interest.

                 As security for the payment and performance of the Secured
Obligations, Borrower hereby assigns, transfers and grants to Lender, and there
is hereby created in favor of Lender, a security interest under the California
Commercial Code in and to the Personal Property, whether now owned or

                                      -11-

<PAGE>

hereafter acquired, and in all proceeds thereof (and proceeds of proceeds) in
whatever form. This Agreement shall constitute a security agreement pursuant to
the California Commercial Code with respect to the Personal Property and
proceeds thereof, with Borrower the "Debtor" and Lender the "Secured Party" as
such terms are used therein.

           5.2   Representations, Agreements and Covenants Regarding Personal
Property.

                 In order to induce Lender to enter into this Agreement and make
the Loan, Borrower represents, warrants and covenants as follows:

                 A.  Except for the security interest in favor of Lender,
Borrower is, and as to any of the Personal Property acquired after the date
hereof will be, the sole owner of the Personal Property, free from any adverse
lien, security interest, or adverse claim of any kind whatsoever. Borrower will
notify Lender of and will defend the Personal Property against all claims and
demands of all persons at any time claiming any interest therein.

                 B.  Borrower will keep the Personal Property in good condition
and repair, and will not misuse, abuse, allow to deteriorate, waste or destroy
the Personal Property or any part thereof, except for ordinary wear and tear
resulting from normal and expected use in the ordinary course of Borrower's
business, which shall be promptly replaced by Borrower with property of similar
nature and of equal or greater value unless obsolete.

                 C.  Borrower will not, without the prior written consent of
Lender, sell, offer to sell or otherwise transfer, exchange or dispose of the
Personal Property or any interest therein, unless in the normal course of
business the Personal Property is being replaced by collateral of similar nature
and of equal or greater value. If the Personal Property or any part thereof is
sold, transferred, exchanged, or otherwise disposed of (either with or without
the written consent of Lender), the security interest of Lender shall extend to
the proceeds of such sale, transfer, exchange or other disposition and Borrower
will hold such proceeds in a separate account for Lender's benefit and will, at
Lender's request, transfer such proceeds to Lender.

                 D.  The tangible Personal Property will be kept on or at the
Project and Borrower will not, without the prior written consent of Lender,
remove the Personal Property therefrom except such portions or items of Personal
Property which are consumed or worn out in ordinary usage, all of which shall be
promptly replaced by Borrower as provided in Section 5.2(B).

                 E.  Borrower will immediately notify Lender in writing of any
change in its place of business or the adoption or change of any trade name or
fictitious business name, and will, within ten (10) days after Lender's request,
execute any additional financing statements or other certificates reasonably
requested by Lender to reflect such change.

                 F.  The Personal Property is not and will not be used or bought
for personal, family or household purposes.

                 G.  Borrower shall immediately notify Lender of any claim
against the Personal Property adverse to the interest of Borrower or Lender
therein.

                 H.  Lender may examine and inspect the Personal Property at
any reasonable time, wherever located upon reasonable prior notice to Borrower
(except in the event of an emergency, in which event prior notice shall not be
required).

           5.3   Affixed Collateral.

                                      -12-

<PAGE>

            The inclusion in Section 5.1 of any Personal Property which may now
be or hereafter become affixed or in any manner attached to the Project shall be
without prejudice to any claim at any time made by Lender that such Personal
Property is or has become a part of or an accession to the Project.

      5.4   Further Security Agreements.

            Borrower agrees to take such actions and, within ten (10) days after
Lender's request, to execute, deliver and file and/or record such documents,
agreements and financing statements as may be reasonably necessary to evidence
the security interest set forth in Section 5.1, to establish the priority
thereof and to carry out the intent and purpose of this Article 5.

                                    ARTICLE 6

                    BORROWER'S REPRESENTATIONS AND WARRANTIES

            As an inducement to Lender to execute this Agreement and make the
Loan, Borrower represents and warrants to Lender the truth and accuracy of the
matters set forth in this Article 6.

      6.1   Organization, Power, Good Standing, and Business.

            A. Borrower is a limited liability company duly formed, validly
existing and in good standing under the Laws of the State of California and, if
formed under the Laws of a jurisdiction other than the State of California, has
registered to do business and is in good standing under the Laws of the State of
California. Borrower has the full power and authority to own and operate its
properties, to carry on its business as now conducted, to enter into each Loan
Document and the Environmental Indemnity, and to carry out the transactions
contemplated hereby and thereby. Borrower does not do business under any trade
name or fictitious business name. Borrower has delivered to Lender true, correct
and complete copies of its Formation Documents and such Formation Documents have
not been amended or modified except pursuant to agreements delivered to Lender
prior to the date hereof.

            B. Zhone Technologies, Inc., Borrower's managing member, is a
corporation duly formed, validly existing and in good standing under the Laws of
the State of Delaware and, if formed under the Laws of a jurisdiction other than
the State of California, has registered to do business and is in good standing
under the Laws of the State of California. Such managing member has the full
power and authority to own and operate its properties, to carry on its business
as now conducted, to act as a managing member of Borrower, to enter into each
Loan Document and the Environmental Indemnity and the Completion Guaranty as a
managing member of Borrower, to enter into the Environmental Indemnity on its
own behalf, and to carry out the transactions contemplated in the Loan Documents
and the Environmental Indemnity and the Completion Guaranty. Borrower has
delivered to Lender true, correct and complete copies of the Formation Documents
for such managing member and such Formation Documents have not been amended or
modified except pursuant to agreements delivered to Lender prior to the date
hereof.

      6.2   Authorization of Borrowing, etc.

            A. Authorization of Borrowing. The execution, delivery and
performance of the Loan Documents and the Environmental Indemnity and the
Completion Guaranty and the issuance, delivery and payment of the Note have been
duly authorized by all necessary action of Borrower, its members, Completion
Guarantor.

                                      -13-

<PAGE>

            B. No Conflict. The execution, delivery and performance by Borrower,
its members, Completion Guarantor of each applicable Loan Document and the
Environmental Indemnity do not and will not (i) violate any Law applicable to
any such Person, the Formation Documents of any such Person, or any order,
judgment or decree of any court or other Governmental Agency binding on any such
Person; (ii) conflict with, result in a breach of or constitute (with the giving
of notice or the passage of time or both) a default under any Contractual
Obligation of any such Person; (iii) result in or require the creation or
imposition of any Lien of any nature on Borrower's properties or assets other
than the Liens in favor of Lender under the Loan Documents; or (iv) require any
approval or consent of any Person under any Contractual Obligation of Borrower,
its members, Completion Guarantor.

            C. Governmental Consents. The execution, delivery and performance by
Borrower, its members, Completion Guarantor of each applicable Loan Document and
the Environmental Indemnity and the Complection Guaranty does not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any Governmental Agency or other Person.

            D. Binding Obligation. The Note and the other Loan Documents are the
legally valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally. The Environmental Indemnity is the
legally valid and binding obligation of each of the parties thereto, enforceable
against such parties in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally. The Complection Guaranty is
the legally valid and binding obligation of the Completion Guarantor,
enforceable against the Completion Guarantor in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally.

      6.3   Actions.

            There is no action, suit, proceeding or arbitration, before or by
any Governmental Agency or other Person, pending or, to Borrower's best
knowledge, threatened against or affecting Borrower, any of the Principals or
any properties or rights of Borrower or any of the Principals, which might
adversely affect Lender's rights or remedies under the Loan Documents or the
Environmental Indemnity, the business, assets, operations or financial condition
of any such party or its ability to perform its obligations under the Loan
Documents or the Environmental Indemnity. As of the date hereof, there are no
outstanding judgments against the Related Parties or their property in excess of
Twenty-Five Thousand Dollars ($25,000) as to any individual judgment or Fifty
Thousand Dollars ($50,000) in the aggregate.

      6.4   Financial Position.

            A. Financial Information. The Application Information and all
financial statements and financial data delivered to Lender in connection with
the Loan and/or relating to Borrower and the Principals are true, correct and
complete in all material respects and accurately present the financial position
of such parties as of the date thereof. No material adverse change has occurred
in the financial position disclosed by the Application Information or in any
other financial statements or financial data delivered to Lender.

            B. Bankruptcy and Insolvency. Neither Borrower nor any of the
Related Parties has filed or been the subject of any bankruptcy, insolvency,
reorganization, dissolution or similar proceeding or any proceeding for the
appointment of a receiver or trustee for all or any substantial part

                                      -14-

<PAGE>

of their respective property. Neither Borrower nor any of the Related Parties
has admitted in writing its inability to pay its debts when due, made an
assignment for the benefit of creditors or taken other similar action.

            C. Other Borrowing. Except for the Loan, no borrowings have been
made by Borrower which are secured by the Project or which might give rise to
any Lien other than the Liens created by the Loan Documents.

      6.5   Liens.

            Borrower is the sole owner of the Project and the Personal Property
free from any adverse Liens, except for Liens in favor of Lender, and that
certain Purchase and Sale Agreement with Repurchase Options dated January 20,
2000 by and between the Redevelopment Agency of the City of Oakland (the
"Oakland CRA") and Completion Guarantor, with respect to the Project (the "CRA
Purchase Agreement"). Borrower has paid in full all contractors, materialmen,
laborers, architects or other such Persons hired by Borrower to perform services
or work with respect to the Project and all statutory lien periods have expired
with respect to any such services or work, except with respect to Building 3. No
previous assignment, sale, pledge, encumbrance or other hypothecation of the
Leases or the Project Documents has been made (except for pledges and
encumbrances which have been released in full prior to the date hereof or will
be released in full concurrently with the funding of the Loan).

      6.6   Compliance with Laws.

            The Project and the use thereof are in material compliance with all
Laws. The Property consists of legal and separate lot(s) for tax assessment
purposes and under the California Subdivision Map Act (California Government
Code Sections 66410 et. seq., as amended from time to time). All Permits,
easements and rights of way necessary for the occupancy, operation, ownership
and use of the Project have been obtained by Borrower and are in full force and
effect.

      6.7   Defects.

            There are no defects, facts or conditions affecting the Project or
any portion thereof which would make the Project unsuitable for the occupancy,
operation, use or sale thereof, except with respect to the ongoing construction
of Building 3. There are no surface or subsurface soils conditions adversely
affecting the Property, including, without limitation, unstable soil or
landfills.

      6.8   Utilities.

            All utilities necessary for the full enjoyment of the Project,
including, without limitation, trash collection, police and fire protection,
sewer and storm drain, water, telephone, gas and electricity, are available to
the Project and are not subject to any conditions which would limit the use of
such utilities, other than the payment of normal charges to the utility
supplier.

      6.9   No Condemnation.

            No Condemnation Event (as defined in the Deed of Trust) is pending
against the Project or any portion thereof. To Borrower's best knowledge, no
Condemnation Event is threatened against the Project which would impair the full
utilization of the Project in any material manner.

      6.10  Hazardous Substances

                                      -15-

<PAGE>

            There are no Hazardous Substances on, in, under or at the Project,
except as otherwise described in Section 7.5A. below. The Project and each
portion thereof is in full compliance with all Environmental Laws. There are no
above or below ground storage tanks located at the Project Borrower has not
received written notice from any Governmental Agency or other third party
alleging that the Project or any portion thereof does not comply with any
Environmental Laws.

      6.11  No Defaults

            No Potential Default or Event of Default exists under this Agreement
or any of the other Loan Documents. No default by Borrower exists under any
Contractual Obligation which would have a material adverse effect on Borrower's
ability to repay the Loan or to perform its obligations under any of the Loan
Documents or under the Environmental Indemnity.

      6.12  Disclosure.

            No representation or warranty of Borrower contained in this
Agreement, any Loan Document, or any Application Information contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.

      6.13  Single Purpose Entity.

            Borrower (a) has not engaged and does not engage in any business
unrelated to the Project, (b) has not had and does not have assets other than
those related to its interest in the Project, (c) has not had and does not have
any indebtedness other than as permitted by this Agreement, (d) has its own
books and records separate and apart from any other person, (e) holds itself out
as being and conducts all business as a legal entity, separate and apart from
any other person, partnership, corporation, limited liability company, trust or
other entity, with separate stationary, invoices and checks, (f) has not
guarantied the debts or obligations of any other person, partnership,
corporation, limited liability company, trust or other entity, and (g) has not
commingled its assets or funds with those of any other person, partnership,
corporation, limited liability company, trust or other legal entity. Borrower's
Formation Documents provide that any dissolution or winding up or insolvency
filing for Borrower requires the unanimous consent of all members.

                                    ARTICLE 7

                              BORROWER'S COVENANTS

            Borrower covenants and agrees that, until the Loan and all other
amounts owing to Lender under the Loan Documents have been paid in full and all
Secured Obligations have been satisfied, Borrower shall perform all of the
covenants in this Article 7.

      7.1   No Liens.

            Except as expressly provided in Section 1.12 of the Deed of Trust,
Borrower shall not permit any Lien to be made or filed. Borrower shall be the
sole owner of the Project and Personal Property, free from any adverse Liens,
except for Liens in favor of Lender. Borrower shall not assign, sell, pledge,
encumber or otherwise hypothecate all or any portion of the Leases or the
Project Documents.

      7.2   Compliance with Laws.

                                      -16-

<PAGE>

            Borrower will comply with all Laws applicable to Borrower, its
property, the Project, the Personal Property and/or the occupancy, operation,
ownership or use thereof.

      7.3   Inspection.

            Subject to the rights of tenants at the Project, during normal
business hours and upon reasonable advance notice (except in the event of an
emergency, in which event entry shall not be limited to normal business hours
and no advance notice shall be necessary) Borrower shall permit Lender and any
Person designated by Lender to visit and inspect the Project.

      7.4   Leasing of Space.

            A. Unless otherwise approved by Lender in writing in advance, all
Leases shall be entered into with bona fide third party tenants financially
capable of performing their obligations thereunder and shall reflect arms-length
transactions at the then current market rate for comparable space. Lender has
approved the Approved Lease. Borrower shall perform all obligations required to
be performed by it as landlord under any Lease. Borrower shall not accept any
rent (however denominated) or other charges under any of the Leases more than
one (1) month in advance.

            B. Borrower shall not enter into, or modify, amend, terminate or
accept a surrender or cancellation of, any Lease, or consent to any assignment
or subletting under any Lease, without Lender's prior written consent except as
follows:

               (i)    Borrower may terminate Leases other than Major Leases
without Lender's prior written consent for the non-payment of rent if Borrower
would in good faith terminate such Lease in the ordinary course of its business.

               (ii)   Lender's prior written consent shall not be required for
any new Lease (a) which is not a Major Lease, (b) which does not include any
Material Lease Provisions, (c) where the term of the Lease (including any
options to extend the initial term of the Lease) does not exceed ten (10) years,
and (d) where the proposed use of the portion of the Project leased does not
involve the use, storage, processing, manufacture, transportation, disposal or
release of Hazardous Substances.

               (iii)  Lender's prior written consent shall not be required for
any amendment or modification of a Lease if the amendment or modification
contains no provision which, had the provision been included in the original
Lease, would require Lender's prior written consent.

               (iv)   Lender's prior written consent shall not be required in
connection with any sublease or assignment of any Lease if either (a)(1) the
assignee or subtenant meets the requirements of Section 7.4(A), and (2) the
proposed use of the Project by such assignee or subtenant does not involve the
use, storage, processing, manufacture, transportation, disposal or release of
Hazardous Substances, or (b) such sublease or assignment does not require
Borrower's consent under the terms of the Lease executed by Borrower in
accordance with the terms of this Agreement.

            C. Borrower shall promptly deliver to Lender such Leases, rent
rolls, leasing reports, operating statements or other leasing information as
Lender may from time to time request. Borrower shall promptly notify Lender of
(i) any material tenant dispute, (ii) any material default by Borrower or the
tenants under any of the Major Leases, (iii) any material adverse change in
leasing activity for the Project, and (iv) any notice received by Borrower
relating to any material default by Borrower under any Lease.

                                      -17-

<PAGE>

          D.   With respect to any Major Lease, and if requested by Lender with
respect to any other Lease, Borrower shall, within twenty (20) days after
Lender's request, execute and deliver to Lender, and cause the tenants under the
Leases (and any other party to, or guarantor of, the Leases) to execute and
deliver to Lender, nondisturbance and attornment agreements and/or estoppel
certificates, in form and substance reasonably satisfactory to Lender.

          E.   As used herein, "Material Lease Provision" means a provision
which materially increases the landlord's obligations under a Lease, which
provides the tenant with material rights or recourse against the landlord or
with the right to terminate the Lease, or which adversely affects Lender's
security in the Lease. Without limiting the generality of the foregoing, each of
the following shall constitute a Material Lease Provision: (i) any provision
which affects Lender's rights with respect to the Lease, which affects the
relative priority of the Lease and the Deed of Trust without Lender's consent,
or which requires Lender to agree to or provide any nondisturbance agreement to
the tenant; (ii) the grant of an option, right of first offer or refusal or
other right to purchase all or any portion of the Project, (iii) the grant of an
option, right of first offer or refusal or other right to lease any additional
space in the Project at a rent less than market rent, (iv) the grant of any
early termination option, (v) any provision which provides for the application
of insurance or condemnation proceeds in a manner contrary to the Loan
Documents, (vi) the grant of any offsets, or the agreement for the payment of
any amounts by the landlord, if such offset or payment obligation would be
applicable to any subsequent owner of the Project, including, without limitation
any owner succeeding to the landlord's interest by foreclosure or a deed in lieu
or in aid thereof, (vii) a limit to the expense reimbursements due from the
tenant for increases in taxes or expenses, or (viii) an environmental, hazardous
substance or other indemnification binding on the landlord that would be
applicable to any subsequent owner of the Project, including, without
limitation, any owner succeeding to landlord's interest by foreclosure or a deed
in lieu or in aid thereof.

     7.5  Environmental Matters.

          A.   Borrower shall, at its own expense, comply and cause all persons
entering the Project to comply with all Environmental Laws applicable thereto
and Borrower shall not use, store, process, manufacture, transport, dispose or
release any Hazardous Substances on or adjacent to any part of the Project or
permit any of the foregoing to occur; provided, however, that Borrower may store
and use large batteries and fuel for generators which serve the Project, all in
compliance with applicable Laws. Borrower shall immediately advise Lender in
writing of any (i) discovery of Hazardous Substances on the Project or any
portion thereof; or (ii) any claim, action or order threatened or instituted by
any third party (including any Governmental Agency) against the Project or
Borrower relating to damages, cost recovery, loss or injury resulting from any
Hazardous Substances. Borrower shall provide Lender with copies of all
communications with any third party (including any Governmental Agency) relating
to any Environmental Law or any claim, action or order relating to Hazardous
Substances at, on, under or in the Project or any portion thereof. If any
remedial action is required to bring the Project into compliance with
Environmental Laws, Borrower shall immediately notify Lender of such situation
and shall prepare a written plan setting forth a description of such situation
(and all environmental reports relating thereto) and the remedial action that
Borrower proposes to implement to bring the Project into compliance with all
Environmental Laws. Borrower shall, at its own expense, thereafter diligently
and continuously pursue the remediation of the condition necessary to bring the
Project into compliance with all Environmental Laws and cause all liens or
encumbrances against the Project in connection therewith to be removed and
satisfied.

          B.   Lender shall have the right to retain a professional
environmental consultant to conduct tests and investigations of the Project
(including, without limitation, ground water and soils testing) with respect to
Hazardous Substances or the Project's compliance with Environmental Laws.
Borrower hereby grants to Lender, its agents, employees, consultants and
contractors, an irrevocable

                                      -18-

<PAGE>

license and authorization to enter upon and inspect the Project and to conduct
such tests and investigations on the Project or any portion thereof as Lender,
in its sole discretion, determines necessary. Such tests and investigations
shall be at Lender's expense unless (i) Lender reasonably believes that a breach
of the provisions of Section 6.10 or this Section 7.5 has occurred, (ii) a
breach of the provisions of Section 6.10 or this Section 7.5 has in fact
occurred, or (iii) an Event of Default or Potential Default has occurred.
Borrower acknowledges and agrees that, as between it and Lender, only Borrower
owns and operates the Project and only Borrower has the responsibility for
compliance with this Section 7.5 and neither Lender's enforcement of, or failure
to enforce, Section 7.5 shall be deemed to affect the obligations or provisions
of this Section 7.5.

          C.   To the fullest extent permitted by law, Borrower hereby
indemnifies and agrees to defend, and hold harmless the Indemnitees from and
against any and all loss, claim, damage or liability of any kind or nature and
from any suits, actions, claims or demands, including without limitation, all
amounts described in Section 7.5(D). arising directly or indirectly, in whole or
in part, out of (i) the existence or alleged existence of any Hazardous
Substances at, on under or in the Project or any portion thereof, (ii) the
removal of or failure to remove any Hazardous Substances from the Project or any
portion thereof, (iii) any activity involving Hazardous Substances with respect
to the Project carried on or undertaken on or off the Project, (iv) any residual
contamination on or under the Project, or (v) any contamination of any property
or natural resources arising in connection with any activity involving Hazardous
Substances, in each case whether prior to or during the term of the Loan, and
whether by Borrower or any predecessor-in-title or any employees, agents,
contractors or subcontractors of Borrower or any predecessor-in-title, or any
third parties occupying or present on the Project. Upon receiving knowledge of
any suit, action, claim or demand asserted by a third party that Lender believes
is covered by this indemnity, Lender shall give Borrower written notice of the
matter and an opportunity to defend it, at Borrower's sole cost and expense,
with legal counsel reasonably satisfactory to Lender. Lender may also require
Borrower to so defend the matter. The obligations of Borrower under this Section
7.5(C) are, without limitation, intended to operate as a binding valid indemnity
agreement under 42 U.S.C. (S) 9607(e)(1) and shall survive the closing of the
Loan and the repayment of the Loan and the satisfaction of all other Secured
Obligations.

          D.   The indemnity set forth in Section 7.5(C) shall include, without
limitation, (i) loss, claims, damage or liability for, or arising from, personal
injury and property damage, (ii) compensation for lost wages, business income,
profits or other economic loss, (iii) all consequential damages; (iv) all
damages to any natural resources and the environment, the costs of any required
or necessary repair, clean up, response cost, or remediation of the Property and
the Project, and the preparation and implementation of any closure, remedial or
other required plans; and (v) all costs and expenses incurred in connection with
any of the foregoing, including reasonable attorneys' fees and costs. The
indemnity set forth in Section 7.5(C) shall not include any of the costs and
damages described in the foregoing sentence which are the result solely of the
actions of Lender following the date that Lender takes title to the Project
through foreclosure or deed in lieu of foreclosure.

     7.6  Insurance Requirements.

          A.   Borrower shall procure and maintain, or cause to be procured and
maintained, at all times until the repayment of the Loan and the satisfaction of
the Secured Obligations, policies of insurance in form and amounts reasonably
satisfactory to Lender, and issued by companies having a Best's rating of at
least B+, Class VI and otherwise reasonably satisfactory to Lender, covering (i)
such casualties, risks, perils, liabilities and other hazards as may be
reasonably required by Lender and (ii) such casualties, risks, perils,
liabilities and other hazards which are at the time commonly insured against or
required by institutional lenders to be insured against with respect to
properties similar to the Project. All policies shall expressly protect Lender's
interest as required by Lender. Without limiting the generality of the
foregoing, Borrower shall maintain or cause to be maintained the insurance
coverage

                                      -19-

<PAGE>

described in Section 7.6(B). If Borrower fails to maintain the insurance
coverage required hereunder, Lender may, but shall have no obligation to, obtain
such insurance, and Borrower will pay all amounts expended by Lender, together
with interest thereon at the Default Interest Rate, within ten (10) days after
demand by Lender. In the event of any foreclosure of the Deed of Trust or a deed
in lieu or in aid thereof, all interest under the insurance policies required by
this Section 7.6 and then in force shall pass to the new owner of the Project.

            B.  Without limiting the generality of Section 7.6(A), Borrower
shall maintain or cause to be maintained the following insurance coverages:

          (i)   property insurance for the full replacement cost of the Project
(excluding the Property), on an "all risks" basis (including fire, extended
coverage, vandalism and malicious mischief), together with a 4% inflationary
guard endorsement;

          (ii)  commercial general liability insurance on an "occurrence" basis
in the minimum amount of Two Million Dollars ($2,000,000) for personal injury to
any one person, Four Million Dollars ($4,000,000) for any one accident and Two
Hundred Fifty Thousand Dollars ($250,000) for property damage;

          (iii) twelve (12) months of business interruption or loss of rents
coverage in an amount not less than the Minimum Rent Loss Coverage;

          (iv)  flood insurance in an amount equal to the greater of the full
replacement cost of the Project (excluding the Property), or the maximum flood
insurance available, if either (a) the Property is located in an area now or
hereafter designated as having special flood hazards under the Flood Disaster
Protection Act of 1973, as amended from time to time, or any other Law, or (b)
flood insurance is required by any Law applicable to Borrower, Lender or the
Project or by any federal or state regulatory agency having jurisdiction over
Lender; and

          (v)   earthquake insurance if required by any Law applicable to
Borrower, Lender or the Project or by any federal or state regulatory agency
having jurisdiction over Lender or if otherwise required by this Section 7.6.

            C.  All original policies, or certificates thereof, and endorsements
and renewals thereof, shall be delivered to and retained by Lender unless Lender
agrees otherwise. In case of insurance about to expire, Borrower shall deliver
renewal policies to Lender not less than thirty (30) days prior to the
expiration thereof. All policies of insurance to be furnished hereunder (i)
shall be in form reasonably satisfactory to Lender; (ii) shall have a deductible
of not more than Ten Thousand Dollars ($10,000) with respect to any insurance
other than earthquake insurance and, with respect to earthquake insurance, shall
have a deductible acceptable to Lender, (iii) shall include a Standard Mortgage
Clause/Lender's Loss Payable Endorsement and Chattel Mortgage Clause in favor
of, and in form reasonably satisfactory to, Lender, including a provision
requiring that the coverage evidenced thereby shall not be terminated or
materially modified without thirty (30) days' prior written notice to Lender,
and (iv) may be in the form of blanket policies in amount, form and substance
satisfactory to Lender. Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained hereunder.

          D.   Notwithstanding anything to the contrary contained in the Loan
Documents, Borrower waives any and all right to claim or recover against Lender,
or its directors, officers, employees, agents and representatives, for loss of
or damage or injury to the Project, Borrower, Borrower's property, or the
property of others under Borrower's control, from any cause insured against or
required to be insured against under this Section 7.6 or coverable by insurance.

                                      -20-

<PAGE>

          E.   Borrower shall, at its expense, provide from time to time at the
written request of Lender, not more frequently than once per year, satisfactory
evidence of the insurable value of the Project. Such evidence may be in the form
of an insurance appraisal or valuation report prepared by an insurance company,
appraiser or other consultant approved by Lender.

          F.   Without limiting Borrower's obligations under this Section 7.6
and without limiting Lender's rights and remedies if Borrower fails to comply
with the provisions hereof, (i) Lender may at its sole discretion and at any
time and from time to time as provided herein conduct a seismic risk review of
the Project (the "Seismic Review"), which, if required by Lender, shall be
prepared by an engineer and in a manner acceptable to Lender at Borrower's sole
cost and expense, and (ii) if the Seismic Review demonstrates in Lender's sole
discretion a Probable Maximum Loss in excess of thirty percent (30%) of the
Replacement Cost or an Average Loss in excess of twenty percent (20%) of the
Replacement Cost, Borrower shall either (a) maintain earthquake insurance
throughout the remaining term of the Loan in an amount, with a deductible, and
otherwise in form and substance acceptable to Lender, or (b) if Borrower
provides evidence reasonably satisfactory to Lender that an earthquake retrofit
of the Project will reduce the Probable Maximum Loss to thirty percent (30%) of
the Replacement Cost or less and the Average Loss to twenty percent (20%) of the
Replacement Cost or less, cause the Project to be earthquake retrofitted (which
retrofitting shall be subject to Lender's prior written approval) in compliance
with all applicable laws, and maintain earthquake insurance in an amount, with a
deductible, and otherwise in form and substance acceptable to Lender until a new
Seismic Review demonstrates in Lender's sole discretion a Probable Maximum Loss
which does not exceed thirty percent (30%) of the Replacement Cost, and an
Average Loss which does not exceed twenty percent (20%) of the Replacement Cost,
and (iii) in the event that Borrower fails at any time to maintain such
earthquake insurance if required herein, Borrower shall, within ten (10) days
after demand by Lender, pay to Lender an amount equal to the greater of (a) five
percent (5%) of the Loan Amount, or (b) the amount by which the Probable Maximum
Loss exceeds thirty percent (30%) of the Replacement Cost, or (c) the amount by
which the Average Loss exceeds twenty percent (20%) of the Replacement Cost (the
"Seismic Principal Payment"). Such payment shall be applied first to the
outstanding principal balance of the Loan, then to accrued and unpaid interest
on the Loan, and then to any other amounts owed to Lender under the Loan
Documents, and such payment shall be in addition to all other payments required
to be made by Borrower under the terms of the Loan Documents; provided, however
that as a result of such payment, the Monthly Installments (as defined in the
Note) shall be adjusted effective with the Monthly Installment due immediately
following payment of the amount equal to the Seismic Principal Payment. Lender
may obtain a Seismic Review in connection with the Loan closing, following any
earthquake of a magnitude of 6.0 or higher or following significant physical
damage to the Project as determined by Lender in its sole discretion. As used
herein, "Probable Maximum Loss" shall mean the product of (1) the then estimated
replacement cost of the Improvements as determined by Lender in its sole
discretion and (2) the "90% Confidence Damage Ratio" calculated in such Seismic
Review based upon a 475 year return interval. As used herein, "Average Loss"
shall mean the product of (1) the estimated replacement cost of the Improvements
as determined by Lender in its sole discretion and (2) the "Average Damage
Ratio" calculated in such Seismic Review based upon a 475 year return interval.
As used herein, "Replacement Cost" shall mean, at any given time, the
replacement cost of the Project as determined at such time by Lender in its sole
discretion.

     7.7  Notice of Proceeding.

          Borrower will promptly notify Lender of any action, suit, proceeding
or arbitration (including, without limitation, any judicial or nonjudicial
foreclosure proceeding, any voluntary or involuntary bankruptcy proceeding or
any proceeding for the appointment of a receiver), commenced or threatened
against Borrower or the Project or any portion thereof or interest therein.
Borrower shall also notify Lender of any action, suite, proceeding or
arbitration commenced or threatened against Completion Guarantor, for which the
claim is in excess of $1,000,000. Borrower shall deliver to Lender

                                      -21-

<PAGE>

copies of all notices and other information in connection with any action, suit,
proceeding or arbitration promptly upon receipt or transmittal thereof.

         7.8   Financial and Other Information.

               Borrower shall maintain full and complete books of account and
other records reflecting the results of operations of the Project in accordance
with generally accepted accounting principles consistently applied (or such
other accounting method approved in writing by Lender). Borrower shall furnish
or cause to be furnished to Lender such financial information concerning
Borrower, the Principals and the Project as Lender may reasonably request from
time to time. Lender shall also have access to such books and records and
Borrower's corporate books, during regular business hours and upon reasonable
advance notice to Borrower and shall have the right to make copies thereof or
extracts therefrom and to discuss the affairs, finances and accounts of Borrower
with Borrower and its independent public accountants, all as Lender may
reasonably request. Without limiting the generality of the foregoing, Borrower
shall furnish to Lender, without prior request or demand:

               A.  If Borrower and/or any Principal is not a natural person or a
trust, within ninety (90) days after the end of each Loan Year and at such other
times within thirty (30) days after request by Lender, Borrower shall provide
Lender with annual financial statements (including, without limitation, a
balance sheet and a profit and loss statement) for such party's previous fiscal
year and the current fiscal year-to-date, each of which shall (i) be in form
reasonably acceptable to Lender, (ii) contain comparative information for the
two (2) previous fiscal years, (iii) be certified as true, correct and complete
by Borrower or such Principal, and (iv) at Lender's election after the
occurrence of an Event of Default or Potential Default, be certified by a
certified public accountant acceptable to Lender.

               B.  If Borrower and/or any Principal is a natural person or
trust, Borrower shall provide Lender with (i) annual financial statements, in
form reasonably acceptable to Lender, for each such party within ninety (90)
days after the end of each Loan Year and at such other times within thirty (30)
days after request by Lender, and (ii) copies of the tax returns for each such
party, together with all supporting schedules, within thirty (30) days after the
filing thereof. Such financial statements and tax returns shall be certified as
true, correct and complete by Borrower or such Principals.

               C.  Within ten (10) days after the end of each calendar month
during the term of the Loan, within ninety (90) days after the end of each Loan
Year and at such other times within thirty (30) days after request by Lender,
Borrower shall provide Lender with operating statements for the Project for the
previous calendar month or previous fiscal year (as applicable) and the current
fiscal year-to-date, which shall (i) be in form reasonably acceptable to Lender,
(ii) contain comparative information for the two (2) previous calendar months or
two (2) previous fiscal years (as applicable), (iii) be certified as true,
correct and complete by Borrower, and (iv) at Lender's election after the
occurrence of an Event of Default or Potential Default, be certified by a
certified public accountant acceptable to Lender.

               D.  Within ten (10) days after the end of each calendar month
during the term of the Loan, within ninety (90) days after the end of each Loan
Year, and at such other times within thirty (30) days after request by Lender,
Borrower shall provide Lender with (a) an updated rent roll and leasing status
report for the Project, in form satisfactory to Lender and containing such
information as is reasonably required by Lender, including, without limitation,
the names and a description of all tenant leads, inquiries and offers, a
description of leases under negotiation, and a summary of the currently
marketing strategy for the leasing of the Project, and (b) an updated lease
receivables aging report, in form satisfactory to Lender and containing such
information as is reasonably required by Lender, including, without limitation,
an itemized schedule, by tenant, of past due rentals and common area maintenance
charges indicating the length of the delinquency.

                                      -22-

<PAGE>

               E.  Without limiting any of Lender's rights or remedies in the
event of any failure by Borrower to comply with the provisions of this Section
7.8, if Borrower fails to deliver to Lender any of the financial statements or
other information required herein on or before the date required in this Section
7.8 (the "Information Delivery Date"), and Borrower does not correct such
failure within five (5) days after receipt of written notice from Lender, then
commencing on the Information Delivery Date the Variable Rate Margin (as defined
in the Note) shall be increased by one-half percent (.50%) until such time as
Borrower has delivered, and Lender has approved, all of the financial statements
or other information required to be delivered by Borrower pursuant to this
Section 7.8. In addition to such increase in the Variable Rate Margin, the
Monthly Installments (as defined in the Note) shall be adjusted effective with
the Monthly Installment due immediately following the Information Delivery Date
to reflect such increase. Once Borrower has delivered, and Lender has approved,
all of the financial statements and other information required to be delivered
by Borrower pursuant to this Section 7.8. the Monthly Installments shall be
readjusted effective with the Monthly Installment due immediately thereafter.

         7.9   Representations and Warranties.

               Until repayment of the Loan and all other amounts owing to Lender
under the Loan Documents and the satisfaction of all other Secured Obligations,
the representations and warranties set forth in Article 6 shall remain true and
complete.

         7.10  Further Assurances.

               Borrower shall execute and deliver from time to time, within ten
(10) days after any request by Lender, any and all instruments, agreements and
documents and shall take such other action as may be reasonably necessary or
desirable in the opinion of Lender to maintain, perfect or insure Lender's
security provided for herein and in the other Loan Documents, including, without
limitation, the execution of UCC-1 renewal statements, the execution of such
amendments to the Deed of Trust and the other Loan Documents and the delivery of
such endorsements to the Title Policy, all as Lender shall reasonably require,
and shall pay all fees and expenses (including reasonable attorney's fees)
related thereto.

         7.11  Distribution of Assets.

               From and after the occurrence of an Event of Default or Potential
Default, Borrower shall not make any distribution of its assets, directly or
indirectly, to its partners, shareholders, members or other owners. As used
herein, the distribution of assets shall include, without limitation, the
repayment of any loans made to Borrower or any interest or other charges payable
in connection therewith, the return of capital contributions and distributions
upon the termination, liquidation or dissolution of Borrower and the payment of
fees, including management, leasing, brokerage and other fees to the extent such
fees exceed the amounts payable in arms' length transactions with third parties.
Borrower shall maintain and preserve its existence and all rights and franchises
material to its business.

         7.12  Cash Collateral Account.

               Prior to the Closing Date, Borrower shall establish a cash
collateral account with Lender in accordance with the provisions of the Pledge
and Assignment of Cash Collateral Account.

         7.13  Construction.

               A. Construction of the Work. Borrower shall cause construction of
the Work to be prosecuted with due diligence and in good faith in accordance
with the terms of this Agreement, the Note and the other Loan Documents, and
without delay, so that the Work will be fully completed by the

                                      -23-

<PAGE>

Scheduled Completion Date. Subject to the terms and conditions set forth in the
Loan Documents, Lender shall review monthly construction disbursements as
delineated on the Completion Schedule (each, a "Construction Advance")not more
frequently than once each calendar month, exclusively for the payment of the
following costs and expenses approved by Lender as hereinafter provided: (i)
costs and expenses incurred in connection with the construction of the Work;
(ii) other project costs; and (iii) costs and expenses incurred in connection
with the Loan and Borrower's undertaking hereunder and under the Loan Documents,
which costs shall be paid by Borrower in accordance with the terms and
conditions set forth in the Completion Schedule, Exhibit E of the Commitment
Letter, and the Completion Guaranty, as applicable.

               B.  Reporting Requirements. Borrower shall provide to Lender
reports and information regarding the progress of the Work on a monthly basis,
as reasonably required by Lender, including, without limitation, the following
monthly submissions:

                     (i)   Third party site inspection fee ($750/month).

                     (ii)  Lender review and approval of draw documentation
                           $2507month).

                     (iii) Change order status (pending and approved).

                     (iv)  Completion Schedule update.

                     (v)   Testing reports and inspection card approvals.

         7.14  Additional Construction Progress Information.

               Borrower shall provide the following construction progress
information for Lender's review and approval:

               (a) By the Scheduled Completion Date, evidence satisfactory to
                   Lender of the completion of the Scheduled Completion Date
                   Requirements.

               (b) By the Outside Completion Date, evidence satisfactory to
                   Lender of the Completion of the Outside Completion Date
                   Requirements.

         7.15  Monthly Construction Draw Procedures.

               Documentation for monthly construction draws to be made by
Completion Guarantor to Borrower must be provided by the Borrower's Construction
Manager to Lender's Construction Department for review and approval by Lender
prior to disbursement by the Completion Guarantor of funds to cover the cost of
the Work. Borrower shall pay for all third party inspection costs incurred by
Lender and any processing costs incurred by Lender in connection with such
review activities.

         7.16  Release of Phase 3 Property.

               The parties acknowledge that the Oakland CRA has the option,
pursuant to the terms of the CRA Purchase Agreement to repurchase that portion
of the Property identified as the "Phase 3 Property" in the CRA Purchase
Agreement. In the event that the Oakland CRA repurchases the Phase 3 Property,
the release and reconveyance of the Phase 3 Property by Lender from the lien of
the Deed of Trust shall be subject to the conditions set forth in Section 2.6
above.

                                      -24-

<PAGE>

                                    ARTICLE 8

                           EVENTS OF DEFAULT: REMEDIES

         8.1   Events of Default

               The occurrence of any of the following events shall constitute an
Event of Default under this Agreement and the other Loan Documents:

               A.  Failure to Make Payments When Due. Borrower's or Completion
Guarantor's failure to pay any principal, interest or other monies due under
this Agreement or any of the other Loan Documents within ten (10) days after
such amount is due.

               B.  Breach of Certain Covenants. Borrower's or Completion
Guarantor's failure to perform or comply with any term, obligation or condition
contained in this Agreement or any of the other Loan Documents, other than those
terms, obligations and conditions otherwise referred to in this Section 8.1 and
other than Borrower's obligations under Section 1.10(A) of the Deed of Trust,
within thirty (30) days after the delivery of written notice from Lender of such
failure; provided that if such default is not reasonably capable of being cured
within such thirty (30) day period, such failure shall not constitute an Event
of Default so long as Borrower or Completion Guarantor, as applicable, commences
the cure of such default within such thirty (30) day period and diligently
prosecutes such cure to completion within one hundred eighty (180) days after
such written notice from Lender.

               C.  Breach of Warranty. Any representation, warranty,
certification or other statement made by Borrower or any of the Principals
herein or in any other Loan Document or in any statement or certificate at any
time given by Borrower or any of the Principals to Lender in writing in
connection with the Loan shall be materially false or misleading.

               D.  Involuntary Bankruptcy; Appointment of Receiver, etc.

                   (i)  A court having proper jurisdiction shall enter a decree
or order for relief with respect to Borrower or any of the Principals in an
involuntary case under the Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, which decree or
order is not stayed within seven (7) days after entry and dismissed within
ninety (90) days after the entry of such order; or any other similar relief
shall be granted under any applicable federal or state law; or

                   (ii) An involuntary case is commenced against Borrower or any
of the Principals, under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect; or a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over Borrower or any of the Principals or over all
or a substantial part of their respective property, shall be entered; or the
involuntary appointment of an interim receiver, trustee or other custodian of
Borrower or any of the Principals, for all or a substantial part of their
respective property; or the issuance of a warrant of attachment, execution or
similar process against any substantial part of the respective property of
Borrower or any of the Principals, and the continuance of any such event in this
clause (ii) for ninety (90) days unless dismissed or discharged.

               E.  Voluntary Bankruptcy; Appointment of Receiver, etc.

                   (i)  Borrower or any of the Principals shall have an order
for relief entered with respect to them or commence a voluntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or shall consent to the entry of an order for relief
in an involuntary case, or to the conversion of an involuntary case to a
voluntary case,

                                      -25-

<PAGE>

under any such law, or shall consent to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of their
respective property; the making by Borrower or any of the Principals of any
assignment for the benefit of creditors; or

                   (ii) The inability or failure of Borrower or any of the
Principals, or the admission by Borrower or any of the Principals in writing of
its inability, to pay their respective debts as such debts become due.

               F.  Lien Priority. Lender fails to have a legal, valid binding
and enforceable first priority Lien on the Project and the Personal Property
except with respect to any loss of lien priority as the result of any action
taken in writing by Lender.

               G.  Unapproved Transfers. Any transfer (as defined in Section
1.10 of the Deed of Trust) of the Project or any interest in Borrower occurs
without Lender's prior written consent in accordance with Section 1.10 of the
Deed of Trust.

               H.  Failure to Maintain Insurance. Borrower fails to maintain or
cause to be maintained the insurance coverage required by Section 7.6.

               I.  Other Liens. Without limiting the provisions of Section 7.1
of this Agreement or Section 1.10 of the Deed of Trust, Borrower defaults under
any Lien (other than the Liens created by the Loan Documents) or foreclosure or
other proceedings are commenced to enforce any Lien (other than the Liens
created by the Loan Documents).

               J.  Other Loan Documents. The occurrence of an Event of Default
under any of the other Loan Documents (as "Event of Default" is defined
therein).

         8.2   General Remedies.

               Notwithstanding anything to the contrary contained herein or in
any of the other Loan Documents, upon the occurrence of any Event of Default (i)
automatically without notice to Borrower as to Sections 8.KD), (E) and (J), and
otherwise at the option of Lender upon written notice to Borrower as to any
other Event of Default, the unpaid principal amount of the Loan, all accrued and
unpaid interest and all other Secured Obligations shall become immediately due
and payable, without presentment, demand, protest, further notice or other
requirements of any kind, all of which are hereby expressly waived by Borrower,
(ii) Lender shall have the rights and remedies of a secured party under the
California Commercial Code, and under any other applicable law, (iii) Lender may
pursue all of its rights and remedies hereunder, under the other Loan Documents,
at law, in equity or otherwise, including without limitation, obtaining the
appointment of a receiver, (iv) Lender may pursue any remedies available to it
pursuant to California Code of Civil Procedure Section 726.5, (v) all
outstanding indebtedness and all other amounts owing to Lender under the Loan
Documents shall bear interest at the Default Interest Rate, and (vi) Lender
shall have no further obligation to disburse Loan proceeds to Borrower.

         8.3   Specific Performance.

               Upon the occurrence of an Event of Default, Lender may commence
and maintain an action in any court of competent jurisdiction for specific
performance of any of the covenants and agreements contained herein or in any of
the other Loan Documents, may obtain the aid and direction of the court in the
performance of any of the covenants and agreements contained herein or therein,
and may obtain orders or decrees directing the same and, in the case of any sale
under the Deed of Trust, directing, confirming or approving Lender's or the
trustee's actions.

                                      -26-

<PAGE>

     8.4  Remedies as to Project Documents.

          Upon the occurrence of an Event of Default, Lender shall have the
right (and Borrower hereby irrevocably constitutes and appoints Lender as its
attorney-in-fact, which power is coupled with an interest, to do so) to (a)
demand, receive and enforce Borrower's rights with respect to the Project
Documents, (b) give appropriate receipts, releases and satisfactions for and on
behalf of Borrower with respect to any of the Project Documents, (c) do any and
all acts in the name of Borrower or in the name of Lender with the same force
and effect as Borrower could do if the assignment in Article 4 had not been
made, and (d) perform and discharge each and every obligation, covenant,
condition and agreement of Borrower under the Project Documents.

                                    ARTICLE 9

                            MISCELLANEOUS PROVISIONS

     9.1  Nonforeign Status.

          Section 1445 of the Internal Revenue Code of 1985, as amended (the
"Internal Revenue Code") and Sections 18662, 18668 and 18669 of the California
Revenue and Taxation Code (the "California Tax Code") provide that a transferee
of a U.S. real property interest, or California property interest, as the case
may be, must withhold tax under the circumstances described therein. To inform
Lender that the withholding of tax will not be required in the event of the
disposition of the Project pursuant to the terms of the Deed of Trust, Borrower
hereby certifies, under penalty of perjury, that: (a) Borrower is not a foreign
corporation, foreign partnership, foreign trust or foreign estate, as those
terms are defined in the Internal Revenue Code and/or California Tax Code and
the regulations promulgated thereunder; and (b) Borrower's U.S. employer
identification number is the Tax Identification Number; (c) Borrower's principal
place of business is at the address set forth in Section 9.10, and (d) Borrower
is qualified to do business in the State of California. Lender may disclose the
contents of this Section 9.1 to the Internal Revenue Service or any other
Governmental Agency and Borrower acknowledges that any false statement contained
herein could be punished by fine, imprisonment or both. Borrower covenants and
agrees to execute further certificates, which shall be signed under penalty of
perjury, as Lender shall reasonably require in connection with the
certifications set forth herein. The covenant set forth herein shall survive the
foreclosure of the lien of the Deed of Trust or acceptance of a deed in lieu or
in aid thereof.

     9.2  Assignments and Participations in Loan and Note.

          Lender may assign its rights and delegate its obligations under this
Agreement or any of the other Loan Documents and further may assign, or sell
participations in, all or any part of the Loan, the Loan Documents, or any other
interest herein or in the Note to any Person, all without notice to or the
consent of Borrower. To the extent of any such assignment, Lender shall be
relieved of its obligations with respect to the Loan and the assignee shall have
the same rights, benefits and obligations as it would if it were Lender
hereunder and a holder of the Note. Lender may furnish any information
(including, without limitation, financial information) concerning the Project,
Borrower, Principals and any of their assets to third parties from time to time
for legitimate business purposes.

     9.3  Expenses.

          Borrower agrees to pay, within ten (10) days after demand by Lender,
all reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees and costs, fees of any consultants, and fees for any
environmental audits, appraisal, inspections or other review required by

                                      -27-

<PAGE>

Lender) incurred by Lender in connection with the Loan, the enforcement of any
of the Secured Obligations, the enforcement of any of Lender's rights and
remedies under the Loan Documents, the collection of any payments owing to
Lender hereunder or under any of the other Loan Documents, whether or not such
enforcement and collection includes the filing of a lawsuit, or the retaking,
holding, preparing for sale or selling the Project or any portion thereof or any
interest therein; provided, however that the reimbursement to Lender of the
costs and expenses of environmental audits shall be governed by Section 7.5(B).
Such costs and expenses shall include, without limitation, Lender's reasonable
attorneys' fees and costs, including without limitation attorneys' fees and
costs incurred by Lender in connection with any insolvency, bankruptcy,
reorganization, arrangement or other similar proceedings involving Borrower or
any of the Principals which in any way affect the exercise by Lender of its
rights and remedies hereunder, under any of the other Loan Documents, at law or
in equity.

     9.4  Joint and Several Obligations.

          The liability of Borrower under this Agreement and under each of the
other Loan Documents shall be joint and several. Any married person signing the
Loan Documents as Borrower or its general partner agrees that recourse may be
had against community assets and against his or her separate property for the
satisfaction of all obligations under the Loan Documents.

     9.5  Indemnity.

          Borrower hereby indemnifies and agrees to defend and hold harmless the
Indemnitees from and against any and all expenses, loss, claims, damage or
liability, including, without limitation, architects', engineers' and attorneys'
fees and costs (collectively, "Liability Costs") by reason of: (a) the
construction of any improvements on the Project, (b) any capital improvements,
other work or things done in, on or about the Project or any part thereof, (c)
any use, nonuse, misuse, possession, occupation, alteration, operation,
maintenance or management of the Project or any part thereof or any street,
drive, sidewalk, curb passageway or space comprising a part thereof or adjacent
thereto, (d) any negligence or willful act or omission on the part of Borrower
or its agents, contractors, servants, employees, licensees or invitees, (e) any
accident, injury (including death) or damage to any person or property occurring
in, on or about the Project or any part thereof, (f) any Lien or claim which may
be alleged to have arisen on or against the Project or any part thereof or any
liability asserted against Lender with respect thereto, (g) any tax attributable
to the execution, delivery, filing or recording of the Deed of Trust, the Note
or the other Loan Documents, (h) any contest due to Borrower's actions or
failure to act, (i) any default under the Note or the other Loan Documents, or
(J) any claim by or liability to any contractor or subcontractor performing work
or any party supplying materials in connection with the Project. The scope of
this indemnity shall not extend to Liability Costs that are solely the result of
the acts or omissions of Lender after the date that Lender takes title to the
Project through foreclosure or deed in lieu of foreclosure; provided, however,
that this sentence shall not reduce or release any of Borrower's obligations to
Lender with regard to any environmental matters as provided in the Loan
Documents, including, without limitations, Section 7.5 above.

     9.6  Waiver of Offset.

          All sums payable by Borrower pursuant to any of the Loan Documents
shall be paid without notice, demand, counterclaim, setoff, deduction or defense
and without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower under the Loan Documents shall in no way
be released, discharged or otherwise affected (except as expressly provided in
the Loan Documents) by reason of: (a) any damage to or destruction of the
Project or any Condemnation Event (as defined in the Deed of Trust) affecting
the Project or any part thereof; (b) any restriction or prevention of or
interference by any third party with any use of the Project or any part thereof;
(c) any title defect or encumbrance or any eviction from the Project or any part
thereof by title

                                      -28-

<PAGE>

paramount or otherwise; (d) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to Lender, or any action taken with respect to any of the Loan
Documents by any trustee or receiver of Lender, or by any court, in any such
proceeding; (e) any claim which Borrower has or might have against Lender; (f)
any default or failure on the part of Lender to perform or comply with any of
the terms hereof or of any other agreement with Borrower; or (g) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing; whether
or not Borrower shall have notice or knowledge of any of the foregoing. Except
as expressly provided herein, Borrower waives all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension, deferment,
diminution or reduction of any of the Secured Obligations.

     9.7  Amendments and Waivers.

          This Agreement and the other Loan Documents may only be modified in
writing signed by all of the parties hereto or thereto or their respective
successors and assigns. No waiver of any provision of this Agreement or of any
of the other Loan Documents, or consent to any departure by Borrower therefrom,
shall in any event be effective without the written agreement of Lender. Any
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it was given. Except as expressly required by the
terms of the Loan Documents, no notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances.

     9.8  WAIVER OF JURY TRIAL.

          BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
TORT OR CONTRACT LITIGATION BASED HEREON OR ON ANY OF THE OTHER LOAN DOCUMENTS,
OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE NOTE, ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION THEREWITH.

     9.9  Submission of Loan Documents.

          The submission of this Agreement, any of the other Loan Documents or
the Environmental Indemnity to Borrower or its agents or attorneys for review or
signature does not constitute a commitment by Lender to make the Loan to
Borrower, and the Loan Documents and the Environmental Indemnity shall have no
binding force or effect unless and until they are executed and delivered by
Borrower and Lender and all of the conditions set forth in Section 3.1 have been
satisfied.

     9.10 Notices.

          Any notice, or other document or demand required or permitted under
this Agreement or any of the other Loan Documents shall be in writing addressed
to the appropriate address set forth below and shall be deemed delivered upon
the earliest of (a) actual receipt, (b) the next Business Day after the date
when sent by recognized overnight courier, or (c) the second Business Day after
the date when sent by registered or certified mail, postage prepaid. Any party
may, from time to time, change the address at which such written notice or other
documents or demands are to be sent, by giving the other party written notice of
such change in the manner hereinabove provided.

     To Borrower:        c/o Zhone Technologies Campus, LLC
                         7001 Oakport Street
                         Oakland, California 94621

                                      -29-

<PAGE>

                              Attn: Mr.  Kirk Misaka

          To Lender:          Fremont Investment & Loan
                              175 N. Riverview Drive Anaheim,
                              California 92808 Attention: Commercial
                              Real Estate Loan No. 950114107

     9.11 Survival of Warranties and Certain Agreements.

          All agreements, indemnities, representations and warranties made
herein and in the other Loan Documents shall survive the execution and delivery
of this Agreement, the making of the Loan hereunder and the execution and
delivery of the Note. All representations and warranties made in this Agreement
or in any of the other Loan Documents shall further survive any and all
investigations and inquiries made by Lender, shall remain true, correct and
complete in all material respects and shall remain continuing obligations so
long as any portion of the Secured Obligations remains outstanding or
unsatisfied. Notwithstanding anything in this Agreement or the other Loan
Documents or implied by law to the contrary, any indemnities made by Borrower in
the Loan Documents shall survive the payment of the Loan, the satisfaction of
the Secured Obligations, and/or the termination of this Agreement or the other
Loan Documents.

     9.12 Failure or Indulgence Not Waiver; Remedies Cumulative.

          No failure or delay on the part of Lender or any holder of the Note or
portion thereof in the exercise of any power, right or privilege hereunder or
under the Note shall impair such power, right or privilege or be construed to be
a waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
separate, distinct and cumulative to, and not exclusive of, any rights or
remedies otherwise available at law or in equity. No act of Lender under any of
the Loan Documents shall be construed as an election to proceed under any one
provision to the exclusion of any other provision, notwithstanding anything in
the Loan Documents to the contrary. Borrower expressly waives all right to the
benefit of any statute of limitations and any moratorium, reinstatement,
marshaling, forbearance, extension, redemption, or appraisement now or hereafter
provided by federal or state law, as a defense to any demand against Borrower to
the fullest extent permitted by law.

     9.13 Survival of Obligations Upon Termination of Agreement.

          No termination or cancellation (regardless of cause or procedure) of
this Agreement or any of the other Loan Documents shall in any way affect or
impair the powers, obligations, duties, rights, and liabilities of Borrower or
Lender relating to (a) any transaction or event occurring prior to such
termination or cancellation, or (b) any of the undertakings, agreements,
covenants, indemnities, warranties and representations of Borrower or Lender
contained in this Agreement or any of the other Loan Documents.

     9.14 Disbursements in Excess of Loan Amount.

          In the event the total disbursements by Lender exceed the amount of
the Loan set forth herein, the total of all disbursements shall, to the extent
permitted by the laws of the State of California, constitute part of the Secured
Obligations and be secured by the Deed of Trust and other Loan Documents. All
other sums expended by Lender pursuant to this Agreement or any of the other
Loan

                                      -30-

<PAGE>

Documents shall be deemed to have been paid to Borrower and shall be secured by
the Loan Documents.

     9.15  Severability.

           If any term of this Agreement or any of the other Loan Documents or
the application thereof to any person or circumstances, shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or other Loan Document
or the application of such term to persons or circumstances other than those as
to which it is invalid or unenforceable, shall not be affected thereby, and each
term of this Agreement or other Loan Document shall be valid and enforceable to
the fullest extent.

     9.16  Rules of Construction.

           Where the identity of the parties to this Agreement or any of the
other Loan Documents or the circumstances make it appropriate, the masculine
gender includes the feminine and/or neuter, and the singular number includes the
plural. Article and Section headings in this Agreement and the other Loan
Documents are included for convenience of reference only and shall not
constitute a part of this Agreement or such other Loan Documents for any other
purpose or be given any substantive effect. The recitals to this Agreement and
to each of the other Loan Documents are incorporated herein and therein and made
a part hereof and thereof.

     9.17  Applicable Law.

           This Agreement and the other Loan Documents shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.

     9.18  Successors and Assigns.

           This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Except as
expressly provided in the Deed of Trust, Borrower's rights and obligations or
any interest hereunder or under any of the other Loan Documents may not be
assigned, including, without limitation, assigned for security purposes, without
the prior written consent of Lender, which may be withheld in Lender's sole
discretion, and any purported assignment shall be null and void ab initio. As
used herein, and in the other Loan Documents, "Lender" (or similar references to
the lender) shall include all holders of the Note, including, without
limitation, pledgees of the Note, whether or not named herein or therein. In
exercising any rights hereunder or under any of the other Loan Documents or
taking any actions provided for herein or therein, Lender may act through its
employees, agents or independent contractors authorized by Lender.

     9.19  Disclosure of Information.

           Borrower hereby acknowledges and agrees that upon the request of any
partner, member or shareholder of Borrower, as applicable, Lender may disclose
to such party any information (including, without limitation, financial
information) relating to the Loan and Borrower's performance of its obligations
under the Loan Documents. Borrower hereby indemnifies and agrees to defend and
hold harmless the Indemnitees from and against any and all expenses, loss,
claims, damage or liability, including, without limitation, attorneys' fees and
costs, arising by reason of any disclosure of information by Lender under this
Section 9.19.

     9.20  Counterparts.

                                      -31-

<PAGE>

           This Agreement and the other Loan Documents may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts taken together shall
constitute but one and the same instrument. Signature and, if applicable,
acknowledgment pages may be detached from the counterparts and attached to a
single copy of the applicable document to physically form one document, which
may be recorded if applicable.

     9.21  Entire Agreement.

           The Loan Documents and the Commitment Letter set forth the entire
understanding between Borrower and Lender relative to the Loan and the same
supersede all prior agreements and understandings relating to the subject matter
hereof or thereof.

     9.22  Inconsistencies.

           In the event it is impossible to simultaneously comply with the terms
of this Agreement and any of the terms of any other Loan Document, the terms of
this Agreement shall control over any inconsistent term of any other Loan
Document.

     9.23  Time is of the Essence.

           Time is strictly of the essence of this Agreement and the other Loan
Documents.

     9.24  No Third Party Beneficiaries.

           This Agreement and the other Loan Documents are made and entered into
for the sole protection and benefit of the parties hereto, and, except as
provided in Section 9.18, no other person or entity shall be a direct or
indirect beneficiary of, or shall have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.

                                      -32-

<PAGE>

           IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by Borrower and Lender as of the date first above written.

                             BORROWER:

                             ZHONE TECHNOLOGIES CAMPUS, LLC,
                             a California limited liability company

                             By:    Zhone Technologies, Inc. a
                                    Delaware corporation Its:
                                    Managing Member

                                    By: /s/ Kirk Misaka
                                       -----------------------------------------
                                            Kirk Misaka
                                            Its: Vice President and Treasurer

                             LENDER:

                             FREM 5fcT INVESTMENT & LOAN,
                             a California industrial loan association

                             By: /s/ [ILLEGIBLE]
                                ------------------------------------------------
                                    Its: Vice President and Treasurer
                                        ----------------------------------------

                                       S-1

<PAGE>

                                    EXHIBIT A

                             Description of Property

That certain real property located in the City of Oakland, County of Alameda,
State of California, having a street address of 6775, 7001 and 7195 Oakport
Street, more particularly described as follows:

CITY OF OAKLAND

BEING A PORTION OF LOT 12, AS SHOWN ON PARCEL MAP NO. 6003, FILED IN BOOK 205 OF
PARCEL MAPS, AT PAGES 94 THROUGH 98, ALAMEDA COUNTY RECORDS, MORE PARTICULARLY
DESCRIBED AS FOLLOWS:

COMMENCING AT THE MOST SOUTHERLY CORNER OF SAID LOT 12; THENCE ALONG THE
SOUTHWESTERLY LINE OF SAID LOT 12, NORTH 33(degree) 50' 24" WEST, 628.68 FEET TO
THE POINT OF BEGINNING; THENCE CONTINUING ALONG THE SOUTHWESTERLY LINE OF SAID
LOT 12, NORTH 33(degree) 50' 24" WEST, 1029.21 FEET; THENCE ALONG THE
SOUTHEASTERLY LINE OF SAID LOT 12, SOUTH 56(degree) 09' 36" WEST, 14.00 FEET;
THENCE ALONG THE SOUTHWESTERLY LINE OF SAID LOT 12, NORTH 33(degree) 50' 24"
WEST, 253.55 FEET TO THE BEGINNING OF A CURVE, CONCAVE SOUTHWESTERLY, HAVING A
RADIUS OF 392.21 FEET; THENCE NORTHERLY ALONG THE ARC OF SAID CURVE, THROUGH A
CENTRAL ANGLE OF 3(degree) 51' 45", AN ARC DISTANCE OF 26.44 FEET TO THE
INTERSECTION OF A LINE DRAWN PARALLEL WITH AND 85.00 FEET SOUTHEASTERLY OF THE
NORTHWESTERLY LINE OF SAID LOT 12, A RADIAL LINE THROUGH SAID POINT BEARS NORTH
52(degree) 17' 51" EAST; THENCE PARALLEL WITH THE NORTHWESTERLY LINE OF SAID LOT
12, NORTH 56(degree) 09' 36" EAST, 476.93 FEET TO A POINT THAT IS 5 FEET
SOUTHWESTERLY OF THE NORTHEASTERLY LINE OF SAID LOT 12; THENCE ALONG A LINE THAT
IS PARALLEL WITH AND 5 FEET SOUTHWESTERLY OF THE SAID NORTHEASTERLY LINE OF LOT
12, SOUTH 40(degree) 00' 30" EAST, 69.44 FEET TO THE BEGINNING OF A CURVE,
CONCAVE SOUTHWESTERLY, HAVING A RADIUS OF 1949.00 FEET; THENCE SOUTHEASTERLY
ALONG THE ARC OF SAID CURVE, THROUGH A CENTRAL ANGLE OF 6(degree) 10' 18", AN
ARC DISTANCE OF 209.94 FEET; THENCE CONTINUING ALONG A LINE THAT IS PARALLEL
WITH AND 5 FEET SOUTHWESTERLY OF THE SAID NORTHEASTERLY LINE OF A LOT 12, SOUTH
33(degree) 50' 12" EAST, 1030.61 FEET TO THE INTERSECTION WITH A LINE DRAWN
PERPENDICULAR WITH THE SOUTHWESTERLY LINE OF SAID LOT 12, DISTANT THEREON 628.68
FEET FROM THE MOST SOUTHERLY CORNER OF SAID LOT 12; THENCE SOUTHWESTERLY ALONG
SAID PERPENDICULAR LINE, SOUTH 56(degree) 09' 36" WEST, 480.72 FEET TO THE POINT
OF BEGINNING.

THE BASIS OF BEARINGS FOR PARCEL MAP NO. 6003 IS THE NORTH AMERICAN DATUM OF
1983, ZONE 3, 1984 ADJUSTMENT PUBLISHED IN 1986, AS SHOWN ON RECORD OF SURVEY
990, FILED IN BOOK 18 OF RECORDS OF SURVEY, AT PAGES 50 THROUGH 60, ALAMEDA
COUNTY RECORDS. ALL DISTANCES IN THIS DESCRIPTION ARE GRID DISTANCES. TO CONVERT
TO GROUND DISTANCES, MULTIPLY GRID DISTANCES BY 1.0000708.

ASSESSOR'S PARCEL NO. 041-3902-015 (PORTION)

                                       A-1

<PAGE>

                                    EXHIBIT B

                        Description of Personal Property

     All of Borrower's right, title and interest, now or hereafter acquired, in
and to the following:

     (a)   All personal property, including, without limitation, all goods,
supplies, equipment, furniture, furnishings, fixtures, machinery, inventory and
construction materials which Borrower now or hereafter owns or in which Borrower
now or hereafter acquires an interest or right, including, without limitation,
those which are now or hereafter located on or affixed to the Project and used
or useful in the operation, use or occupancy thereof or the construction of any
improvements thereon, including, without limitation, any interest of Borrower in
and to personal property which is leased or subject to any superior security
interest, or which is being manufactured or assembled for later installation
into the improvements now or hereafter located at the Project, wherever located,
and all books, records, leases and other documents, of whatever kind or
character, relating to the Project, but excluding Borrower's furniture and
equipment which is not used or useful for the development, operation, ownership,
repair, maintenance or restoration of the Project;

     (b)   All fees, income, rents, issues, profits, earnings, receipts,
royalties and revenues which, after the date hereof and while any portion of the
Secured Obligations remains unpaid, may accrue from such goods, fixtures,
furnishings, equipment and building materials or any part thereof or from the
Project or any part thereof, or which may be received or receivable by Borrower
from any hiring, using, letting, leasing, subhiring, subletting, or subleasing
of a portion of the Project;

     (c)   All of Borrower's present and future rights to receive payments of
money, services or property (including, without limitation, rights to all
deposits from tenants of the Project, deposits from prospective purchasers of
the Project, capital contributions from the constituent partners of Borrower (if
Borrower is a partnership), amounts payable on account of the sale of
partnership interests or stock of Borrower, accounts, accounts receivable,
deposit accounts, chattel paper, notes, drafts, contract rights, instruments,
general intangibles and principal, interest and payments due on account of goods
sold, services rendered, loans made or credit extended, together with title or
interest in all documents evidencing or securing the same, which relate to the
use, operation, ownership or maintenance of the Project.

     (d)   All other intangible property and rights relating to the Project or
the operation thereof, or used in connection therewith, including but not
limited to all governmental permits relating to construction or other activities
on the Project, all names under or by which the Project may at any time be
operated or known, all rights to carry on business under any such names, or any
variant thereof, all trade names and trademarks relating in any way to the
Project, goodwill in any way relating to the Project, and all permits, licenses,
franchises, approvals, variances and land use entitlements relating in any way
to, or to the occupancy, operation, ownership and use of, the Project;

     (e)   All judgments, claims, settlements of claims and causes of action
under any legal proceeding relating to the Project or the ownership, use,
occupancy or operation thereof;

     (f)   All proceeds from sale or disposition of the Personal Property;

     (g)   Borrower's rights under all insurance policies covering the Project
or any of the Personal Property (whether or not Borrower is required to maintain
such insurance under the terms of the Loan Documents), and all proceeds, loss
payments and premium refunds payable regarding the same;

                                       B-1

<PAGE>

     (h)   All reserves, deferred payments, deposits, refunds, cost savings and
payments of any kind relating to the construction of any improvements on the
Project;

     (i)   All water stock relating to the Project;

     (j)   All causes of action, claims, compensation and recoveries for any
damage to or condemnation or taking of the Project or the Personal Property, or
for any conveyance in lieu thereof, whether direct or consequential, or for any
damage or injury to the Project or the Personal Property, or for any loss or
diminution in value of the Project or the Personal Property;

     (k)   All architectural, structural, mechanical and engineering plans and
specifications prepared for construction of improvements or extraction of
minerals or gravel from the Project and all studies, data and drawings related
thereto, and all contracts and agreements of Borrower relating to such plans and
specifications or such studies, data and drawings or to the construction of
improvements on or extraction of minerals or gravel from the Project;

     (l)   All of Borrower's present and future rights in and to all refunds,
rebates, reimbursements, reserves, deferred payments, deposits, cost savings,
governmental subsidy payments, governmentally-registered credits (such as
emissions reduction credits), other credits, waivers and payments, whether in
cash or kind, due from or payable by any Governmental Agency or any insurance or
utility company relating to any or all of the Project, any improvements thereon
or any of the collateral described herein or arising out of satisfaction of any
condition imposed upon or the obtaining of any approvals for the development of
the Project or the improvements thereon;

     (m)   All of Borrower's present and future rights in and to all refunds,
rebates, reimbursements, credits and payments of any kind due from or payable by
any Governmental Agency or other entity for any taxes, special taxes,
assessments, or similar governmental or quasi-governmental charges or levies
imposed upon Borrower with respect to the Project, any improvements thereon or
any of the collateral described herein or arising out of the satisfaction of any
condition imposed upon or the obtaining of any approvals for the development of
the Project or the improvements thereon;

     (n)   All Borrower's rights in proceeds of the Loan;

     (o)   All Borrower's rights to receive the proceeds of any "take-out" or
permanent financing or commitment to provide such financing; and

     (p)   All proceeds and products of any of the foregoing (and proceeds and
products of proceeds and.products).

     All terms used herein which are defined in the California Commercial Code
shall have the same meanings when used herein, unless the context requires
otherwise.

                                       B-2

<PAGE>

                                    EXHIBIT C

                               Completion Schedule

                                [To be attached]

                                       C-1

<PAGE>

 ZHONE TECHNOLOGIES COMPLETION SCHEDULE

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                           1            2             3             4             5

Cost Category               Project      Rem. Cost
                            Budget      to Complete    30-Apr-01     30-May-01    30-June-01    30-July-01     30-Aug-01
----------------------------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>           <C>           <C>           <C>           <C>           <C>
Land Cost                 $ 6,321,081   $    20,691   $         0   $         0   $         0   $         0   $         0
Offsites                  $ 3,013,415  -$ 2,038,689
Site Work                 $ 6,740,894   $ 1,280,119   $     5,000   $    65,000   $   150,000   $   255,000   $   295,000
Shell - building 1        $ 2,967,304   $     6,691   $         0   $     6,691   $         0   $         0   $         0
Shell - building 2        $ 5,181,977   $   571,769   $    45,000   $    95,000   $   150,000   $   175,000   $   106,769
Shell - building 3        $10,809,162   $ 4,034,112   $   125,000   $   237,112   $   425,000   $   645,000   $   610,000
Tenant Improvement - 1    $ 4,317,680   $   256,223   $   141,600   $    15,000   $    35,000   $    30,000   $    18,000
Tenant Improvement - 2    $10,389,385   $   542,747   $    85,500   $    50,000   $    60,000   $    75,000   $   120,000
Tenant Improvement - 3    $12,241,629   $ 1,900,000   $   125,000   $   275,000   $   300,000   $   310,000   $   350,000
Architect & Engineering   $ 2,721,972  -$    47,702   $         0   $         0   $         0   $         0   $         0
Development Fee           $ 2,435,956   $   266,423   $         0   $    33,303   $    33,303   $    33,303   $    33,303
Fees & Permits            $   935,546   $    16,848   $         0   $         0   $         0   $         0   $       975
Taxes, title, bonds       $   483,700   $   412,958   $         0   $         0   $         0   $         0   $         0
Financing & Insurance     $ 3,703,161   $ 1,608,591   $    25,000   $    25,000   $    25,000   $    25,000   $         0
Contingencies             $   750,933   $   750,933   $   213,646   $   213,646   $   213,648
----------------------------------------------------------------------------------------------------------------------------
Total Budget              $73,013,795     9,581,714   $   552,100   $   802,106   $ 1,178,303   $ 1,548,303   $ 1,534,047
----------------------------------------------------------------------------------------------------------------------------
Cumulative Total                                      $   552,100   $ 1,354,206   $ 2,532,509   $ 4,080,812   $ 5,614,859
----------------------------------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------------
                               6            7             8              9             10

Cost Category                                                                          Total
                           30-Sep-01     30-Oct-01     30-Nov-01     30-Dec-01         (Sum 1-9)
------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>           <C>           <C>                <C>
Land Cost                 $         0   $         0            SO   $         0        $         0
Offsites
Site Work                 $   275,000   $   190,000   $    45,119   $         0        $ 1,280,119
Shell - building 1        $         0   $         0   $         0   $         0        $     6,691
Shell - building 2        $         0   $         0   $         0   $         0        $   571,769
Shell - building 3        $   915,000   $   565,000   $   412,000   $   100,000        $ 4,034,112
Tenant Improvement - 1    $    16,623   $         0            50   $         0        $   256,223
Tenant Improvement - 2    $   152,247   $         0   $         0   $         0        $   542,747
Tenant Improvement - 3    $   415,000   $   125,000   $         0   $         0        $ 1,900,000
Architect & Engineering   $         0   $         0   $         0   $         0        $         0
Development Fee           $    33,303   $    33,303   $    33,303   $    33,303        $   2*6,424
Fees & Permits            $         0   $         0   $         0   $         0        $       975
Taxes, title, bonds       $         0   $         0   $         0   $         0        $         0
Financing & Insurance     $         0   $         0   $         0   $         0        $   100,000
Contingencies                                                                          $   640,940
------------------------------------------------------------------------------------------------------
Total Budget              $ 1,807,173   $ 1,126,949   $   704,068   $   346,951        $ 9,600,000
------------------------------------------------------------------------------------------------------
Cumulative Total          $ 7,422,032   $ 8,548,981   $ 9,253,049   $ 9,600,000
------------------------------------------------------------------------------------------------------
</TABLE><PAGE>

                                                                   Exhibit 10.22

                PLEDGE AND ASSIGNMENT OF CASH COLLATERAL ACCOUNT

          THIS PLEDGE AND ASSIGNMENT OF CASH COLLATERAL ACCOUNT, dated as of
March 30, 2001 (the "Agreement"), is made by ZHONE TECHNOLOGIES CAMPUS, LLC, a
California limited liability company ("Pledger"), to FREMONT INVESTMENT & LOAN,
a California industrial loan association ("Lender").

                                    RECITALS

          A. Pursuant to that certain Loan and Security Agreement of even date
herewith (the "Loan Agreement"), Lender has agreed to make a loan to Pledger in
the original principal amount of up to Thirty-Five Million Dollars ($35,000,000)
(the "Loan"). The Loan is evidenced by that certain Secured Promissory Note of
even date herewith from Pledger to Lender in the original principal amount of
the Loan (the "Note"). The Loan is secured by, among other things, that certain
Deed of Trust and Fixture Filing of even date herewith executed by Pledger, as
trustor, in favor of Lender, as beneficiary (the "Security Instrument")
encumbering the property described therein (the "Property"). As used herein,
"Loan Documents" shall mean this Agreement, the Note, the Security Instrument
and all other documents or instruments executed in connection with or securing
the Loan (other than the Environmental Indemnity). All initially-capitalized
terms used herein without definition shall have the meanings given such terms in
the Loan Agreement.

          B. As a condition precedent to the closing of the Loan, Lender has
required that (i) Pledger deposit the amount of Six Million Dollars ($6,000,000)
into the Account (as hereinafter defined) to be used for the purposes set forth
herein, and (ii) pledge and assign to Lender the Account and the other
Collateral (as hereinafter defined) as provided herein.

          NOW, THEREFORE, in consideration of the foregoing recitals and in
order to induce Lender to make the Loan to Pledger, Pledger hereby agrees as
follows.

          SECTION 1. Pledge and Assignment. Pledger hereby pledges and assigns
to Lender and grants to Lender a security interest in the following collateral
(the "Collateral"):

          (i)   Account No. __________ (the "Account") with Lender, in the name
     of Pledger and Lender, and all certificates and instruments, if any, from
     time to time representing or evidencing the Account; and

          (ii)  all cash or other items, now or hereafter from time to time
     contained in or evidencing the Account (collectively, "Deposits") and all
     certificates and instruments, if any, from time to time representing or
     evidencing the Deposits; and

          (iii) all interest, dividends, cash, instruments and other property
     from time to time received, receivable or otherwise distributed in respect
     of or in exchange for any or all of the then existing Collateral; and

          (iv)  to the extent not covered by clauses (i) through (iii) above,
     all proceeds of any or all of the foregoing Collateral.

<PAGE>

          SECTION 2. Security for Obligations. This Agreement secures all
obligations of Pledger now or hereafter existing under the Loan Documents and
this Agreement (all such obligations of Pledger being the "Obligations").

          SECTION 3. Interest on the Account. Interest and proceeds of the
Account shall be deposited and held in the Account.

          SECTION 4. Deposits Into the Account.

          (a)  Initial Deposit. As a condition to the closing of the Loan,
     Pledger shall execute a Pledge Account Agreement in the form of Exhibit A
     attached hereto and shall deposit the amount of Six Million Dollars
     (36,000,000) (the "Initial Deposit") into the Account.

          (b)  Additional Deposit. If Borrower fails to complete the Work to the
     satisfaction of Lender and its consultants by the Scheduled Completion
     Date, then Pledger shall make an additional deposit into the Account (the
     "Additional Deposit"), which Additional Deposit shall be in the aggregate
     amount of all of the following items:

               (i)  the remaining costs to complete Building 3, as projected by
                    Lender and its consultants (the "Remaining Building 3
                    Costs") plus a contingency in the amount of ten percent
                    (10%) of the Remaining Building 3 Costs; and

               (if) all soft costs and financing costs necessary to complete
                    Buildings 1 and 2, as determined by Lender and its
                    consultants.

          Borrower shall deposit the Additional Deposit into the Account within
     ten (10) days of receipt of Lender's written determination of the amount of
     the Additional Deposit, which determination shall be made in Lender's sole
     discretion.

          (c)  Letter of Credit. At any time during the term of the Loan,
     Pledger may substitute a letter of credit ("Letter of Credit") for the
     Initial Deposit and any Additional Deposit required hereunder, subject to
     complying with the following conditions to Lender's satisfaction:

               (i)  Pledger shall give Lender thirty (30) days written notice
                    prior to substituting the Letter of Credit for the Deposits;
                    and

               (ii) the Letter of Credit shall be an irrevocable, unconditional,
                    direct draw letter of credit issued by an Issuer in the face
                    amount of the total Deposits which are then required to be
                    in the Account, having an initial term of not less than
                    twelve (12) months, and in form and substance satisfactory
                    to Lender in its discretion. "Issuer" means a bank (other
                    than an affiliate of Borrower or the Completion Guarantor)
                    organized under the laws of the United States, any state of
                    the United States, or of the District of Columbia and with
                    both: (a) a Long-Term Bank Deposit Rating of A2 or better
                    from Moody's Investors Service, and (b) a Long Term
                    Counterparty Credit Rating of A or better from Standard &
                    Poor's, and otherwise approved by Lender in its sole
                    discretion.

          (d)  Waiver of Deposits. The requirement for the Deposits and the
     maintenance of the Account hereunder (the "Pledge Requirements") shall be
     waived by Lender upon receipt by Lender of evidence satisfactory to Lender
     of the following events:

<PAGE>

               (i)   Zhone Technologies, Inc. ("Zhone, Inc."), the managing
                     member of Pledger has achieved "investment grade status,"
                     which shall mean that Zhone, Inc. is rated BBB (or higher)
                     by Standard & Poors Rating Service;

               (ii)  Zhone, Inc. has a minimum net worth, as determined under
                     generally accepted accounting principles ("Minimum Net
                     Worth") of at least Two Hundred Million Dollars
                     ($200,000,000); and

               (iii) there are no Events of Default under the Loan Documents.

          (e)  Reduction of Deposits. If during the term of the Loan Lender
     receives evidence satisfactory to Lender, in its sole discretion, that
     during eight (8) successive calendar quarters (the "Eight Quarter Period"):

               (i)   Zhone, Inc.'s Minimum Net Worth has exceeded Two Hundred
                     Million Dollars ($200,000,000); and

               (ii)  Zhone, Inc.'s EBITDA has remained positive,

     then the amount of the Deposits required under this Agreement shall be
     reduced at the commencement of each successive Loan Year following the
     Eight Quarter Period by Six Hundred Thousand Dollars ($600,000), provided
     that: (A) the requirements set forth in subparagraphs (i) and (ii) above
     continue to be met to Lender's satisfaction; and (B) in no event shall the
     Deposits be reduced below Three Million Dollars ($3,000,000).

          SECTION 5. Maintaining the Account. The Account shall be, and at all
times during the term of the Loan remain, a demand deposit money market account
held with Lender bearing interest at the rate then publicly offered by Lender
for similar accounts. Pledger shall pay all of Lender's costs and customary
charges associated with the opening and closing of, and any withdrawals from,
the Account. Pledgor will maintain the Account with the Lender until the
Termination Date (as hereinafter defined). It shall be a term and condition of
the Account, except as otherwise provided by the provisions of Section 6 and
Section 13 hereof, that no amount (including interest on the Account) shall be
paid or released to or for the account of, or withdrawn by or for the account
of, Pledgor or any other person or entity from the Account, without the prior
written consent of Lender. The Account shall be subject to such applicable laws,
and such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as may
now or hereafter be in effect.

          SECTION 6. Application of Amounts. The funds in the Account shall be
held by Lender as additional Collateral for the Loan. Funds shall be disbursed
from the Account pursuant to Section 13 below upon the Lender's determination
that an Event of Default has occurred under the Loan Documents. Pledgor hereby
expressly authorizes Lender to disburse the funds from the Account as provided
in this Section 6. Notwithstanding the foregoing, Pledgor agrees to promptly
execute all documents and instruments as are requested by Lender in connection
with the disbursement of the funds in the Account as provided in this Section 6.

          SECTION 7. Representations and Warranties. Pledgor represents and
warrants as follows:

<PAGE>

          (a)  Pledger is the legal and beneficial owner of the Collateral free
     and clear of any lien, security interest, or other charge or encumbrance
     except for the security interest created by this Agreement.

          (b)  The pledge and assignment of the Collateral pursuant to this
     Agreement creates a valid and perfected first priority security interest in
     the Collateral, securing the payment of the Obligations.

          SECTION 8.  Further Assurances. Pledger agrees that at any time and
from time to time, at the expense of Pledger, Pledger will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be reasonably necessary, or that Lender may reasonably request, in order to
perfect, continue and protect any security interest granted or purported to be
granted hereby or to enable Lender to exercise and enforce its rights and
remedies hereunder with respect to any Collateral.

          SECTION 9.  Transfers and Other Liens. Pledger agrees that it will not
(i) sell or otherwise dispose of any of the Collateral, or (ii) create or permit
to exist any lien, security interest, or other charge or encumbrance upon or
with respect to any of the Collateral, except for the security interest under
this Agreement.

          SECTION 10. Lender Appointed Attorney-in-Fact. Pledger hereby appoints
Lender, through any duly authorized officer of Lender, as Pledger's
attorney-in-fact, with full authority in the place and stead of Pledger and in
the name of Pledger or otherwise, from time to time in Lender's reasonable
discretion to take any action and to execute any instrument which Lender may
deem reasonably necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, indorse and collect all
instruments made payable to Pledger representing any interest payment, dividend,
or other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.

          SECTION 11. Lender May Perform. If Piedgor fails to perform any
agreement contained herein, Lender may itself perform, or cause performance of,
such agreement, and the expenses of Lender incurred in connection therewith
shall be payable by Piedgor under Section 14.

          SECTION 12. Reasonable Care. Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which Lender accords its own property. Lender shall not have any responsibility
for taking any necessary steps to preserve rights against any parties with
respect to any Collateral.

          SECTION 13. Remedies upon Default. If any Event of Default shall have
occurred under any of the Loan Documents:

          (a)   Lender may, without notice to Piedgor except as required by law
     and at any time or from time to time, charge, set-off and otherwise apply
     all or any part of the Account or any part thereof to Pledger's obligations
     under the Loan Documents.

          (b)   Lender may also exercise in respect of the Collateral, in
     addition to other rights and remedies provided for herein or otherwise
     available to it, all the rights and remedies of a secured party on default
     under the Uniform Commercial Code (the "Code") in effect in the State of
     California at that time, and Lender may, without notice except as specified
     below, sell the Collateral or any part thereof in one or more parcels at
     public or private sale, at any of Lender's offices or elsewhere, for cash,
     on credit or for future delivery, and upon such other terms as

<PAGE>

     Lender may deem commercially reasonable. Pledger agrees that, to the extent
     notice of sale shall be required by law, at least ten (10) days, notice to
     Pledger of the time and place of any public sale or the time after which
     any private sale is to be made shall constitute reasonable notification.
     Lender shall not be obligated to make any sale of the Collateral regardless
     of notice of sale having been given. Lender may adjourn any public or
     private sale from time to time by announcement at the time and place fixed
     therefor, and such sale may, without further notice, be made at the time
     and place to which it was so adjourned.

          (c) Any cash held by Lender as Collateral and all cash proceeds
     received by it in respect of any sale of, collection from, or other
     realization upon all or any part of the Collateral may, in the discretion
     of Lender, then or at any time thereafter be applied (after payment of any
     amounts payable to Lender pursuant to Section 14) in whole or in part by
     Lender against all or any part of the Obligations in such order as Lender
     shall elect. Any surplus of such cash or cash proceeds held by Lender and
     remaining after payment in full of all the Obligations shall be paid over
     to Pledger or to whomsoever may be lawfully entitled to receive such
     surplus.

          SECTION 14. Expenses. Pledger will upon demand pay to Lender the
amount of any and all fees and expenses, including the fees and expenses of its
counsel and of any experts and agents, which Lender may incur in connection with
(i) the administration of this Agreement, (ii) the custody or preservation of,
or the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of Lender
hereunder or (iv) the failure by Pledger or perform or observe any of the
provisions hereof.

          SECTION 15. Amendments. Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Pledger herefrom shall in any
event be effective unless the same shall be in writing and signed by Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.

          SECTION 16. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and given in the
manner set forth in the Loan Agreement.

          SECTION 17. Continuing Security Interest. This Agreement shall create
a continuing security interest in the Collateral and shall (i) remain in full
force and effect until the Loan and all other amounts owing to Lender under the
Loan Documents have been paid in full (the "Termination Date"), (ii) be binding
upon Pledger, its successors and assigns, and (iii) inure to the benefit of
Lender and the respective successors, transferees and assigns of Lender. From
and after the Termination Date, Pledger shall be entitled to the return, upon
its request and at its expense, of such of the Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof.

          SECTION 18. Governing Law; Terms. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, except to
the extent that perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of California. Unless otherwise defined herein
or in the Loan Documents, terms defined in the Uniform Commercial Code in the
State of California are used herein as therein defined.

          SECTION 19. Counterparts. This Agreement may be executed in one or
more counterparts, each of which together shall constitute but one and the same
agreement.

<PAGE>

          IN WITNESS WHEREOF, Pledger has caused this Agreement to be duly
executed and delivered as of the date first above written.

                                    PLEDGOR:

                                    ZHONE TECHNOLOGIES CAMPUS, LLC,
                                    a California limited liability company

                                    By:   Zhone Technologies, Inc. a
                                          Delaware corporation Its:
                                          Managing Member

                                          By: Kirk Misaka
                                          ---------------------------------
                                              Kirk Misaka

                                              Its. Vice President and Treasurer

                                      S-1

<PAGE>

                                EXHIBIT A PLEDGE

                               ACCOUNT AGREEMENT

Pledge Account Number: __________________________

Loan Number: 950114107

Borrower's Legal Name: Zhone Technologies Campus, LLC, a California limited
liability company

Account Tax ID No.:____________________________

     1.   Pledge Account Agreement. This Pledge Account Agreement ("Agreement")
is entered into by and between Zhone Technologies Campus, LLC, a California
limited liability company ("Borrower") and Fremont Investment & Loan ("Lender")
as of the date set forth below to establish a pledge account (the "Pledge
Account") with Lender in accordance with that certain Pledge and Assignment of
Cash Collateral Account of even date herewith made by Borrower in favor of
Lender (the "Pledge Agreement"). Borrower acknowledges and agrees that no one
shall have access to the Pledge Account, other than Lender and its designees and
except as provided herein.

     Borrower acknowledges that it is establishing a Pledge Account relationship
with Lender by completing the information requested and by signing below.
Borrower hereby authorizes the person(s) whose signature(s) appear below to
establish on behalf of Borrower a Pledge Account with Lender. Lender and its
designees and Borrower's authorized signatories, if provided for herein, are
authorized to execute withdrawals and other items on behalf of Borrower, signed
as provided herein, and to endorse and deposit checks and other items payable or
belonging to Borrower. Lender is authorized to honor and pay all checks and
other items so signed, including those payable to order of any person authorized
to sign them. This authorization remains in force until all obligations of
Borrower to Lender under the Loan Documents (as defined in the Pledge Agreement)
are repaid and performed in full. Borrower hereby certifies that its entering
into this Agreement was adopted by Borrower in accordance with all applicable
laws and its charter documents, which are now in full force and effect, and that
the person(s) whose signature(s) appear below on behalf of Borrower are
authorized to act as stated above.

     2.   Certification of Tax Identification Number. (The Tax Identification
Number must match the account name for Internal Revenue Service ("IRS")
purposes.) Under penalty of perjury, the undersigned acknowledges and confirms
one of the following: (Check on the appropriate line).

______ That the taxpayer identification number furnished for this account
          is correct and applicable to this account.

______ That the entity listed herein has been notified by the IRS that it is
          subject to backup withholding because of under reporting interest
          or dividends.

______ The entity listed herein is an exempt recipient under IRS Regulations and
          is not subject to backup withholding.

1) Signature                                                     Date
        Title:_______________________

2) Signature                                                     Date

                                       A-1

<PAGE>

     Title:

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

  Borrower's Business Address: c/o Zhone Technologies Campus, ILC
                                 7001 Oakport Street Oakland, California
                                 94621 Attn: Mr. Kirk Misaka Telephone
                                 No._____________

  Statement Mailing Address:   c/o Zhone Technologies Campus, LLC
                                 7001 Oakport Street Oakland, California
                                 94621 Attn: Mr. Kirk Misaka Telephone No.
                                 _____________

     3.   Number of Borrower Signatures Required for Transactions. All
  transactions with respect to the Pledge Account shall require one (1)
  signature of Lender and ___ signatures of Borrower.

     4.   Authorized Signature(s) of Borrower.

                                                        Print Name:

Signature                                      Title:

__

                                                        Print Name:

Signature                                      Title:

__                                                      Print Name:

Signature                                      Title:,

                                                        Print Name:

Signature                                      Title:

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

NOTICE: SPACE BELOW THIS LINE TO BE COMPLETED BY LENDER AFTER RECEIPT FROM
        BORROWER

     5.   Authorized Signature of Lender.

                                                        Print Name:

 Signature                                     Title:.

                                       A-2

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