Document:

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                                                                   EXHIBIT 10.17

                               SUBLEASE AGREEMENT

This Sublease dated as of August 30, 2000 is made between Nortel Networks NA
Inc., a Delaware corporation ("Sublandlord"), and Netgear, Inc., a Delaware
corporation ("Subtenant").

                                   Background

A.    Sublandlord is the tenant under the Lease dated January 3, 1996 as
      amended, a copy of which is attached hereto as Exhibit A and hereby made a
      part hereof ("Master Lease"), wherein Dell Associates II as predecessor in
      interest to Dell Associates II-A, ("Master Landlord"), leased to
      Sublandlord the Building located at 4500 Great America Parkway, Santa
      Clara, California ("Building") containing approximately Seventy-Five
      Thousand Two rentable square feet ("Master Premises").

B.    Sublandlord and Subtenant now wish to enter into a sublease of a portion
      of the premises covered by the Master Lease, on the terms and conditions
      of this Sublease.

NOW, THEREFORE, the parties agrees as follows:

1.    PREMISES

      Sublandlord hereby subleases to Subtenant on the terms and conditions set
      forth in this Sublease a portion of the Master Premises, consisting of
      approximately 32,322 rentable square feet on the first floor, as
      highlighted, on the floorplan attached hereto as Exhibit B ("Premises").

2.    TERM

      The term of this Sublease shall commence on September 1, 2000
      ("Commencement Date") and continue for fifteen months until November 30,
      2001, unless terminated prior to such date pursuant to the terms hereof.

3.    RENT

      Subtenant shall pay to Sublandlord as Base Monthly Rent for the Premises,
      without deduction, offset, notice, or demand, 2221 Lakeside Blvd., M.S.
      04D/07/B40, Richardson, Texas 75082, or at such other place as Sublandlord
      shall designate from time to time by notice to Subtenant, the monthly sums
      of $1.90 per rentable square foot or $61,411.80 ("Base Monthly Rent").
      This Base Monthly Rent shall be paid each month by Subtenant during the
      term and shall be paid in advance on or before the first day of each
      calendar month during said period.

4.    NET LEASE; OPERATING EXPENSES

      In addition to Base Monthly Rent, Subtenant shall pay to Sublandlord
      Subtenant's percentage share for all utilities, insurance, taxes, building
      operating costs and any other charges, fees, assessments or expenses
      payable by Sublandlord pursuant to the Master Lease or in the operation
      and maintenance of the Building ("Operating Expenses"). "Subtenant's
      percentage share" shall be 43.09% of all such Operating Expenses.
      Sublandlord shall pass through to Subtenant 43.09% of all Operating
      Expenses charged to Sublandlord as and when billed by Master Landlord or
      as

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     incurred by Sublandlord. Subtenant shall pay Subtenant's percentage share
     of Operating Charges as estimated from time to time by Sublandlord (subject
     to later adjustment) as additional rent. Unless otherwise specified, all
     payments of Subtenant's percentage share of Operating Expenses shall be
     payable in full on the date that the next installment of Base Monthly Rent
     is payable.

5.   INSURANCE

     Subtenant shall also be obligated to carry any insurance required under the
     Master Lease covering the Premises or any tenant or subtenant improvements
     therein with any liability insurance naming Sublandlord as an additional
     insured. In addition, Subtenant shall carry insurance for the fully
     insurable amount covering all of Subtenant's personal property on the
     Premises. All insurance obtained by Subtenant shall contain a waiver of
     subrogation clause in favor of Sublandlord and Master Landlord.

6.   SECURITY DEPOSIT

     Subtenant shall pay to Sublandlord a security deposit in the amount of
     $86,245.87 (equal to the first month's rent and operating expenses) upon
     execution of this Sublease as security for full performance of all
     obligations of this Sublease. Subtenant shall be required to leave the
     Premises in broom clean condition and in the same condition as of the
     commencement of this Sublease, normal wear and tear excepted, or
     Sublandlord may appropriate all or part of this deposit to repair any
     damage to the Premises. If Subtenant is not in default hereunder,
     Sublandlord shall return the deposit, if any remains, to Subtenant within
     thirty (30) days after the Sublease terminates. Sublandlord shall not be
     required to keep this deposit separate from its general funds, and
     Subtenant is not entitled to interest.

7.   USE OF PREMISES

     The premises shall be used and occupied in accordance with the Master Lease
     including, but not limited to Section 6 of the Master Lease.

8.   ASSIGNMENT AND SUBLETTING

     Subtenant shall not assign this Sublease or further sublet all or any part
     of the Premises without the prior written consent of Sublandlord and of
     Master Landlord, which the consent of either or both may be withheld for
     any reason in their respective discretion.

9.   PROVISION OF SERVICES

     No services are currently included in Base Monthly Rent or Operating costs
     except for any provided by Master Landlord to Sublandlord under the Master
     Lease. If Sublandlord furnishes the Premises with any additional services
     upon request of Subtenant, Sublandlord shall charge Subtenant a reasonable
     charge therefor, and Subtenant shall pay the additional charge upon billing
     by Sublandlord.

10.  CONDITION OF PREMISES; TRADE FIXTURES

     Subtenant accepts the Premises and Workstations (as hereinafter defined) in
     their "as is" condition as of the Commencement Date. Subtenant shall have
     the right to furnish and install any trade fixtures that are necessary for
     the conduct of its

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        business; provided, however, that at the termination of this Sublease,
        Subtenant shall, if required by Sublandlord, remove such trade fixtures
        and restore the Premises at Subtenant's sole cost to the state and
        condition in which they existed on the Commencement Date, ordinary wear
        and tear excepted. If Subtenant fails to comply with the provisions of
        this paragraph, Sublandlord may make such repairs or restoration, and
        the reasonable cost thereof shall be additional rent payable by
        Subtenant on demand. All trade fixtures shall be and remain the
        property of Subtenant (excluding Workstations), provided that any such
        trade fixtures remaining on the Premises after the expiration or
        termination of the term hereof shall be deemed abandoned by Subtenant
        and shall, at Sublandlord's option, become the property of Sublandlord
        without payment therefor.

10.A    MAINTENANCE OF PREMISES

        Subtenant shall be required to maintain the Premises as required by the
        Master Lease, including but not limited to maintaining the Premises in
        compliance with all applicable laws, codes and regulations at
        Subtenant's sole cost and expense.

11.     ALTERATIONS AND IMPROVEMENTS

        Sublandlord shall have no obligation to make any alterations or
        improvements to the Premises for Subtenant's use or occupancy thereof.
        Any alterations and additions to the Premises made by Subtenant shall
        be at Subtenant's expense and shall be made in accordance with the
        Master Lease, and shall be subject to prior written approval of
        Sublandlord and Master Landlord. At Sublandlord's option, all
        alterations, additions and improvements (except movable trade fixtures)
        shall be and remain the property of Sublandlord upon installation and
        shall be surrendered to Sublandlord upon the termination of this
        Sublease, or shall be removed by Subtenant and the Premises restored to
        their condition on the Commencement Date. If Sublandlord requires such
        removal and restoration and Subtenant fails to comply, Sublandlord may
        do so and the reasonable cost thereof shall be additional rent payable
        by Subtenant on demand.

12.     SUBORDINATION TO MASTER LEASE

        This Sublease shall at all times be subject and subordinate to the
        terms and provisions of the Master Lease except as otherwise expressly
        set forth herein. Except for paragraphs 1, 2, 3, 4, 5, the first
        paragraph of 10A, the first sentence of the second paragraph of 10A,
        the second paragraph of 10B, 11, 22, 23, 24, 25, 26, 37, 40, of the
        Master Lease and except as otherwise set forth in this Sublease, all of
        the terms and conditions contained in the Master Lease are hereby
        incorporated herein by this reference as terms and conditions of this
        Sublease, with each reference to Lessor and Lessee (or Landlord and
        Tenant, as applicable) therein to be deemed to refer to Sublandlord and
        Subtenant respectively herein. Sublandlord shall have the right but
        shall not be obligated to agree with the Master Landlord to any
        amendment to the Master Lease which the Sublandlord in its discretion
        deems to be appropriate, without the approval of the Subtenant.
        Sublandlord shall give Subtenant written notice of any such amendment,
        and such amendment shall be deemed to be binding on Subtenant
        hereunder.

        Upon the breach of any of the terms, conditions or covenants of the
        Master Lease or upon the failure of Subtenant to pay rent or comply
        with any of the provisions of this Sublease, Sublandlord may exercise
        any and all rights and remedies granted to Master Landlord by the
        Master Lease. In the event that Subtenant breaches any of the terms,
        conditions or covenants of this Sublease or of the

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        Master Lease and fails to remedy such breach within ten (10) days of
        written notice, Sublandlord has the right, but not the obligation, to
        cure such breach and bill Subtenant for the costs incurred thereby,
        which costs Subtenant shall pay to Sublandlord upon demand. Subtenant
        shall not commit or suffer any act or omission that will violate any of
        the provisions of the Master Lease. If the Master Lease terminates, this
        Sublease shall terminate and the parties shall be relieved of any
        further liability or obligation under this Sublease; provided, however,
        that Subtenant shall pay to Sublandlord all sums due and accrued under
        this Sublease as of the termination date.

13.     HOLDING OVER

        If Subtenant, with Sublandlord's and Master Landlord's written consent,
        remains in possession of the Premises or any part thereof after the
        expiration or other termination of the term hereof, such occupancy shall
        be a tenancy at sufferance at a rental in the amount of one hundred and
        seventy-five percent (175%) of the last Base Monthly Rent installment
        and Operating Expenses, and upon all the other provisions of this
        Sublease pertaining to the obligations of Subtenant. Notwithstanding
        anything to the contrary herein, Subtenant shall pay to Sublandlord all
        costs incurred by Sublandlord as a result of Subtenant's holding over.

14.     ATTORNEYS' FEES

        If Sublandlord or Subtenant shall commence an action against the other
        arising out of or in connection with this Sublease, the prevailing party
        shall be entitled to recover its costs of suit and reasonable attorneys'
        fees.

15.     NOTICES OR DEMANDS

        Except as otherwise provided herein, all notices or demands herein
        provided to be given or made, or which may be given or made by either
        party to the other, shall be in writing and shall be deemed to have been
        duly given and made when deposited in the United States mail, certified
        mail, return receipt requested, postage prepaid and addressed as set out
        below, or when deposited with a recognized and established overnight
        delivery service, return receipt requested, freight prepaid and
        addressed as set out below:

        To Sublandlord:    Nortel Networks Inc.
                           2221 Lakeside Blvd.
                           M.S. 04D/07/B40
                           Richardson, TX 75082
                           Attn: Real Estate Department

        With Copy to:      Nortel Networks Inc.
                           200 Athens Way
                           Nashville, TN 37228-1803
                           Attn: Law Department

        To Subtenant:      Netgear, Inc.
                           4500 Great America Parkway
                           Suite 100
                           Santa Clara, CA 95054

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     Notices shall be deemed received and effective upon receipt as evidenced by
     the U.S. Postal Service return receipt card or upon delivery by a
     nationally recognized overnight courier. The address to which notices or
     demands may be given or made by either party may be changed by written
     notice given by such party to the other pursuant to this paragraph.

16.  DISCLAIMER OF CONSEQUENTIAL DAMAGES

     In no event shall Master Landlord or Sublandlord and/or any of its
     affiliates, including without limitation any corporations or other entities
     controlling, controlled by or under common control with Sublandlord, be
     liable for any consequential damages suffered by Subtenant in connection
     with any breach of this Sublease or otherwise.

17.  MASTER LANDLORD'S CONSENT

     This Sublease is expressly conditioned upon the receipt of Master
     Landlord's written consent hereto by September 30, 2000.

18.  CHOICE OF LAW

     This Sublease shall be governed by the laws of the State of California,
     except for its conflict of law rules.

19.  ENTIRE AGREEMENT

     This Sublease, along with any exhibits and attachments hereto and the
     Master Lease, constitutes the entire agreement between Sublandlord and
     Subtenant relative to the Premises, and this Sublease and the exhibits and
     attachments may be altered amended or revoked only by an instrument in
     writing signed by both Sublandlord and Subtenant and consented to by Master
     Landlord. Sublandlord and Subtenant agree hereby that all prior or
     contemporaneous oral agreements between and among themselves and their
     agents and representatives relative to the subleasing of the Premises are
     merged in or revoked by this Sublease.

20.  SUCCESSORS AND ASSIGNS

     This Sublease shall inure to the benefit of and be binding upon the
     respective heirs, administrators, executors, successors and assigns of the
     parties hereto; provided, however, that this provision shall not be
     construed to allow an assignment or subletting which is otherwise
     specifically prohibited herein.

21.  SECTION AND PARAGRAPH HEADINGS

     The section and paragraph headings are included only for the convenience of
     the parties and are not part of this Sublease and shall not be used to
     interpret the meaning of provisions contained herein or the intent of the
     parties hereto.

22.  WARRANTY BY SUBTENANT

     Subtenant agrees to comply with and abide by all of the terms and
     conditions of this Sublease and the Master Lease (including the terms of
     the Master Lease incorporated herein by reference). Where the terms and
     conditions of the Master Lease are contradictory to the terms and
     conditions of this Sublease, the terms of the Sublease shall apply.

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23.   WARRANTY BY SUBLANDLORD

      Sublandlord warrants and represents to Subtenant that Sublandlord has no
      knowledge of any claim that Sublandlord is in default or breach of any of
      the provisions of the Master Lease.

24.   PARKING

      Subtenant shall have the non-exclusive use of 120 of the parking spaces
      which Sublandlord is entitled to use under the Master Lease.

25.   SECURITY

      Subtenant shall be responsible for all security measures and systems that
      it deems appropriate for the Premises. Subtenant acknowledges that
      Sublandlord has no responsibility for the security of the Premises, the
      costs thereof, or any costs or liability arising from the security of the
      Premises.

27.   SIGNS

      Pursuant to Section 32 of the Master Lease, Subtenant shall be entitled to
      one-third of the existing monument signage at the Building and Subtenant
      shall also be allowed to place signage on the glass in the lobby on the
      first floor, and will have exclusive usage of monument signage outside of
      the lobby on the first floor.

28.   WORKSTATIONS

      Subtenant shall also have the use of 38 pre-wired workstations
      ("Workstations") during the Term hereof. In consideration for the use of
      the Workstations Subtenant shall pay to Sublandlord, without deduction,
      offset, notice, or demand, 2221 Lakeside Blvd., M.S. 04D/07/B40,
      Richardson, Texas 75082, or at such other place as Sublandlord shall
      designate from time to time by notice to Subtenant, $60.00 per
      workstation per month or $2,280.00 per month. Subtenant shall be
      responsible for the maintenance and repair of the Workstations, and
      Sublandlord shall have no responsibilities in regard to the Workstations.
      The Workstations shall be surrendered in the same condition as the
      Commencement of this Sublease, normal wear and tear and casualty excluded.

IN WITNESS WHEREOF, the parties have caused this Sublease to be signed by
their duly authorized representatives to be effective on the date first set out
above.

Sublandlord:                              Subtenant:
NORTEL NETWORKS NA INC.                   NETGEAR, INC.

By:                                       By: /s/ PATRICK LO
   -------------------------------           -------------------------------

Print Name:                               Print Name:   PATRICK LO
           -----------------------                   -----------------------

Print Title:                              Print Title:  PRESIDENT & CEO
            ----------------------                    ----------------------

Date:                                     Date:         8/30/2000
     -----------------------------             -----------------------------

Master Landlord's Consent

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 The undersigned Master Landlord under the Master Lease (as defined in the
above Sublease) hereby consents to such Sublease, on the terms and conditions
stated therein.

Master Landlord:
DELL ASSOCIATES II-A

By:
   -------------------------------
Print Name:
           -----------------------
Print Title:
            ----------------------
Date:
     -----------------------------

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                                   EXHIBIT A

     Master Lease For 4500 Great America Parkway Between Dell Associates II-A
and Nortel Networks NA Inc.

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                                LEASE AGREEMENT

1.   Parties. This Lease is made by and between DELL ASSOCIATES II, a
     California general partnership ("Landlord"), and BAY NETWORKS, INC., a
     Delaware corporation ("Tenant").

2.   Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
     Landlord, upon the terms and conditions hereinafter set forth, those
     certain premises (the "Premises") presently known, as of the date of this
     Lease, as 4500 Great America Parkway, situated in the City of Santa Clara,
     County of Santa Clara, State of California, described as follows: the
     Building containing approximately Seventy-Five Thousand, Two (75,002)
     rentable square feet (the "Building"), as shown on the site plan (the "Site
     Plan") attached hereto as Exhibit "A" and the parcel (the "Parcel") on
     which the Building is located. In the event Landlord subdivides the Parcel
     in the future into two (2) or more legal parcels, the term "Parcel" shall
     thereafter refer to the legal parcel on which the Premises are located.
     Landlord shall not be required to make any alterations, additions or
     improvements to the premises and the Premises shall be leased to Tenant in
     an "as-is" condition.

3.   Term.  The term of this Lease ("Lease Term") shall be for three (3) years,
     commencing on January 1, 1996, (the "Commencement Date") and ending on
     December 31, 1998 unless sooner terminated pursuant to any provision
     hereof. Notwithstanding said scheduled Commencement Date, if for any
     reason Landlord cannot deliver possession of the Premises to Tenant on said
     date, Landlord shall not be subject to any liability therefor, nor shall
     such failure affect the validity of this Lease or the obligations of Tenant
     hereunder, but in such case Tenant shall not be obligated to pay rent until
     possession of the Premises is tendered to Tenant and the commencement and
     termination dates of this Lease shall be revised to conform to the date of
     Landlord's delivery of possession. Landlord shall permit Tenant possession
     of the Premises prior to the Commencement Date. Such occupancy shall be
     subject to all the provisions of this Lease, including the obligation to
     pay utilities, but excluding the Monthly Installment of Rent and Property
     Taxes. Notwithstanding the foregoing, if Landlord is unable to deliver the
     Premises on or before February 15, 1996, Tenant shall have the option as
     its sole remedy, to terminate this Lease with ten (10) days written notice
     to Landlord.

4.   Rent.

     A.   Time of Payment.  Tenant shall pay to Landlord as rent for the
          Premises the sum specified in Paragraph 4.B below  (the "Monthly
          Installment") each month in advance on the first day of each calendar
          month, without deduction or offset, prior notice or demand, commencing
          on the Commencement Date and continuing through the term of this
          Lease, together with such additional rents as are payable by Tenant to
          Landlord under the terms of this Lease. The Monthly Installment for
          any period during the Lease Term which period is less than one (1)
          full month shall be a prorata portion of the Monthly Installment based
          upon a thirty (30) day month.

     B.   Monthly Installment. The Monthly Installment of rent payable each
          month during the Term shall be Sixty-Nine thousand Two and 00/100ths
          Dollars ($69,002.00).

     C.   Late Charge. Tenant acknowledges that late payment by Tenant to
          Landlord of rent and other sums due hereunder will cause Landlord to
          incur costs not contemplated by this Lease, the exact amount of which
          will be extremely difficult to ascertain. Such costs include, but are
          not limited to, processing and accounting charges, and late charges
          which may be imposed on Landlord by the terms of any mortgage or deed
          of trust covering the Premises. Accordingly, if any installment of
          rent or any other sum due from Tenant shall not be received by
          Landlord within ten (10) days after such amount shall be due, Tenant
          shall pay to Landlord, as additional rent, a late charge equal to
          three percent (3%) of such overdue amount. The parties hereby agree
          that such late charge represents a fair and

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          reasonable estimate of the costs Landlord will incur by reason of late
          payment by Tenant. Acceptance of such late charge by Landlord shall in
          no event constitute a waiver of Tenant's default with respect to such
          overdue amount, nor prevent Landlord from exercising any of its other
          rights and remedies granted hereunder.

     D.   Additional Rent. All taxes, insurance premiums, late charges, costs
          and expenses which Tenant is required to pay hereunder, together with
          all interest and penalties that may accrue thereon in the event of
          Tenant's failure to pay such amounts, and all reasonable damages,
          costs and attorneys' fees and expenses which Landlord may incur by
          reason of any default of Tenant or failure on Tenant's part to comply
          with the terms of this Lease, shall be deemed to be additional rent
          ("Additional Rent") and shall be paid in addition to the Monthly
          Installment of rent, and, in the event of nonpayment of the Monthly
          Installment of rent.

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

     F.   Advance Payment. Concurrently with the execution of this Lease, Tenant
          shall pay to Landlord the sum of Sixty-Nine Thousand, Two and
          00/100ths Dollars ($69,002.00) to be applied to the Monthly
          Installment of rent first accruing under this Lease.

5.   Security Deposit. Tenant shall deposit the sum of Fifty Thousand and
     00/100ths Dollars ($50,000.00) (the "Security Deposit") upon execution of
     this Lease, to secure the faithful performance by Tenant of each term,
     covenant and condition of this Lease. If Tenant shall at any time fail to
     make any payment or fail to keep or perform any term, covenant or condition
     on its part to be made or performed or kept under this Lease, Landlord may,
     but shall not be obligated to and without waiving or releasing Tenant from
     any obligation under this Lease, use, apply or retain the whole or any part
     of the Security Deposit (A) to the extent of any sum due to Landlord; (B)
     to make any required payment on Tenant's behalf; or (C) to compensate
     Landlord for any loss, damages, attorneys' fees or expense sustained by
     Landlord due to Tenant's default. In such event, Tenant shall, within five
     (5) days of written demand by Landlord, remit to Landlord sufficient funds
     to restore the Security Deposit to its original sum. Landlord shall not be
     required to keep the Security Deposit separate from its general funds.
     Should Tenant comply with all the terms, covenants, and conditions of this
     Lease and at the end of the term of this Lease leave the Premises in the
     condition required by this Lease, then said Security Deposit, plus an
     interest amount equal to three percent (3%) per annum compounded monthly,
     less any sums owing to Landlord, shall be returned to Tenant within thirty
     (30) days after the termination of this Lease and vacancy of the Premises
     by Tenant.

6.   Use of Premises. Tenant shall use the Premises only in conformance with
     applicable governmental laws, regulations, rules and ordinances for the
     purpose of general office, research and development, engineering, light
     manufacturing and storage of Tenant's products, and for no other purpose.
     Tenant shall indemnify, protect, defend, and hold Landlord harmless against
     any loss, expense, damage, attorneys' fees or liability arising out of the
     failure of Tenant to comply with any applicable law. Tenant shall not
     commit or suffer to be committed, any waste upon the Premises, or any
     nuisance, or other acts or things which may disturb the quiet enjoyment of
     any tenant in the buildings adjacent to the Premises, or allow any sale by
     auction upon the Premises, or allow the Premises to be used for any
     unlawful purpose, or place any loads upon the floor, walls or ceiling which
     endanger the structure, or place any harmful liquids in the drainage system
     of the Building. No waste materials or refuse shall be dumped upon or
     permitted to remain upon any part of the Premises outside of the Building
     proper, except in trash containers placed inside exterior enclosures
     designated for that purpose by Landlord. No materials, supplies, equipment,
     finished products or semi-finished products, raw materials or articles of
     any nature shall be stored upon or

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     permitted to remain on any portion of the Premises outside of the Building
     proper. Tenant shall strictly comply with the provisions of Paragraph 39
     below:

7.   Taxes and Assessments.

     A.   Tenant's Property. Tenant shall pay before delinquency any and all
          taxes and assessments, license fees and public charges levied,
          assessed or imposed upon or against Tenant's fixtures, equipment,
          furnishings, furniture, appliances and personal property installed or
          located on or within the Premises. Tenant shall cause said fixtures,
          equipment, furnishings, furniture, appliances and personal property to
          be assessed and billed separately from the real property of Landlord.
          If any of Tenant's said personal property shall be assessed with
          Landlord's real property, Tenant shall pay Landlord the taxes
          attributable to Tenant within ten (10) days after receipt of a written
          statement from Landlord setting forth the taxes applicable to Tenant's
          property.

     B.   Property Taxes. Tenant shall pay, as additional rent, all Property
          Taxes levied or assessed with respect to the land comprising the
          Parcel and with respect to all buildings and improvements located on
          the Parcel which become due or accrue during the term of this Lease.
          Tenant shall pay such Property Taxes to Landlord within twenty (20)
          days after receipt of billing. Provided that Landlord bills Tenant at
          least thirty (30) days prior to the delinquency date of such Property
          Taxes. Tenant shall pay such Property Taxes to Landlord at least ten
          (10) days prior to the delinquency date, and if Tenant fails to do so,
          Tenant shall reimburse Landlord, on demand, for all interest, late
          fees and penalties that the taxing authority charges Landlord. In the
          event Landlord's mortgagee requires an impound for Property Taxes,
          then on the first day of each month during the Lease Term, Tenant
          shall pay Landlord one twelfth (1/12) of its annual share of such
          Property Taxes. Tenant's liability hereunder shall be prorated to
          reflect the Commencement and termination dates of this Lease. Tenant's
          share of the Property Taxes shall be determined by Landlord from the
          respective valuation assigned in the Assessor's worksheet or such
          other information as may be reasonably available. Landlord's
          reasonable determination thereof, in good faith, shall be conclusive.

          For the purpose of this Lease, "Property Taxes" means and includes all
          taxes, assessments (including, but not limited to, assessments for
          public improvements or benefits), taxes based on vehicles, utilizing
          parking areas, taxes based or measured by the rent paid, payable or
          received under this Lease, taxes on the value, use, or occupancy of
          the Premises, the Buildings and/or the Parcel, and all other
          governmental impositions and charges of every kind and nature
          whatsoever, whether or not customary or within the contemplation of
          the parties hereto and regardless of whether the same shall be
          extraordinary or ordinary, general or special, unforeseen or foreseen,
          or similar or dissimilar to any of the foregoing which, at any time
          during the Lease Term, shall be applicable to the Premises, the
          Building and/or the Parcel or assessed, levied or imposed upon the
          Premises, the Building and/or the Parcel, or become due and payable
          and a lien or charge upon the Premises, the Building and/or Parcel, or
          any part thereof, under or by virtue of any present or future laws,
          statutes, ordinances, regulations or other requirements of any
          governmental authority whatsoever. The term "Property Taxes" shall not
          include any federal, state or local net income, estate, or inheritance
          tax imposed on Landlord.

8.   Insurance.

     A.1. Indemnity. Tenant agrees to indemnify, protect and defend Landlord
          against and hold Landlord harmless from any and all claims, causes of
          action, judgments, obligations or liabilities, and all reasonable
          expenses incurred in investigating or resisting the same (including
          reasonable attorneys' fees), on account of, or arising out of, the
          operation, maintenance, use or occupancy of the Premises and all areas
          appurtenant thereto. This

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        Lease is made on the express understanding that Landlord shall not be
        liable for, or suffer loss by reason of, injury to person or property,
        from whatever cause (except for negligence or willful misconduct of
        Landlord), which in any way may be connected with the operation, use or
        occupancy of the Premises specifically including, without limitation,
        any liability for injury to the person or property of Tenant, its
        agents, officers, employees, licensees and invitees.

A.2.    Landlord agrees to indemnify, protect and defend Tenant against and
        hold Tenant harmless from any and all claims, causes of action,
        judgments, obligations or liabilities, and all reasonable expenses
        incurred in investigating or resisting the same (including reasonable
        attorneys' fees), on account of, or arising out of, Landlord's
        negligence or Landlord's failure to perform its obligations under this
        Lease.

B.      Liability Insurance. Tenant shall, at Tenant's expense, obtain and keep
        in force during the term of this Lease a policy of comprehensive public
        liability insurance insuring Landlord and Tenant against claims and
        liabilities arising out of the operation, use, or occupancy of the
        Premises and all areas appurtenant thereto, including parking areas.
        Such insurance shall be in an amount of not less than Three Million
        Dollars ($3,000,000.00) for bodily injury or death as a result of any
        one occurrence and Five Hundred Thousand Dollars ($500,000.00) for
        damage to property, as a result of any one occurrence. The insurance
        shall be with companies approved by Landlord, which approval Landlord
        agrees not to withhold unreasonably. Tenant shall deliver to Landlord,
        prior to possession, and at least thirty (30) days prior to the
        expiration thereof, a certificate of insurance evidencing the existence
        of the policy required hereunder and such certificate shall certify
        that the policy (1) names Landlord as an additional insured, (2) shall
        not be canceled or altered without thirty (30) days prior written
        notice to Landlord, (3) insures performance of the indemnity set forth
        in Paragraph 8.A above, and (4) the coverage is primary and any
        coverage by Landlord is in excess thereto. Landlord may maintain a
        policy or policies of comprehensive general liability insurance
        insuring Landlord (and such others as are designated by Landlord),
        against liability for personal injury, bodily injury, death and damage
        to property occurring or resulting from an occurrence in, on or about
        the Premises, with such limits of coverage as Landlord may from time to
        time determine are reasonably necessary for its protection. The cost of
        any such liability insurance maintained by Landlord shall be paid for
        by Tenant as Additional Rent. Landlord shall name Tenant as additional
        insured under Landlord's liability insurance.

C.      Property Insurance. Landlord shall obtain and keep in force during the
        term of this Lease a policy or policies of insurance covering loss or
        damage to the Premises and the Buildings, in the amount of the full
        replacement value thereof, including all alterations or improvements
        constructed by Tenant pursuant to Paragraph 13, below, providing
        protection against those perils included within the classification of
        "all risk" insurance, plus a policy of rental income insurance in the
        amount of one hundred percent (100%) of twelve (12) months rent
        (including, without limitation, sums payable as Additional Rent),
        plus, at Landlord's option, flood insurance and earthquake insurance
        (provided that earthquake insurance is available at commercially
        reasonable rates) and any other coverages which may be required from
        time to time by Landlord's mortgagee. Tenant shall have no interest in
        nor any right to the proceeds of any insurance procured by Landlord on
        the Premises. Tenant shall, within twenty (20) days after receipt of
        billing, pay to Landlord as additional rent, the full cost of such
        insurance procured and maintained by Landlord. Tenant acknowledges that
        such insurance procured by Landlord shall contain a deductible which
        reduces Tenant's cost for such insurance and, in the event of loss or
        damage, Tenant shall be required to pay to Landlord the amount of such
        deductible, not to exceed Five Thousand and 00/100ths Dollars
        ($5,000.00). In the case of any insured loss or damage caused by
        earthquake, Tenant shall be required to pay Landlord one half of the
        amount of such deductible.

                                       4

<PAGE>   13

     D.   Tenant's Insurance. Release of Landlord. Tenant acknowledges that the
          insurance to be maintained by Landlord on the Premises pursuant to
          Subparagraph C above will not insure any of Tenant's property.
          Accordingly, Tenant, at Tenant's own expense, shall maintain in full
          force and effect on all of its fixtures, equipment, leasehold
          improvements and personal property in the Premises, a policy of "All
          Risk" coverage insurance to the extent of at least ninety percent
          (90%) of their insurable value. Tenant hereby releases Landlord, and
          its partners, officers, agents, employees and servants from any and
          all claims, demands, losses, expenses or injuries to the Premises or
          to the furnishings, fixtures, equipment, inventory or other personal
          property of Tenant in, about, or upon the Premises, which are caused
          by perils, events or happenings where the same are covered by the
          insurance required by this Lease or which are the subject of insurance
          carried by Tenant and in force at the time of such loss.

9.   Utilities. Tenant shall pay for all water, gas, light, heat, power,
     electricity, telephone, trash pick-up, sewer charges, elevator or fountain
     related services, and all other services supplied to or consumed on the
     Premises and all taxes and surcharges thereon. Tenant shall provide
     Landlord with copies of all service contracts.

10.  Repairs and Maintenance.

     A.   Landlord's Repairs. Subject to provisions of Paragraph 16, Landlord
          shall keep and maintain the exterior roof, structural elements and
          exterior walls of the Building in good order and repair. Landlord
          shall not, however, be required to maintain, repair or replace the
          interior surface of exterior walls, nor shall Landlord be required to
          maintain, repair or replace windows, doors, skylights or plate glass.
          Landlord shall have no obligation to make repairs under this
          Subparagraph until a reasonable time after receipt of written notice
          from Tenant of the need for such repairs. Tenant shall reimburse
          Landlord, as additional rent, within fifteen (15) days after receipt
          of billing, for the cost of such repairs and maintenance which are
          the obligation of Landlord hereunder, provided however, that Tenant
          shall not be required to reimburse Landlord for the cost of
          maintenance and repairs of the structural elements of the Building
          unless such maintenance or repair is required because of the
          negligence or willful misconduct of Tenant or its employees, agents
          or invitees. As used herein, the term "structural elements of the
          building" shall mean and be limited to the foundation, footings,
          floor slab (but not flooring), structural walls, and roof structure
          (but not roofing or roof membrane).

          Landlord shall deliver the Premises to Tenant with the roof and all
          electrical, mechanical and plumbing systems in good working condition.
          Where the repair or replacement cost of any of the items mentioned in
          the previous sentence or the parking lot or driveway, exceeds
          $1,500.00 per occurrence, during the first year of the Term. Landlord
          shall be responsible for such repair or replacement and paying any
          such amount over said $1,500.00. After the first year of the Lease
          Term, if a repair or replacement to the roof, parking lot, driveway,
          electrical system, mechanical system or plumbing system is required
          and if such repair or replacement is of such a nature that it would be
          required to be capitalized under generally accepted accounting
          principals (GAAP), then Tenant shall pay to Landlord, as Additional
          Rent, a fraction of the cost of such repair or replacement, which
          fraction shall have as its numerator the number of months then
          remaining in the Lease Term at the time of such repair or replacement
          and shall have as its denominator the number of months in the useful
          life of such repair or replacement (determined in accordance with
          GAAP); and if Tenant exercises the option to extend pursuant to
          Paragraph 40, Tenant shall pay to Landlord, upon commencement of the
          Option Term, as Additional Rent, an additional fraction of the

                                       5

<PAGE>   14
          cost of such repair or replacement which fraction shall have as its
          numerator 36 months and shall have as its denominator the number of
          months in the useful life of the repair or replacement; provided,
          however, in no event shall Tenant be required to pay more than one
          hundred percent (100%) of the cost of such repair or replacement.

     B.   Tenant's Repairs/Maintenance. Subject to Landlord's obligation to
          Paragraph 10.A. Tenant shall, during the Lease Term, at Tenant's sole
          cost and expense, keep and maintain in good order, condition and
          repair the entire Premises and every part thereof, including, without
          limitation, windows, window frames, plate glass, glazing, skylights,
          doors and all door hardware, elevator, fountain, partitions and all
          plumbing, electrical, lighting, heating, air conditioning and
          ventilation facilities, equipment and systems within the Premises. The
          term "repair" shall include replacements, restorations and/or renewals
          when necessary, as well as painting. Tenant's obligation shall extend
          to all alterations, additions and improvements to the Premises, and
          all fixtures and appurtenances therein and thereto. Tenant shall, at
          all times during the Lease Term, have an effect a service contract for
          the maintenance of the HVAC equipment with a licensed HVAC repair and
          maintenance contractor approved by Landlord which provides for
          periodic inspection and servicing at least once every ninety (90) days
          during the Lease Term and shall provide Landlord with a copy of such
          contract. No less frequently than every one hundred eighty (180) days,
          Tenant shall cause to be made an inspection of the HVAC system by a
          licensed HVAC repair and maintenance contractor or mechanical engineer
          approved by Landlord. Tenant shall deliver to Landlord a written
          report prepared by the party making such inspections promptly after
          the conclusion of each such inspection. Except as otherwise provided
          herein, Tenant shall perform such maintenance and repair work as is
          recommended by such inspectors to the extent such work is reasonably
          necessary to keep such HVAC equipment in good order, condition and
          repair.

          Tenant shall also have in effect a service contract for the
          maintenance of the fountain and for the elevator, and provide Landlord
          with copies of such service contracts and all inspection, or service
          reports.

          Should Tenant fail to make repairs required of Tenant hereunder
          forthwith upon five (5) days notice from Landlord or should Tenant
          fail thereafter to diligently complete the repairs, Landlord, in
          addition to all other remedies available hereunder or by law and
          without waiving any alternative remedies, may make the same, and in
          that event, Tenant shall reimburse Landlord as additional rent for the
          cost of such maintenance or repairs within five (5) days of written
          demand by Landlord.

          Landlord shall have no maintenance or repair obligations whatsoever
          with respect to the Premises except as expressly provided in
          Paragraphs 10.A. Tenant hereby expressly waives the provisions of
          Subsection 1 of Section 1932 and Sections 1941 and 1942 of the Civil
          Code of California and all rights to make repairs at the expense of
          Landlord as provided in Section 1942 of said Civil Code.

          Tenant shall operate, manage, insure, maintain and keep the Parcel in
          good order, condition and repair. The manner in which the Parcel shall
          be maintained shall be at the reasonable discretion of Landlord. The
          cost of such repair, maintenance, operation, insurance and management,
          including without limitation, maintenance and repair of landscaping,
          irrigation systems, paving, driveways, parking areas, fountain,
          sidewalks, fences, and lighting, shall be paid by Tenant, except as
          otherwise provided in Paragraph 10.A. above.

11.  Parking. Tenant shall have the non-exclusive use of all the parking spaces
     on the Parcel, which number approximately Two Hundred Eighty (280).

                                       6

<PAGE>   15
12.  Additional Rent. Tenant shall pay to Landlord, as Additional Rent, upon
     demand but not more often than once each calendar month, an amount equal to
     One Hundred percent (100%) of the charges set forth in Paragraph 8.C. of
     this Lease. Tenant acknowledges and agrees that these charges shall include
     an additional five percent (5%) of the actual expenditures in order to
     compensate Landlord for accounting, management and processing services.

13.  Alterations. Tenant shall not make, or suffer to be made, any alterations,
     improvements or additions in, on, about or to the Premises or any part
     thereof, without the prior written consent of Landlord and without a valid
     building permit issued by the appropriate governmental authority. As a
     condition to giving such consent. Landlord may require that Tenant agree to
     remove any such alterations, improvements or additions at the termination
     of this Lease, and to restore the Premises to their prior condition.
     Unless, as a condition of Landlord's consent, Landlord requires that Tenant
     remove any such alterations, improvement or addition, any alteration,
     addition or improvement to the Premises, except movable furniture and trade
     fixtures not affixed to the Premises, shall become the property of Landlord
     upon termination of the Lease and shall remain upon and be surrendered with
     the Premises at the termination of this Lease. Without limiting the
     generality of the foregoing, all heating, lighting, electrical (including
     all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air
     conditioning, partitioning, drapery, and carpet installations made by
     Tenant regardless of how affixed to the Premises, together with all other
     additions, alterations and improvements that have become an integral part
     of the Building, shall be and become the property of the Landlord upon
     termination of the Lease, and shall not be deemed trade fixtures, and shall
     remain upon and be surrendered with the Premises at the termination of this
     Lease.

     If, during the term hereof, any alteration, addition or change of any sort
     to all or any portion of the Premises is required by law, regulation,
     ordinance or order of any public agency, Tenant shall promptly make the
     same at its sole cost and expense. If during the term hereof, any
     alteration, addition, or change to the Parcel is required by law,
     regulation, ordinance or order of any public agency, Tenant shall make the
     same and the cost of such alteration, addition or change shall be paid by
     Tenant.

14.  Acceptance of the Premises. By entry and taking possession of the Premises
     pursuant to this Lease. Tenant accepts the Premises as being in good and
     sanitary order, condition and repair latent defects excepted, provided
     Tenant gives Landlord written notice of any such latent defects within the
     first ninety (90) days of the Lease Term, and accepts the Premises in their
     condition existing as of the date of such entry, and Tenant further accepts
     the tenant improvements to be constructed by Landlord, if any, as being
     completed in accordance with the plans and specifications for such
     improvements, except for punch list items. Tenant acknowledges that neither
     the Landlord nor Landlord's agents has made any representation or warranty
     as to the suitability of the Premises to the conduct of Tenant's business.
     Any agreements, warranties or representations not expressly contained
     herein shall in no way bind either Landlord or Tenant, and Landlord and
     Tenant expressly waive all claims for damages by reason of any statement,
     representation, warranty, promise or agreement, if any, not contained in
     this Lease. This Lease constitutes the entire understanding between the
     parties hereto and no addition to, or modification of, any term or
     provision of this Lease shall be effective until set forth in a writing
     signed by both Landlord and Tenant.

15.  Default.

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

                                       7
<PAGE>   16
     1.   Default in the payment when due of any installment of rent or other
          payment required to be made by Tenant hereunder, where such default
          shall not have been cured within three (3) days after written notice
          of such default is given to Tenant;

     2.   Tenant's failure to perform any other term, covenant or condition
          contained in this Lease where such failure shall have continued for
          twenty (20) days after written notice of such failure is given to
          Tenant, unless prior to such date Tenant has commenced and is
          diligently pursuing a cure to completion.

     3.   Tenant's vacating or abandonment of the Premises;

     4.   Tenant's assignment of its assets for the benefit of its creditors;

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

     6.   Tenant shall seek appointment of a receiver, trustee, custodian, or
          other similar official for it or for all or any substantial part of
          its property;

     7.   Any case, proceeding or other action against Tenant shall commence
          seeking appointment of a receiver, trustee, custodian or other similar
          official for it or for all or any substantial part of its property,
          and such case, proceeding or other action (i) results in the entry of
          an order for relief against it which is not fully stayed within seven
          (7) business days after the entry thereof or (ii) remains undismissed
          for a period of forty-five (45) days.

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

     1.   Recovery of Rent. Landlord shall be entitled to keep this Lease in
          full force and effect (whether or not Tenant shall have abandoned the
          Premises) and to enforce all of its rights and remedies under this
          Lease, including the right to recover rent and other sums as they
          become due, plus interest at the Permitted Rate (as defined in
          Paragraph 33 below) from the due date of each installment of rent or
          other sum until paid.

     2.   Termination. Landlord may terminate this Lease by giving Tenant
          written notice of termination. On the giving of the notice all of
          Tenant's rights in the Premises and the Building and Parcel shall
          terminate. Upon the giving of the notice of termination, Tenant shall
          surrender and vacate the Premises in the condition required by
          Paragraph 34, and Landlord may re-enter and take possession of the
          Premises and all the remaining improvements or property and eject
          Tenant or any of Tenant's subtenants, assignees or other person or
          persons claiming any right under or through Tenant or eject some and
          not others or eject none. This Lease may also be terminated by a
          judgment specifically providing for termination. Any termination under
          this paragraph shall not release Tenant from the payment of any sum
          then due Landlord or from any claim for damages or rent previously
          accrued or then accruing against Tenant. In no event shall any one or
          more of the following actions by Landlord constitute a termination of
          this Lease;

                                       8
<PAGE>   17
               a.   maintenance and preservation of the Premises;

               b.   efforts to relet the Premises;

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

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

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

          3.   Damages. In the event this Lease is terminated pursuant to
               Subparagraph 15.B.2 above, or otherwise, Landlord shall be
               entitled to damages in the following sums:

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

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

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

               d.   any other amount necessary to compensate Landlord for all
                    detriment proximately caused by Tenant's failure to perform
                    Tenant's obligations under this Lease, or which in the
                    ordinary course of things would be likely to result
                    therefrom.

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

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

     In the event the Premises are damaged or destroyed from any insured peril
     to the extent of fifty percent (50%) or more of the then replacement cost
     of the Premises, Landlord may, upon written notice to Tenant, given within
     thirty (30) days after the occurrence of such damage or destruction, elect
     to terminate this Lease. If Landlord does not give such notice in writing
     within such period,

                                       9

<PAGE>   18
Landlord shall be deemed to have elected to rebuild or restore the Premises, in
which event Landlord shall, at its expense, promptly rebuild or restore the
Premises to their condition prior to the damage or destruction and Tenant shall
pay to Landlord upon commencement of reconstruction the amount of any
deductible from the insurance policy, subject to limitations set forth in
Paragraph 8.C.

In the event the Premises are damaged or destroyed from any insured peril to
the extent of less than fifty percent (50%) of the then replacement cost of the
Premises, Landlord shall, at Landlord's expense, promptly rebuild or restore
the Premises to their condition prior to the damage or destruction and Tenant
shall pay to Landlord upon commencement of reconstruction the amount of any
deductible from the insurance policy, subject to limitations set forth in
Paragraph 8.C.

In the event that, pursuant to the foregoing provisions, Landlord is to rebuild
or restore the Premises, Landlord shall, within thirty (30) days after the
occurrence of such damage or destruction, provide Tenant with written notice of
the time required for such repair or restoration. If such period is longer than
one hundred eighty (180) days from the issuance of a building permit, Tenant
may, within thirty (30) days after receipt of Landlord's notice, elect to
terminate the Lease by giving written notice to Landlord of such election,
whereupon the Lease shall immediately terminate. The period of time for
Landlord to complete the repair or restoration shall be extended for delays
caused by the fault or neglect of Tenant or because of acts of God, acts of
publication, labor disputes, strikes, fires, freight embargoes, rainy or stormy
weather, inability to obtain materials, supplies or fuels, acts of contractors
or subcontractors, or delay of contractors or subcontractors due to such
causes, or other contingencies beyond the control of Landlord. Landlord's
obligation to repair or restore the Premises shall not include restoration of
Tenant's trade fixtures, equipment, merchandise, but shall include restoration
of any improvements, alterations or additions made by Tenant to the Premises,
pursuant to Paragraph 13.

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

If this Lease terminates pursuant to the provisions of this Paragraph 16, Tenant
shall be entitled to receive that portion of the insurance proceeds attributable
to the unamortized value of the improvements, alterations and additions to the
Premises made and paid for by Tenant pursuant to Paragraph 13, which
alterations, additions and improvements shall be amortized on a straight line
basis over the initial Lease Term.

17.  Condemnation.

A.   Definition of Terms. For the purposes of this Lease, the term (1) "Taking"
     means a taking of the Premises or damage to the Premises related to the
     exercise of the power of eminent domain and includes a voluntary
     conveyance, in lieu of court proceedings, to any agency, authority, public
     utility, person or corporate entity empowered to condemn property; (2)
     "Total Taking" means the taking of the entire Premises or so much of the
     Premises as to prevent or substantially impair the use thereof by Tenant
     for the uses herein specified; provided, however, in no event shall a
     Taking of less than ten percent (10%) of the Premises be deemed a Total
     Taking; (3) "Partial Taking" means the taking of only a portion of the
     Premises which does not constitute a Total Taking; (4) "Date of Taking"
     means the date upon which the title to the Premises, or a portion thereof,
     passes to and

                                       10
<PAGE>   19
          vests in the condemnor or the effective date of any order for
          possession if issued prior to the date title vests in the condemnor;
          and (5) "Award" means the amount of any award made, consideration
          paid, or damages ordered as a result of a Taking.

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

     C.   Total Taking. In the event of a Total Taking during the term hereof
          (1) the rights of Tenant under the Lease and the leasehold estate of
          Tenant in and to the Premises shall cease and terminate as of the Date
          of Taking; (2) Landlord shall refund to Tenant any prepaid rent; (3)
          Tenant shall pay Landlord any rent or charges due Landlord under the
          Lease, each prorated as of the Date of Taking; (4) Tenant shall
          receive from Landlord those portions of the Award attributable to
          trade fixtures of Tenant and for moving expenses of Tenant; and (5)
          the remainder of the Award shall be paid to and be the property of
          Landlord.

     D.   Partial Taking. In the event of a Partial Taking during the term
          hereof (1) the rights of Tenant under the Lease and leasehold estate
          of Tenant in and to the portion of the Premises taken shall cease and
          terminate as of the Date of Taking; (2) from and after the Date of
          Taking the Monthly Installment of rent shall be an amount equal to the
          product obtained by multiplying the Monthly Installment of rent
          immediately prior to the Taking by a fraction, the numerator of which
          is the number of square feet contained in the Premises after the
          Taking and the denominator of which is the number of square feet
          contained in the Premises prior to the Taking; (3) Tenant shall
          receive from the Award the portions of the Award attributable to trade
          fixtures of Tenant; and (4) the remainder of the Award shall be paid
          to and be the property of Landlord.

     E.   Tenant's Award. Notwithstanding anything to the contrary herein,
          Tenant shall be entitled to receive any condemnation award that is
          made directly to Tenant, provided that such award does not reduce the
          amount of the award that would be otherwise payable to Landlord, for
          the following: (i) for the taking of personal property or Trade
          Fixtures belonging to Tenant; (ii) for the interruption of Tenant's
          business or its moving costs; (iii) for the unamortized value of
          tenant improvements and/or alterations or modifications installed at
          Tenant's sole cost, amortized over the initial lease term; (iv) for
          the loss of Tenant's goodwill; or (v) for any temporary taking where
          this lease is not terminated as a result of such taking.

18.  Mechanics' Lien. Tenant shall (A) pay for all labor and services performed
     for, materials used by or furnished to, Tenant or any contractor employed
     by Tenant with respect to the Premises; (B) indemnify, defend, protect and
     hold Landlord and the Premises harmless and free from any liens, claims,
     liabilities, demands, encumbrances, or judgments created or suffered by
     reason of any labor or services performed for, materials used by or
     furnished to, Tenant or any contractor employed by Tenant with respect to
     the Premises; (C) give notice to Landlord in writing five (5) days prior to
     employing any laborer or contractor to perform services related to, or
     receiving materials for use upon the Premises; and (D) permit Landlord to
     post a notice of nonresponsibility in accordance with the statutory
     requirements of California Civil Code Section 3094 or any amendment
     thereof. In the event Tenant is required to post an improvement bond with a
     public agency in connection with the above, Tenant agrees to include
     Landlord as an additional obligee.

19.  Inspection of the Premises. Tenant shall permit Landlord and its agents to
     enter the Premises at any reasonable time with prior notice during normal
     business hours excepting emergency situations, for the purpose of
     inspecting the same, performing Landlord's maintenance and repair
     responsibilities, posting a notice of non-responsibility for alterations,
     additions or repairs and at

                                       11
<PAGE>   20
      any time within one hundred eighty (180) days prior to expiration of this
      Lease, to place upon the Premises, ordinary "For Lease" or "For Sale"
      signs which may include a rider stating why the building is coming
      available, as it relates to Tenant, and to show the Premises to
      prospective tenants or buyers.

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

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

      A.    Priority. This Lease is subject and subordinate to Security
            Instruments existing as of the Commencement Date. However, if any
            Lender so requires, this Lease shall become prior and superior to
            any such Security Instrument.

      B.    Subsequent Security Instruments. At Landlord's election, this Lease
            shall become subject and subordinate to any Security Instrument
            created after the Commencement Date. Notwithstanding such
            subordination, Tenant's right to quiet possession of the Premises
            shall not be disturbed so long as Tenant is not in default and
            performs all of its obligations under this Lease, unless this Lease
            is otherwise terminated pursuant to its terms.

      C.    Documents. Tenant shall execute any document or instrument required
            by Landlord or any Lender to make this Lease either prior or
            subordinate to a Security Instrument, which may include such other
            matters as the Lender customarily requires in connection with such
            agreements, including provisions that the Lender not be liable for
            (1) the return of the Security Deposit unless the Lender receives
            it from Landlord, and (2) any defaults on the part of Landlord
            occurring prior to the time that the Lender takes possession of the
            Project in connection with the enforcement of its Security
            Instrument. Tenant's failure to execute any such document or
            instrument within ten (10) days after written demand therefor shall
            constitute a default by Tenant or, at Landlord's option. Landlord
            may execute such documents on behalf of Tenant as Tenant's
            attorney-in-fact. Tenant does hereby make, constitute and
            irrevocably appoint Landlord as Tenant's attorney-in-fact to
            execute such documents in accordance with this Paragraph.

      D.    Tenant's Attornment. Tenant shall attorn (1) to any purchaser of
            the Premises at any foreclosure sale or private sale conducted
            pursuant to any Security Instrument encumbering the Project; (2) to
            grantee or transferee designated in any deed given in lieu of
            foreclosure; or (3) to the lessor under any underlying ground lease
            should such ground lease be terminated.

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

                                       12
<PAGE>   21
     F.   Condition. This Lease and the obligations of Landlord and Tenant
          hereunder are expressly conditioned upon Tenant, Landlord and
          Landlord's existing Lender executing, on or before December 31, 1995
          a Subordination, Non-Disturbance and Attornment Agreement in form and
          substance satisfactory to Landlord, Tenant and Landlord's existing
          Lender.

22.  Holding Over. This Lease shall terminate without further notice at the
     expiration of the Lease Term. Any holding over by Tenant after expiration
     shall not constitute a renewal or extension or give Tenant any rights in
     or to the Premises except as expressly provided in this Lease. Any holding
     over after the expiration with the consent of Landlord shall be construed
     to be a tenancy from month to month, at one hundred fifty percent (150%)
     of the monthly rent for the last month of the Lease Term, and shall
     otherwise be on the terms and conditions herein specified insofar as
     applicable.

23.  Notices. Any notice required or desired to be given under this Lease shall
     be in writing with copies directed as indicated below and shall be
     personally served or given by mail. Any notice given by mail shall be
     deemed to have been given when forty-eight (48) hours have elapsed from
     the time such notice was deposited in the United States mails, certified
     and postage prepaid, addressed to the party to be served with a copy as
     indicated herein at the last address given by that party to the other
     party under the provisions of this Paragraph. At this date of execution of
     this Lease, the address of Landlord is:

          511 Division Street
          Campbell, CA 95008
          Attn: James D. Mair

          and the address of Tenant is:
          4401 Great America Parkway
          Santa Clara, CA 95052-8185
          Attn: Legal Department

          with copy to:
          8 Federal Street
          Billerica, MA 01821
          Attn: Real Estate Department

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

25.  Nonassignment.

     A.   Landlord's Consent Required. Tenant's interest in this Lease is not
          assignable, by operation of law or otherwise, nor shall Tenant have
          the right to sublet the Premises, transfer any interest of Tenant
          therein or permit any use of the Premises by another party, without
          the prior written consent of Landlord to such assignment, subletting,
          transfer or use, which consent Landlord agrees not to withhold
          unreasonably subject to the provisions of Subparagraph B below. A
          consent to one assignment, subletting, occupancy or use by another
          party shall not be deemed to be a consent to any subsequent
          assignment,

                                       13

<PAGE>   22
     subletting, occupancy or use by another party. Any assignment or subletting
     without such consent shall be void and shall, at the option of Landlord,
     terminate this Lease.

     It shall not be unreasonable for Landlord to withhold its consent to any
     proposed assignment or subletting if (1) the proposed assignee's or
     subtenant's anticipated use of the Premises involves the storage,
     generation, discharge, transport, use or disposal of any Hazardous
     Material; (2) if the proposed assignee or subtenant has been required by
     any prior landlord, lender or governmental authority to "clean up" or
     remediate any Hazardous Material; (3) if the proposed assignee or subtenant
     is subject to investigation or enforcement order or proceeding by any
     governmental authority in connection with the use, generation, discharge,
     transport, disposal or storage of any Hazardous Material.

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

B.   Transferee Information Required. If Tenant desires to assign its interest
          in this Lease or sublet the Premises, or transfer any interest of
          Tenant therein, or permit the use of the Premises by another party
          (hereinafter collectively referred to as a "Transfer"), Tenant shall
          give Landlord at least thirty (30) days prior written notice of the
          proposed Transfer and of the terms of such proposed Transfer,
          including, but not limited to, the name and legal composition of the
          proposed transferee, a financial statement of the proposed transferee,
          the nature of the proposed transferee's business to be carried on in
          the Premises, the payment to be made or other consideration to be
          given to Tenant on account of the Transfer, and such other pertinent
          information as may be requested by Landlord, all in sufficient detail
          to enable Landlord to evaluate the proposed Transfer and the
          prospective transferee. It is the intent of the parties hereto that
          this Lease shall confer upon Tenant only the right to use and occupy
          the Premises, and to exercise such other rights as are conferred upon
          Tenant by this Lease. The parties agree that this Lease is not
          intended to have a bonus value nor to serve as a vehicle whereby
          Tenant may profit by a future Transfer of this Lease or the right to
          use or occupy the Premises as a result of any favorable terms
          contained herein, or future changes in the market for leased space. It
          is the intent of the parties that any such bonus value that may attach
          to this Lease shall be and remain the exclusive property of Landlord.
          Accordingly, in the event Tenant seeks to Transfer its interest in
          this Lease or the Premises, Landlord shall have the following options,
          which may be exercised at its sole choice without limiting Landlord in
          the exercise of any other right or remedy which Landlord may have by
          reason of such proposed Transfer:

     (1)  Landlord may consent to the proposed Transfer on the condition that
          Tenant agrees to pay to Landlord, as additional rent, any and all
          rents or other consideration (including key money) received by Tenant
          from the transferee by reason of such Transfer in excess of the rent
          payable by Tenant to Landlord under this Lease (less any brokerage
          commissions or tenant improvement costs incurred by Tenant in
          connection with the Transfer). Tenant expressly agrees that the
          foregoing is a reasonable condition for obtaining Landlord's consent
          to any Transfer; or

     (2)  Landlord may grant or withhold its consent to the proposed Transfer
          Pursuant to subparagraph A, above.

C.   Landlord's Consent not Required. Notwithstanding anything to the contrary,
     so long as Tenant otherwise complies with the provisions of this paragraph,
     Tenant may enter into any of the following transfers (a "Permitted
     Transfer") without the Landlord's prior

                                       14
<PAGE>   23

          written consent and Landlord shall not be entitled to receive any
          part of any Subrent resulting therefrom that would otherwise be due
          Landlord:

          (1)  Tenant may sublease all or part of the Premises or assign its
               interest in this Lease to any corporation which controls, is
               controlled by, or is under common control with the original
               Tenant to this Lease by means of an ownership interest of more
               than 50%.

          (2)  Tenant may assign its interest in the Lease to a corporation
               which results from a merger, consolidation or other
               reorganization in which Tenant is not the surviving
               corporation, so long as the surviving corporation has a net
               worth at the time of such assignment that is equal to or greater
               than the net worth of Tenant immediately prior to such
               transaction; and

          (3)  Tenant may assign this Lease to a corporation which purchases or
               otherwise acquires all or substantially all of the assets of
               Tenant, so long as such acquiring corporation has a net worth at
               the time of such assignment that is equal to or greater than
               the net worth of Tenant immediately prior to such transaction.

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

27.  Mortgagee Protection. In the event of any default on the part of Landlord,
     Tenant will give notice by registered or certified mail to any beneficiary
     of a deed of trust or mortgagee of a mortgage encumbering the Premises,
     whose address shall have been furnished to Tenant, and shall offer such
     beneficiary or mortgagee a reasonable opportunity to cure the default.

28.  Landlord Loan or Sale. Tenant agrees promptly following request by
     Landlord to (A) execute and deliver to Landlord any documents, including
     estoppel certificates presented to Tenant by Landlord, (i) certifying that
     this Lease is unmodified and in full force and effect and the date to
     which the rent and other charges are paid in advance, if any, and (ii)
     acknowledging that there are not, to Tenant's knowledge, any uncured
     defaults on the part of Landlord hereunder, unless any such defaults
     exists, in which case Tenant shall specify such defaults and (iii)
     evidencing the status of the Lease as may be required either by a lender
     making a loan to Landlord to be secured by a deed of trust or mortgage
     covering the Premises or a purchaser of the Premises from Landlord and
     (B) to deliver to Landlord a copy of Tenant's 10K. Tenant's failure to
     deliver an estoppel certificate promptly following such request shall be
     an Event of Default under this Lease.

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

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

31.  General.

     A.   Captions. The captions and paragraph headings used in this Lease are
          for the purposes of convenience only. They shall not be construed to
          limit or extend the meaning of any part

                                       15
<PAGE>   24

          of this Lease, or be used to interpret specific sections. The word(s)
          enclosed in quotation marks shall be construed as defined terms for
          purposes of this Lease. As used in this Lease, the masculine, feminine
          and neuter and the singular or plural number shall each be deemed to
          include the other whenever the context so requires.

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

     C.   Time of Essence. Time is of the essence for the performance of each
          term, covenant and condition of this Lease.

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

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

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

32.  Sign. Tenant shall not place or permit to be placed any sign or decoration
     on the land or the exterior of the Building without the prior written
     consent of Landlord. Tenant, upon written notice by Landlord, shall
     immediately remove any sign or decoration that Tenant has placed or
     permitted to be placed on the land or the exterior of the Building without
     the prior written consent of Landlord, and if Tenant fails to so remove
     such sign or decoration within five (5) days after Landlord's written
     notice, Landlord may enter upon the Premises and remove said sign or
     decoration and Tenant agrees to pay Landlord, as additional rent upon
     demand, the cost of such removal. At the termination of this Lease, Tenant
     shall remove any sign which it has placed on the Parcel or Building and
     shall repair any damage caused by the installation or removal of such sign.

33.  Interest on Past Due Obligations. Any Monthly Installment of rent or any
     other sum due from Tenant under this Lease which is received by Landlord
     after the date the same is due shall bear interest from said due date
     until paid, at an annual rate equal to the lesser of (the "Permitted
     Rate"): (1) twelve percent (12%); or (2) five percent (5%) plus the rate
     established by the Federal Reserve Bank of San Francisco, as of the
     twenty-fifth (25th) day of the month immediately preceding the due date,
     on advances to member banks under Section 13 and 13(a) of the Federal

                                       16
<PAGE>   25
     Reserve Act, as now in effect or hereafter from time to time amended.
     Payment of such interest shall not excuse or cure any default by Tenant. In
     addition, Tenant shall pay all costs and attorneys' fees incurred by
     Landlord in collection of such amounts.

34.  Surrender of the Premises. On the last day of the term hereof, or on the
     sooner termination of this Lease, Tenant shall surrender the Premises to
     Landlord in their condition existing as of the Commencement Date of this
     Lease, ordinary wear and tear excepted, with all interior walls cleaned,
     and repaired or replaced, all carpets and floors cleaned, the air
     conditioning and heating equipment serviced and repaired by a reputable and
     licensed service firm, all to the reasonable satisfaction of Landlord.
     Tenant shall remove all of Tenant's personal property and trade fixtures
     from the Premises, and all property not so removed shall be deemed
     abandoned by Tenant. Tenant, at its sole cost, shall repair any damage to
     the Premises caused by the removal of Tenant's personal property, machinery
     and equipment, which repair shall include, without limitation, the patching
     and filling of holes and repair of structural damage.

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

36.  Public Record. This Lease is made subject to all matters of public record
     affecting title to the property of which the Premises are a part.

37.  Brokers. Tenant represents and warrants to Landlord that it has not dealt
     with any broker respecting this transaction, except Cooper/Brady and agrees
     to pay Cooper/Brady a commission as agreed to between Landlord and
     Cooper/Brady, and hereby agrees to indemnify and hold Landlord harmless
     from and against any brokerage commission or fee, obligation, claim or
     damage (including attorneys' fees) paid or incurred respecting any other
     broker claiming through Tenant or with which/whom Tenant has dealt.

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

     (A)  Tenant's sole and exclusive remedy against Landlord shall be as
          against Landlord's interest in the Premises plus the recovery of a sum
          not to exceed Five Hundred Thousand and 00/100ths Dollars
          ($500,000.00);

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

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

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

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

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

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

     H)   The covenants and agreements of Tenant set forth in this Section 38
          shall be enforceable by Landlord and any partner of Landlord

                                       17
<PAGE>   26
39.  Hazardous Material. To the best of Landlord's knowledge, there are no
     Hazardous Materials in the Building or underlying land. The only
     information Landlord has respecting the existence or absence of Hazardous
     Materials was delivered to Tenant on November 2, 1995 via a Level 1 Site
     Assessment dated October 10, 1990.

     A.   Definitions. As used herein, the term "Hazardous Material" shall mean
          any substance or material which has been determined by any state,
          federal or local governmental authority to be capable of posing a
          risk of injury to health, safety or property including all of those
          materials and substances designated as hazardous or toxic by the
          Environmental Protection Agency, the California Water Quality Control
          Board, the Department of Labor, the California Department of
          Industrial Relations, the Department of Transportation, the
          Department of Agriculture, the Consumer Product Safety Commission,
          the Department of Health and Human Services, the Food and Drug Agency
          or any other governmental agency now or hereafter authorized to
          regulate materials and substances in the environment. Without
          limiting the generality of the foregoing, the term "Hazardous
          Material" shall include all of those materials and substances
          defined as "Toxic Materials" in Sections 66680 through 66685 of Title
          22 of the California Code of Regulations, Division 4, Chapter 30, as
          the same shall be amended from time to time.

     B.   Use Restriction. Subject to the terms and conditions set forth
          herein, Landlord acknowledges that so long as Tenant is under this
          Lease, Tenant shall be permitted to use and store in the Premises
          those materials described in Paragraph G below, in the quantities set
          forth in said Paragraph. Except as specifically allowed in this
          Lease, Tenant shall not cause or permit any Hazardous Material to be
          used, stored, generated, discharged, transported to or from, or
          disposed of in or about the Premises, or any other land or
          improvements in the vicinity of the Premises. The appearance of any
          Hazardous Material that is not permitted by this Lease in or about
          the Premises shall be deemed an Event of Default under Paragraph 16
          above. Without limiting the generality of the foregoing, Tenant, at
          its sole cost, shall comply with all laws relating to the storage,
          use, generation, transport, discharge and disposal of Hazardous
          Materials. If the presence of Hazardous Materials on the premises
          caused or permitted by Tenant results in contamination of the
          Premises or any soil, air, ground or surface waters under, through,
          over, on, in or about the Premises, Tenant, at its expense shall
          promptly take all actions necessary to return the Premises and/or the
          surrounding real and personal property to the condition existing
          prior to the appearance of such Hazardous Material.

          Tenant shall defend, protect, hold harmless and indemnify Landlord
          and its agents and employees with respect to all actions, claims,
          losses, fines, penalties, fees, costs, damages and liabilities
          (including but not limited to attorneys' and consultants' fees)
          arising out of or in connection with any Hazardous Material used,
          generated, discharged, transported to or from, stored, or disposed of
          in, on, under, through or about the Premises and/or the surrounding
          real and personal property. This Paragraph shall not apply to any
          contamination of the Premises existing prior to Tenant's possession
          of the Premises.

          Tenant shall not suffer any lien to be recorded against the Premises
          as a consequence of a Hazardous Material, including any so called
          state, federal or local "super fund" lien related to the "clean up"
          of a Hazardous Material in, over, on, under, through, or about the
          Premises.

          Landlord shall defend, protect, hold harmless and indemnify Tenant
          and its agents and employees with respect to all actions, claims,
          losses, fines, penalties, fees, costs, damages and liabilities
          (including but not limited to attorneys' fees and consultants fees)
          arising out of or in connection with any Hazardous Material that was
          present in, on, or under the Premises as of the date Tenant takes
          possession of the Premises.

                                       18

<PAGE>   27
C.   Compliance.  Tenant shall immediately notify Landlord of any inquiry,
     test, investigation, enforcement proceeding by or against Tenant or the
     Premises concerning a Hazardous Material. Tenant acknowledges that
     Landlord, as the owner of the Property, at its election, shall have the
     sole right, (after consultation with Tenant), at Tenant's expense, to
     negotiate, defend, approve and appeal any action taken or order issued
     with regard to any Hazardous Material(s) by any applicable governmental
     authority. Landlord shall have the right to appoint a consultant, at
     Tenant's expense, to conduct an investigation to determine whether
     Hazardous Materials are being used, generated, discharged, transported to
     or from, stored or disposed of in, on, over, through, or about the
     Premises, in an appropriate and lawful manner. Tenant, at its expense,
     shall comply with all recommendations of the consultant.

D.   Surrender.  Upon the expiration or earlier termination of the Lease,
     Tenant, at its sole cost, shall remove all Hazardous Materials from the
     Premises and the surrounding real and personal property, the existence of
     which is caused by Tenant, its officers, employees, vendors or invitees,
     or which has been placed upon the surface of the Premises during the Lease
     Term or any Holdover period thereafter by anyone other than Landlord and
     shall provide a certificate to Landlord from a registered soils engineer
     certifying that there is no contamination of soil or ground or surface
     waters in, under, on, through, over or about the Premises and that there
     is no other contamination of Hazardous Materials in the Premises. If
     Tenant fails to so surrender the Premises, Tenant shall indemnify,
     protect, defend and hold Landlord harmless from and against all damages
     resulting from Tenant's failure to surrender the Premises as required by
     this Paragraph, including, without limitation, any actions, claims,
     losses, liabilities, fees (including but not limited to attorneys' and
     consultants' fees), fines, costs, penalties, or damages in connection with
     the condition of the Premises including, without limitation, damages
     occasioned by the inability to relet the Premises or a reduction in the
     fair market and/or rental value of the Premises by reason of the existence
     of any Hazardous Materials in, on, over, under, through or around the
     Premises.

E.   Holding Over.  If any action of any kind is required to be taken by any
     governmental authority to clean-up, remove, remediate or monitor Hazardous
     Materials from the Premises and such action is not completed prior to the
     expiration or earlier termination of the Lease, Tenant shall be deemed to
     have impermissibly held over until such time as such required action is
     completed, and Landlord shall be entitled to all damages directly or
     indirectly incurred in connection with such holding over, including
     without limitation, damages occasioned by the inability to relet the
     Premises or a reduction of the fair market and/or rental value of the
     Premises. The rent during such holdover period shall be based on the
     Monthly Installment of Rent payable during the last month of the Lease
     Term or Fair Market Rental, whichever is higher.

F.   Materials.  Write "none", if inapplicable and initial here: NONE, or list
     below.                                                      ----

     Materials:          Quantity:

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

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

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

                                       19
<PAGE>   28
     G.   Provisions Survive Termination. The provisions of this Paragraph 39
          shall survive the expiration or termination of this Lease.

     H.   The provisions of this Paragraph 39 are intended to govern the rights
          and liabilities of the Landlord and Tenant hereunder respecting
          Hazardous Materials to the exclusion of any other provisions in this
          Lease that might otherwise be deemed applicable. The provisions of
          this Paragraph 39 shall be controlling with respect to any provisions
          in this Lease that are inconsistent with this Paragraph 39.

40. Option to Extend:    Tenant is hereby granted one (1) option to extend the
                         term of this Lease for one, three (3) year period (the
                         "Option Term"), such extension to be on the same terms
                         and conditions as the initial term except for the
                         Monthly Installment of Rent, which shall be determined
                         as provided below. It shall be a condition of Tenant's
                         right to exercise the option to renew herein that
                         Tenant is in compliance with all the terms and
                         conditions of this Lease both at the time of Tenant's
                         exercise of this option and at the time the renewal
                         term is scheduled to commence; and this condition may
                         be waived by Landlord at its sole discretion and may
                         not be used by Tenant as a means to negate the
                         effectiveness of Tenant's exercise of this option. If
                         Tenant elects to exercise the option, Tenant shall
                         exercise said option only by written notice, delivered
                         to Landlord at least one hundred eighty (180) days
                         prior to the expiration of the Term of this Lease.
                         There shall be no further options to extend the term of
                         this Lease at the end of the Option Term.

                         The Monthly Installment of rent payable during the
                         Option Term shall be 95% of the Fair Market Rental for
                         the Premises as of the first day of the Option Term,
                         but not less than the amount in place at the end of the
                         initial Term.

                         Promptly following the exercise of the Option, the
                         parties shall meet and endeavor to agree upon the Fair
                         Market Rental for the Premises. The Premises shall be
                         compared only to buildings in the Santa Clara area of a
                         similar quality and size. If, within thirty (30) days
                         after the exercise of the Option, the parties cannot
                         agree upon the Fair Market Rental for the Premises as
                         of the first day of the Option Term, the parties shall
                         submit the matter to binding appraisal in accordance
                         with the following procedures:

                         Within sixty (60) days after exercise of the Option,
                         the parties shall either (a) jointly appoint an
                         appraiser for this purpose or (b) failing this joint
                         action, separately designate a disinterested appraiser.
                         No person shall be appointed or designated an appraiser
                         unless they have at least five (5) years experience in
                         appraising major commercial properties in Santa Clara
                         County and is a member of a recognized society of real
                         estate appraisers. If, within thirty (30) days after
                         their appointment, the two appraisers reach agreement
                         of the Fair Market Rental for the Premises as of the
                         first day of the Option Term in question, that value
                         shall be binding and conclusive upon the parties. If
                         the two appraisers thus appointed cannot reach
                         agreement on the question presented within thirty (30)
                         days after their appointment then the appraisers thus
                         appointed shall appoint a third disinterested appraiser
                         having like qualifications. If within thirty (30) days
                         after the appointment of the third appraiser, a
                         majority of the appraisers agree on the Fair Market
                         Rental of the Premises as of the first

                                       20
<PAGE>   29
                              day of Option Term, that value shall be binding
                              and conclusive upon the parties. If within thirty
                              (30) days after the appointment of the third
                              appraiser, a majority of the appraisers cannot
                              reach agreement on the question presented, then
                              the three appraisers shall each submit their
                              independent appraisal to the parties, and the
                              appraisal farthest from the median of the three
                              appraisals shall be disregarded and the mean
                              average shall be deemed to be the Fair Market
                              Rental for the Premises as of the first day of the
                              Option Term and shall be binding and conclusive
                              upon the parties. Each party shall pay the fees
                              and expenses of the appraiser appointed by it and
                              shall share equally the fees and expense of the
                              third appraiser. If the two appraisers appointed
                              by the parties cannot agree on the appointment of
                              the third appraiser, they or either of them shall
                              give notice of such failure to agree to the
                              parties and if the parties fails to agree upon the
                              selection of such third appraiser within ten (10)
                              days after the appraisers appointed by the parties
                              give such notice, then either of the parties, upon
                              notice to the other party, may request such
                              appointment by the American Arbitration
                              Association, or on its failure, refusal or
                              inability to act, may apply such appointment to
                              the presiding judge of the Superior Court of the
                              Country of Santa Clara County, State of
                              California.

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

LANDLORD: DELL ASSOCIATES II,                TENANT: BAY NETWORKS, INC., A
A CALIFORNIA GENERAL PARTNERSHIP             DELAWARE CORPORATION

By: /s/ JAMES D. MAIR                        by: /s/ WILLIAM J. RUEHLE
   ---------------------------                  -----------------------------
     James D. Mair
                                             Print: William J. Ruehle
Title: General Partner                              -------------------------

By: /s/ W. LESLIE PALIO                      Title:  EVP & CFO
   ---------------------------                      -------------------------
        W. Leslie Palio
                                             By:
Title: General Partner                           ----------------------------

By: /s/ WILLIAM F. JURY                      Print:
   ---------------------------                     --------------------------
        William F. Jury
                                             Title:
Title: General Partner                            ---------------------------

Dated:      1-3-96                           Dated:
      ------------------------                    ---------------------------

                                       21

<PAGE>   30

   4500 GREAT AMERICA                FIRST FLOOR PLAN    [DIAGRAM]
       PARKWAY
                                     SECOND FLOOR PLAN   [DIAGRAM]
      SITE PLAN
      [DIAGRAM]                      THIRD FLOOR PLAN    [DIAGRAM]

                                  EXHIBIT "A"
<PAGE>   31
                                                            Loan No. 5428-0050-0

             SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT

     THIS AGREEMENT, made this 28th day of December, 1995, by and between BAY
NETWORKS, INC., a Delaware corporation (hereinafter called "Tenant") and
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, A Tennesse corporation
(hereinafter called "Provident").

     WHEREAS, by Lease dated December 20, 1995, (hereinafter called the
"Lease"), DELL ASSOCIATES, II, a California general partnership (hereinafter
called "Landlord"), has leased to Tenant and Tenant has rented from Landlord
all that real property and premises located at 4500 Great America Parkway in
the City of Santa Clara, County of Santa Clara, and State of California, more
particularly described in the Lease (hereinafter called the "Premises"); and

     WHEREAS, Provident is the holder of a Deed of Trust and Assignment of
Rents, as amended (hereinafter called the "Mortgage"), which constitutes or
will constitute a lien against the Premises; and

     WHEREAS, Tenant desires that Provident recognize Tenant's rights under the
Lease in the event that Provident succeeds to the interests of Landlord under
the Lease, and Tenant is willing to agree to attorn to Provident in such event
and to subordinate Tenant's leasehold interest to Provident's Mortgage interest
if Provident will recognize Tenant's right of possession under the Lease;

     NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00), cash in hand paid, receipt whereof is hereby acknowledged, and for
and in consideration of their respective covenants herein made, the parties
agree as follows:

     1. The Lease and all rights of Tenant thereunder are and shall at all
times continue to be subject and subordinate in all respects to the terms and
provisions of the Mortgage and to all renewals, modifications, replacements or
extensions thereof and to any subsequent mortgages with which the Mortgage may
be spread and consolidated, and said Lease is subject to the terms and
conditions stated herein.

     2. That, provided Tenant complies with this Agreement and is not in
default under the terms of the Lease in the payment of rent or additional rent
or the performance of any of the terms, conditions, covenants, clauses or
agreements on its part to be performed under the Lease, as of the date
Mortgagee files a lis pendens in, or otherwise commences a foreclosure action,
or at any time thereafter, no default under the Mortgage, as modified,
extended, increased, spread or consolidated, and no proceeding to foreclose the
same will disturb Tenant's possession under said
<PAGE>   32
foreclose the same will disturb Tenant's possession under said Lease and the
Lease will not be affected or cut off thereby, (except to the extent that
Tenant's right to receive or set off any monies or obligations owed or to be
performed by Mortgagee's predecessors in title shall not be enforceable
thereafter against Mortgagee or any subsequent owner) and notwithstanding any
such foreclosure or other acquisition of the demised Premises by Mortgagee, the
Lease will be recognized as a lease from Mortgagee or any other party acquiring
the Premises upon such foreclosure or other acquisition, except that Mortgagee,
or any subsequent owner, shall not (a) be liable for any previous act or
omission of landlord under the Lease, (b) be subject to any offset which shall
theretofore have accrued to Tenant against landlord, (c) have any obligation
with respect to any security deposited under the Lease unless such security has
been physically delivered to Mortgagee, or  (d) be bound by any previous
modification of the Lease subsequent to the execution of this Agreement, or by
any previous prepayment of fixed rent for a period greater than one (1) month,
unless such modification or prepayment shall have been expressly approved in
writing by Mortgagee.

     3. Any provision of this Agreement and/or the Lease to the contrary
notwithstanding, Mortgagee shall have no obligation, or incur any liability,
with respect to the erection and completion of the building in which the
Premises are located or for completion of the Premises or any improvements for
Tenant's use and occupancy. Tenant certifies that the term of the Lease has
commenced and the Lease is presently in full force and effect and unmodified;
that Tenant has accepted possession of the Premises and the Premises are
completed to the satisfaction of Tenant; that no rent under the Lease has been
paid more than one (1) month in advance of its due date; that Tenant as of this
date, has no charge, lien or claim of offset under the Lease, or otherwise,
against the rents or other charges due or to become due thereunder.

     4. That, if Mortgagee elects to accept from the then Mortgagor a deed in
lieu of foreclosure, Tenant's right to receive or set off any monies or
obligations owned or to be performed by the Landlord (or any successor
landlord) shall not be enforceable thereafter against Mortgagee or any
subsequent owner.

     5. That Tenant will upon request by Mortgagee, or any subsequent owner,
execute a written agreement whereunder Tenant does attorn to Mortgagee or any
such subsequent owner and affirm Tenant's obligations under the Lease and agree
to pay all rentals and charges then due or to become due as they become due to
Mortgagee or such subsequent owner.

     6. Tenant from and after the date hereof shall send a copy of any notice
or statement under the Lease to Mortgagee at the same time such notice or
statement is sent to the Landlord under the Lease.

                                       2
<PAGE>   33
     7.   Tenant hereby agrees that from and after the date hereof in the event
of any act or omission by Landlord (or any successor Landlord) under the Lease
(other than any such act or omission which is not capable of being remedied by
Landlord under the Lease within a reasonable period) which would give Tenant the
right, either immediately or after notice and/or the lapse of time, to terminate
the Lease, or to claim a partial or total eviction, Tenant will not exercise any
such right (i) until it has given written notice of such act or omission to
Mortgagee by delivering such notice of such act or omission, by registered mail,
return receipt requested, addressed to Mortgagee, at Mortgagee's address as
given herein (Attention: Vice President, Mortgage Loans), or at the last address
of Mortgagee, furnished to Tenant in writing and (ii) until a reasonable period
of remedying such act or omission shall have elapsed following such giving of
notice and following the time when Mortgagee shall have become entitled under
the Mortgage to remedy the same; provided, Mortgagee, at its option shall,
following the giving of such notice, have elected to commence and continue to
remedy such act or omission or to cause the same to be remedied.

     8.   Tenant will neither offer nor make prepayment of rent (for a period
in excess of one (1) month, nor further change the terms, covenants, conditions
and agreements of the Lease in any manner without the express consent in
writing of Mortgagee.

     9.   Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage, except as specifically set forth herein.

     10.  No modification, amendment, waiver or release of any provision of
this Agreement or of any right, obligation, claim or cause of action arising
hereunder shall be valid, or binding for any purpose whatsoever unless in
writing and duly executed by the party against whom the same is sought to be
asserted.

     11.  This Agreement shall inure to the benefit of the parties hereto,
their successors and assigns; provided, however, that in the event of the
assignment or transfer of the interest of Mortgagee, all obligations and
liabilities of Mortgagee under this Agreement shall terminate, and thereupon
all such obligations and liabilities shall be the responsibility of the party
to whom Mortgagee's interest is assigned or transferred; and provided further
that the interest of Tenant under this Agreement may not be assigned or
transferred.

     12.  Tenant agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a non-disturbance
agreement.

     13.  Tenant acknowledges that it has notice that the Lease and the rent
and all other sums due thereunder have been assigned to Mortgagee as part of
the security for the note secured by the

                                       3
<PAGE>   34
Mortgage. In the event that Mortgagee notifies Tenant of a default under the
Mortgage and demands that Tenant pays its rent and all other sums due under the
Lease to Mortgagee, Tenant agrees that it will honor such demand and pay its
rent and all other sums due under the Lease directly to Mortgagee.

     14.  Mortgagee shall have no responsibility to provide any additional space
for which Tenant has any option or right under the Lease unless Mortgagee at its
option elects to provide the same and Tenant hereby releases Mortgagee from any
obligation to provide the same, if any, and agrees that it shall have no right
to cancel the Lease or any claim against Mortgagee as a result of the failure to
provide any option space.

     15.  Tenant covenants and acknowledges that it has no right or option of
any nature whatsoever, whether pursuant to the Lease or otherwise, to purchase
the Premises or the real property of which the Premises are a part, or any
portion thereof or any interest therein and to the extent that Tenant has had,
or hereafter acquires any such right or option, the same is hereby acknowledged
to be subject to and subordinate to the Mortgage and is hereby waived and
released as against Mortgagee.

     16.  Mortgagee shall have no obligation, nor incur any liability, with
respect to any warranties of any nature whatsoever, whether pursuant to the
Lease or otherwise, including, without limitation, any warranties respecting
use, compliance with zoning, Landlord's title, Landlord's authority,
habitability, and/or fitness for purpose or possession.

     17.  Anything herein or in the Lease to the contrary notwithstanding, in
the event that Mortgagee shall acquire title to the Premises or the real
property of which the Premises are a part, Mortgagee shall have no obligation,
nor incur any liability, beyond Mortgagee's then interest, if any, in the
Premises and Tenant shall look exclusively to such interest of Mortgagee, if
any, in the Premises for the payment and discharge of any obligations imposed
upon Mortgagee hereunder or under the Lease, and Mortgagee is hereby released or
relieved of any other obligations hereunder and under the Lease. Tenant agrees
that with respect to any money judgment which may be obtained or secured by
Tenant against Mortgagee, Tenant shall look solely to the estate or interest
owned by Mortgagee in the Premises or the real property of which the Premises
are a part, or any portion thereof, or interest therein and Tenant will not
collect or attempt to collect any such judgment out of any other assets of
Mortgagee.

     18.  Notwithstanding anything else contained in the Mortgage to the
contrary if (i) the Premises are wholly or partially destroyed by fire or other
casualty (collectively, a "Loss"), (ii) the Loss is insured and the insurance
proceeds payable thereon are sufficient in amount to restore the Premises to the
reasonable satisfaction of both Mortgagee and Tenant whose approval shall not

                                       4

<PAGE>   35

be unreasonably withheld, and (iii) Tenant provides satisfactory undertakings
acceptable to Mortgagee, whose approval shall not be unreasonably withheld,
with respect to the continuation of the Lease following a date agreed upon by
both Tenant and Mortgagee for completion of the restoration of the Premises,
unless Mortgagee and Tenant otherwise agree, Mortgagee agrees to make the
insurance proceeds payable in connection with said Loss available to the
Landlord to the full extent necessary for the restoration of the Premises
subject to the disbursement conditions and controls set forth in Section A.1 of
the Mortgage or as may otherwise be reasonably established by Mortgagor
pursuant thereto.

     19.  Notwithstanding anything else in the Mortgage to the contrary, if (i)
a Loss (as hereinabove defined) occurs, and (ii) Mortgagee is not required to
or does not otherwise elect to apply all or any of the insurance proceeds
received by Mortgagee in respect of the repair of any such Loss, then, in that
event, Mortgagee and Tenant agree to share such insurance proceeds (or any
excess amount thereof not expended for the restoration of the Premises), pro
rata, based, in the case of the Mortgagee, on the percentage which the then
outstanding principal and interest due and owing to Mortgagee on the Note
secured by the Mortgage (the "Loan Balance") represents out of the aggregate
total of the Loan Balance and Tenant's Amortized Improvements Balance (as
hereinafter defined); and in the case of the Tenant, based on the percentage
which the Tenant's Amortized Improvements Balance represents out of the
aggregate total of the Loan Balance and Tenant's Amortized Improvement Balance,
provided, however, that in no event shall the Tenant be entitled to receive
more than the amount of Tenant's Amortized Improvement Balance on the date of
loss.

     20.  Tenant anticipates making various leasehold improvements to the
Premises at a cost not to exceed $1,000,000.00 in accordance with the plans and
specifications and construction budget to be hereafter submitted to and
approved by Mortgagee (the "Tenant Improvements") whose approval shall not be
unreasonably withheld. Tenant will not make any material changes in the plans
and specifications for the Tenant Improvements without Mortgagee's written
consent following Mortgagee's approval thereof, and will document to the
reasonable satisfaction of Mortgagee the amounts expended by Tenant as and for
the completion of such Tenant Improvements not less than once each quarter
until the Tenant Improvements are completed. The aggregate cost of such Tenant
Improvements, which shall not exceed $1,000,000.00 without the Mortgagee's
written approval, shall, upon completion, be amortized monthly on a straight
line basis over the balance of the initial three (3) year term of the Lease,
the unamortized portion of which shall, as of any date on which determined,
represent the Tenant's Amortized Improvements Balance.

     21.  Notwithstanding anything else contained in this Agreement to the
contrary, in the event that the Landlord defaults in the performance of its
obligations under the Lease and the Tenant

                                       5
<PAGE>   36
advances the funds necessary to cure any such default, Tenant shall be entitled
to deduct such advances from any rents thereafter becoming due and payable
under the Lease; provided, however, (i) Tenant furnishes all information and
documentation Mortgagee may reasonably require as to the expenses so incurred
and the repairs undertaken, and (ii) Tenant agrees to waive the Landlord's
default and pay any Additional Rent required under Section 10A of the Lease.

          22.  This Agreement may be executed by the parties hereto in one or
more separate counterparts each of which, when taken with all such other
counterparts, shall constitute one and the same agreement.

     IN WITNESS WHEREOF, the parties hereto have respectively signed and sealed
this Agreement as of the day and year first above written.

WITNESS:                                MORTGAGEE:

                                        PROVIDENT LIFE AND ACCIDENT
                                        INSURANCE COMPANY

/s/ [Signature Illegible]               By: /s/ RICHARD E. CORN
---------------------------                -------------------------------------
                                           Name: Richard E. Corn
                                           Title: Vice President

                                        TENANT:

ATTEST/WITNESS:                         BAY NETWORKS, INC.

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

DELL ASSOCIATES II, a California general partnership, as Landlord under the
Lease and as the Mortgagor under the Mortgage agrees for itself and its
successors and assigns, that (i) the within Agreement does not (a) constitute a
waiver by Mortgagee of any of its rights under the Mortgage and/or (b) in any
way release the Mortgagor from its obligation to comply with the terms,
provisions, conditions, covenants, agreements and clauses of the Mortgage, (ii)
the provisions of the Mortgage remain in full force and effect and must be
complied with by the Mortgagor, and (iii) in the event of a default under the
Mortgage, Tenant may pay all rent and all other sums due under the Lease to
Mortgagee as provided in the within Agreement.

                                       6
<PAGE>   37
advances the funds necessary to cure any such default, Tenant shall be entitled
to deduct such advances from any rents thereafter becoming due and payable
under the Lease; provided, however, (i) Tenant furnishes all information and
documentation Mortgagee may reasonably require as to the expenses so incurred
and the repairs undertaken, and (ii) Tenant agrees to waive the Landlord's
default and pay any Additional Rent required under Section 10A of the Lease.

     22.  This Agreement may be executed by the parties hereto in one or more
separate counterparts each of which, when taken with all such other
counterparts, shall constitute one and the same agreement.

     IN WITNESS WHEREOF, the parties hereto have respectively signed and sealed
this Agreement as of the day and year first above written.

                                   MORTGAGEE:

ATTEST:                            PROVIDENT LIFE AND ACCIDENT
                                   INSURANCE COMPANY

                                   By:
--------------------------            ------------------------------

                                        Name:
                                             -----------------------

                                        Title:
                                              ----------------------

                                   TENANT:

ATTEST/WITNESS:                    BAY NETWORKS, INC.

                                   By: /s/ WILLIAM J. RUEHLE
--------------------------            ------------------------------

                                        Name:  William J. Ruehle
                                             -----------------------

                                        Title: EVP & CFO
                                              ----------------------

DELL ASSOCIATES II, a California general partnership, as Landlord under the
Lease and as the Mortgagor under the Mortgage agrees for itself and its
successors and assigns, that (i) the within Agreement does not (a) constitute a
waiver by Mortgagee of any of its rights under the Mortgage and/or (b) in any
way release the Mortgagor from its obligation to comply with the terms,
provisions, conditions, covenants, agreements and clauses of the Mortgage,
(ii) the provisions of the Mortgage remain in full force and effect and must be
complied with by the Mortgagor, and (iii) in the event of a default under the
Mortgage, Tenant may pay all rent and all other sums due under the Lease to
Mortgagee as provided in the within Agreement.

                                       6

<PAGE>   38
                                   MORTGAGOR/LANDLORD:

ATTEST/WITNESS:                    Dell Associates II, a California
                                   General Partnership

                                   By: /s/ JAMES D. MAIR
--------------------------            ------------------------------

                                        Name:  James D. Mair
                                             -----------------------

                                        Title: General Partner
                                              ----------------------

                                       7

<PAGE>   39
STATE OF TENNESSEE  )
                    ) SS:
COUNTY OF HAMILTON  )

          BE IT REMEMBERED, that on this 28th day of December, 1995, before me,
the subscriber, a notary public of the State of Tennessee personally appeared
Richard E. Corn, Vice President of Provident Life and Accident Insurance
Company, the Mortgagee under the within instrument who, I am satisfied, is the
person who has signed the within instrument; and I having first made known to
him the contents thereof, he thereupon acknowledged that he signed, sealed with
the corporate seal and delivered the said instrument as such officer aforesaid;
that the within instrument is the voluntary act and deed of said corporation,
made by virtue of authority from its Board of Directors.

                                        /s/ W. W. [SIGNATURE ILLEGIBLE]
[SEAL]                                  ---------------------------------------
                                        Notary Public

                                        My Commission Expires: January 12, 1997

STATE OF CALIFORNIA )
                    ) SS:
COUNTY OF           )

          BE IT REMEMBERED, that on this ____ day of December, 1995, before me,
the subscriber, a notary public of the State of California personally appeared
_______________________________ of Bay Networks, Inc., the Tenant under the
within instrument who, I am satisfied, is the person who has signed the within
instrument; and I having first made known to him the contents thereof, he
thereupon acknowledged that he signed, sealed with the corporate seal and
delivered the said instrument as such officer aforesaid; that the within
instrument is the voluntary act and deed of said corporation, made by virtue
of authority from its Board of Directors.

[SEAL]                                  ---------------------------------------
                                        Notary Public

                                        My Commission Expires:
                                                               ----------------

                                       8
<PAGE>   40

STATE OF TENNESSEE  )
                    ) SS:
COUNTY OF HAMILTON  )

          BE IT REMEMBERED, that on this ____ day of December, 1995, before me,
the subscriber, a notary public of the State of Tennessee personally appeared
Richard E. Corn, Vice President of Provident Life and Accident Insurance
Company, the Mortgagee under the within instrument who, I am satisfied, is the
person who has signed the within instrument; and I having first made known to
him the contents thereof, he thereupon acknowledged that he signed, sealed with
the corporate seal and delivered the said instrument as such officer aforesaid;
that the within instrument is the voluntary act and deed of said corporation,
made by virtue of authority from its Board of Directors.

[SEAL]                                  ---------------------------------------
                                        Notary Public

                                        My Commission Expires:
                                                               ----------------

STATE OF CALIFORNIA )
                    ) SS:
COUNTY OF           )

          BE IT REMEMBERED, that on this 28th day of December, 1995, before me,
the subscriber, a notary public of the State of California personally appeared
William J. Ruehle of Bay Networks, Inc., the Tenant under the within instrument
who, I am satisfied, is the person who has signed the within instrument; and I
having first made known to him the contents thereof, he thereupon acknowledged
that he signed, sealed with the corporate seal and delivered the said instrument
as such officer aforesaid; that the within instrument is the voluntary act and
deed of said corporation, made by virtue of authority from its Board of
Directors.

                                        /s/ DANIEL J. GALLAGHER
[SEAL]                                  ---------------------------------------
                                        Notary Public

                                        My Commission Expires: 2/6/98

<PAGE>   41
State of California
County of Santa Clara

On JANUARY 2, 1996, before me, Melanie Gow, the undersigned Notary Public,
personally appeared JAMES D. MAIR personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose names is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies) and that by
his/her/their signature(s) on the instrument the person(s), or entity upon
behalf of which the person(s) acted, executed the instrument.

Witness my hand and official seal

Signature   /s/ MELANIE GOW
         -----------------------                       (SEAL)

Print Name  Melanie Gow
          ----------------------
            Commission Expires 5/25/98<PAGE>   1

                                                                     EXHIBIT 4.2

                       ALLIANCE FIBER OPTICS PRODUCT, INC.

                      AMENDED AND RESTATED RIGHTS AGREEMENT

                                       1
<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----
<S>                                                                                                                 <C>
Section 1. Termination of Prior Rights........................................................................        2
Section 2.       Registration Rights..........................................................................        2
           2.1   Definitions..................................................................................        2
           2.2   Requested Registration.......................................................................        4
           2.3   Company Registration.........................................................................        5
           2.4   Obligations of the Company...................................................................        5
           2.5   Furnish Information..........................................................................        6
           2.6   Expenses of Demand Registration..............................................................        7
           2.7   Expenses of Company Registration.............................................................        7
           2.8   Underwriting Requirements....................................................................        7
           2.9   Delay of Registration........................................................................        8
           2.10  Indemnification..............................................................................        8
           2.11  Reports Under Securities Exchange Act of 1934................................................       10
           2.12  Form S-3 Registration........................................................................       10
           2.13  Assignment of Registration Rights............................................................       11
           2.14  Limitations on Subsequent Registration Rights................................................       12
           2.15  Market Stand-Off Agreement...................................................................       12
           2.16  Termination of Registration Rights...........................................................       12
Section 3.       Additional Rights............................................................................       13
           3.1   Right of First Refusal.......................................................................       13
           3.2   Financial Statements.........................................................................       15
           3.3   Inspection...................................................................................       15
           3.4   Termination of Information and Inspection Rights.............................................       16
           3.5   Confidentiality..............................................................................       16
           3.6   Observer Rights..............................................................................       16
Section 4.       Miscellaneous................................................................................       16
           4.1   Assignment...................................................................................       16
           4.2   Third Parties................................................................................       16
           4.3   Governing Law................................................................................       17
           4.4   Counterparts.................................................................................       17
           4.5   Notices......................................................................................       17
           4.6   Severability.................................................................................       17
           4.7   Amendment and Waiver.........................................................................       17
           4.8   Effect of Amendment or Waiver................................................................       17
           4.9   Rights of Holders............................................................................       17
           4.10  Delays or Omissions..........................................................................       18
           4.11  Attorney's Fees..............................................................................       18
           4.12  Aggregation of Stock.........................................................................       18
           4.13  Specific Enforcement.........................................................................       18
           4.14  Adjustments for Stock Splits, Etc............................................................       18
</TABLE>

<PAGE>   3

                      AMENDED AND RESTATED RIGHTS AGREEMENT

        THIS AMENDED AND RESTATED RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of July 17, 2000, by and among Alliance Fiber Optics Product,
Inc., a California corporation (the "Company"), the investors in the Company's
Series A Preferred Stock (the "Series A Investors") pursuant to (i) the Series A
Preferred Stock Purchase Agreement, dated as of January 15, 1996 (the "Series A
Agreement"), as amended by that certain Amendment Number One to Series A
Preferred Stock Purchase Agreement and Action by Written Consent of Shareholders
dated as of May 23, 1997 (the "Series A Amendment" and collectively with the
Series A Agreement, the "First Series A Agreement"), and (ii) the Series A
Preferred Stock and Warrant Purchase Agreement dated as of January 13, 1998 (the
"Second Series A Agreement"), the Investors in the Company's Series B Preferred
Stock (the "Series B Investors", and collectively with the Series A Investors,
the "Prior Investors") pursuant to the Series B Preferred Stock Purchase
Agreement, dated as of January 19, 2000 (the "Series B Agreement"), and the
Investors in the Company's Series C Preferred Stock (the "Series C Investors")
pursuant to the Series C Preferred Stock Purchase Agreement as of an even date
herewith (the "Series C Agreement"). The Series A Investors, the Series B
Investors and the Series C Investors are referred to collectively as the
"Investors" and are listed on the Schedule of Investors attached to this
Agreement as Exhibit A.

                                    RECITALS

        WHEREAS, the Company and the Series B Investors are parties to that
certain Rights Agreement dated January 19, 2000 (the "Prior Rights Agreement");
and

        WHEREAS, the Series B Investors have certain registration and other
rights under the Prior Rights Agreement; and

        WHEREAS, the certain Series A Investors have certain registration and
other rights under the First Series A Agreement and certain other Series A
Investors have certain registration and other rights under the Rights Agreement
dated as of January 13, 1998 between such Series A Investors and the Company
(the "Transpac Rights Agreement"); and

        WHEREAS, the Company, to induce the Series C Investors to purchase up to
an aggregate of 5,000,000 shares of the Company's Series C Preferred Stock (the
"Shares") pursuant to the Series C Agreement, desires to grant certain
registration rights and other rights to the Series C Investors, and the Prior
Investors desire to facilitate such grant; and

        WHEREAS, the sale of the Shares to the Series C Investors is conditioned
upon the registration rights and other rights being extended to the Series C
Investors; and

        WHEREAS, the Prior Rights Agreement may be amended as set forth in
Section 4.7 thereof; and

<PAGE>   4

        WHEREAS, the First Series A Agreement may be amended as set forth in
Section 9.4 thereof and

        WHEREAS, the Transpac Rights Agreement may be amended as set forth in
Section 4.7 thereof.

        NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:

        Section 1. Termination of Prior Rights. The Company and the Prior
Investors, to induce the Series C Investors to invest in the Company, accept and
agree to the termination of all prior rights under (i) the Prior Rights
Agreement, (ii) the Transpac Rights Agreement, (iii) Section 7 and Section 8 of
the Series A Agreement, and (iv) Section 4 of the Series A Amendment (relating
to Preemptive Right), as the case may be, and accept and agree to be bound by
the terms of this Agreement. Without limiting the foregoing in any way, the
Prior Investors that become signatories hereto also agree to modify (i) Section
3.1 of the Prior Rights Agreement, (ii) Section 3.1 of the Transpac Rights
Agreement, and (iii) Section 4 of the Series A Amendment, as applicable, subject
and immediately prior to the closing of the sale of the Shares to exclude the
proposed sale of the Shares pursuant to the Series C Agreement from the right of
first refusal provisions thereof, with the effect that all such rights
(including any related rights of prior notice) shall be rendered inapplicable
with respect to the sale of the Shares under the Series C Agreement. Except as
amended by this Agreement, the Series A Agreement and the Series A Amendment
shall remain in full force and effect (to the extent, if at all, that any
provisions thereof remain in effect by their terms).

        Section 2. Registration Rights.

             2.1 Definitions. As used in this Agreement:

                    (a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended (the "Act")
and the subsequent declaration or ordering of the effectiveness of such
registration statement.

                    (b) The term "Registrable Securities" means:

                         (i) the shares of Common Stock issuable or issued upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock of the Company (the "Preferred Stock"), and

                         (ii) any other shares of Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Preferred Stock excluding in
all cases, however, any Registrable Securities sold by a person in a transaction
in which his or her rights under this Agreement are not assigned; provided,
however, that Common Stock or other securities shall only be treated as
Registrable Securities if and so long as

                                       2
<PAGE>   5

they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.

                    (c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.

                    (d) The term "Demand Right Shares" means:

                         (i) the shares of Common Stock issuable or issued upon
conversion of the Series B Preferred Stock and Series C Preferred Stock of the
Company, and

                         (ii) any other shares of Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Series B Preferred Stock and
Series C Preferred Stock excluding in all cases, however, any Demand Right
Shares sold by a person in a transaction in which his or her rights under this
Agreement are not assigned; provided, however, that Common Stock or other
securities shall only be treated as Demand Right Shares if and so long as they
have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.

                    (e) The number of shares of "Demand Right Shares then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Demand Right
Shares.

                    (f) The term "Holder" means any Investor holding Registrable
Securities or securities convertible into Registrable Securities, or any
assignee thereof in accordance with Section 2.13 hereof.

                    (g) The term "Initiating Holders" means any Holder or
Holders who in the aggregate hold no less twenty-five percent (25%) of the
outstanding Demand Right Shares.

                    (h) The term "Major Investor" means each Holder holding not
less than either 100,000 shares of Common Stock issued or issuable upon
conversion of Series A Preferred Stock (a "Major A Investor"), 500,000 shares of
Common Stock issued or issuable upon conversion of Series B Preferred Stock (a
"Major B Investor") or 200,000 shares of Common Stock issued or issuable upon
conversion of Series C Preferred Stock (a "Major C Investor"), provided that for
the

                                       3
<PAGE>   6

purposes of these calculations, any shares of Registrable Securities held by an
affiliate or partner of such Holder shall be aggregated.

                    (i) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.

             2.2 Requested Registration.

                    (a) If the Company shall receive at any time after the
earlier of (i) November 1, 2003, or (ii) six (6) months after the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the Initiating Holders that the Company file a registration statement under the
Act covering the registration of not less than twenty-five percent (25%) of the
Demand Right Shares then outstanding, (or any lesser number of shares if the
anticipated aggregate offering price, net of underwriting discounts and
commissions would exceed $10,000,000) then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsection 2.2(b), use its best efforts
to effect as soon as practicable, and in any event within ninety (90) days of
the receipt of such request, the registration under the Act of all Registrable
Securities which the Holders request to be registered in a written request given
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 4.5.

                    (b) If the Initiating Holders intend to distribute the
Demand Right Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to this
Section 2.2 and the Company shall include such information in the written notice
referred to in subsection 2.2(a). In such event, the right of any Demand Right
Shares Holder to include his Demand Right Shares in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Demand Right Shares in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 2.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 2.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Demand Right Shares which would otherwise
be underwritten pursuant hereto, and the number of shares of Demand Right Shares
that may be included in the underwriting shall be allocated among all Demand
Right Shares Holders thereof, including the Initiating Holders, in proportion
(as nearly as practicable) to the amount of Demand Right Shares of the Company
owned by each Holder; provided, however, that the number of shares of Demand
Right Shares to be included in such underwriting shall not be reduced unless

                                       4
<PAGE>   7

all other securities proposed to be sold by persons other than the Holders are
first entirely excluded from the underwriting.

                    (c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 2.2.

                    (d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.

                    (e) Notwithstanding the foregoing, the Company shall not be
obligated to effect, or to take any action to effect, any such registration
pursuant to this Section 2.2 during the period starting with the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a Company-initiated registration; provided the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective.

             2.3 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
Common Stock or other securities under the Act in connection with a public
offering of such securities solely for cash (other than a registration relating
either to the sale of securities to participants in a Company stock option,
stock purchase or similar plan or to a SEC Rule 145 transaction, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at least
thirty (30) days prior to filing such registration statement, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 4.5, the Company shall, subject to the provisions of
Section 2.8, use its best efforts to cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.

                    2.4 Obligations of the Company. Whenever required under this
Section 2 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

                         (a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days.

                                       5
<PAGE>   8

                    (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.

                    (c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.

                    (d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

                    (e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

                    (f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.

                    (g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 2, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 2, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.

             2.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding

                                       6
<PAGE>   9

itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Holder's Registrable Securities.

             2.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company with respect to two (2) such registrations; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Demand Right Shares to be registered (in which case all participating
Holders shall bear such expenses), unless the Holders of a majority of the
Demand Right Shares agree to forfeit their right to the demand registration
pursuant to Section 2.2; provided further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 2.2.

             2.7 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to two (2) registrations
pursuant to Section 2.3 for each Holder (which right may be assigned as provided
in Section 2.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.

             2.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 2.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (provided
that such underwriters shall be of nationally recognized reputation), and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters reasonably believe compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders); provided that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities held by persons other than the Holders or
the Company are first entirely excluded from the underwriting; but in no event
shall (i) the amount of securities of the selling Holders included in the
offering be reduced below thirty percent (30%) of the total amount of securities
included in such offering, unless such offering is the initial public

                                       7
<PAGE>   10

offering of the Company's securities, in which case the selling shareholders may
be excluded if the underwriters make the determination described above and no
other shareholder's securities are included or (ii) notwithstanding (i) above,
any shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 2.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.

             2.9 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.

             2.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:

                    (a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities law; and the Company will pay as
incurred to each such Holder, underwriter or controlling person, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability, or action arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
such Holder or underwriter and stated to be specifically for use therein; and
provided further that the indemnity agreement contained in this subsection
2.10(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.

                                       8
<PAGE>   11

                    (b) To the extent permitted by law, each selling Holder,
severally, will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 2.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 2.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity under this subsection
2.10(b) exceed the net proceeds from the offering received by such Holder.

                    (c) Promptly after receipt by an indemnified party under
this Section 2.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
2.10.

                    (d) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.

                    (e) The obligations of the Company and Holders under this
Section 2.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 2, and otherwise.

                                       9
<PAGE>   12

             2.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:

                    (a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;

                    (b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;

                    (c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and

                    (d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.

             2.12 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of the Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:

                    (a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and

                    (b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall

                                       10
<PAGE>   13

not be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 2.12, (i) if Form S-3 is not available for such
offering by the Holders; (ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the president of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 2.12; provided, however, that the Company
shall not utilize this right more than once in any twelve (12) month period;
(iv) if the Company has already effected two (2) registrations on Form S-3 for
the Holders pursuant to this Section 2.12; or (v) in any particular jurisdiction
in which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.

                    (c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 2.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders,
shall be borne by the Holders of such securities pro rata on the basis of the
number of shares so registered. Registrations effected pursuant to this Section
2.12 shall not be counted as demands for registration or registrations effected
pursuant to Section 2.2 or 2.3.

             2.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of at least 100,000 shares (as
adjusted to reflect stock splits, stock dividends or recapitalizations) of such
securities provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such assignee
and the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Act. The
foregoing 100,000 share limitation shall not apply, however, to transfers by a
Holder to affiliates, shareholders, partners or retired partners of the Holder
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) or to any immediate family member or trust for the benefit
of any individual Holder, if all such transferees or assignees agree in writing
to appoint a single representative as their attorney in fact for the purpose of
receiving any notices and exercising their rights under this Section 2.

             2.14 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or

                                       11
<PAGE>   14

prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to hold registration rights with respect to
such securities unless such new registration rights, including standoff
obligations, are subordinate to the registration rights granted Holders under
this Agreement; or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 2.2(a) or within one hundred eighty (180)
days of the effective date of any registration effected pursuant to Section 2.2.

             2.15 "Market Stand-Off" Agreement. The Holder hereby agrees that
during the period of duration (up to, but not exceeding 180 days) specified by
the Company and the lead underwriter following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the underwriter, sell or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any Common Stock of the
Company held by it at any time during such period except Common Stock included
in such registration; provided, however, that:

                    (a) such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and

                    (b) each officer, director and holder of 3% of the equity of
the Company and all other persons with registration rights (whether or not
pursuant to this Agreement) enters into a similar agreement.

        To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of the Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.

             2.16 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 2: (a) after seven
(7) years following the consummation of the Company's sale of its Common Stock
in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, which
results in aggregate gross cash proceeds to the Company in excess of $30,000,000
and the public offering price of which is not less than $8.25 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) (other than a registration statement relating either to the
sale of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) or (b) at and after such
time following the Company's initial public offering as such Holder holds
Registrable Securities equal to one percent (1%) or less of the outstanding
stock of the Company and is able to dispose of all of its Registrable Securities
in one three-month period pursuant to the provisions of Rule 144.

        Section 3.Additional Rights.

             3.1 Right of First Refusal. Subject to the terms and conditions
specified in this Section 3.1, the Company hereby grants to each Major Investor
a right of first refusal with respect

                                       12
<PAGE>   15

to future sales by the Company of its New Securities (as hereinafter defined).
Subject to Section 3.1(f) below, a Major Investor shall be entitled to apportion
the right of first refusal hereby granted among itself and its partners,
shareholders and affiliates in such proportions as it deems appropriate.

                    (a) In the event the Company proposes to issue New
Securities, it shall give each Major Investor written notice (the "Notice") of
its intention stating (i) a description of the New Securities it proposes to
issue, (ii) the number of shares of New Securities it proposes to offer, (iii)
the price per share at which, and other terms on which, it proposes to offer
such New Securities and (iv) the number of shares that the Major Investor has
the right to purchase under this Section 3.1, based on the Major Investor's
Percentage (as defined in Section 3.1(d)(ii)).

                    (b) Within twenty (20) days after the Notice is given (in
accordance with Section 4.5), the Major Investor may elect to purchase, at the
price specified in the Notice, up to the number of shares of the New Securities
proposed to be issued that the Major Investor has the right to purchase as
specified in the Notice. An election to purchase shall be made in writing and
must be given to the Company within such twenty (20) day period (in accordance
with Section 4.5). The Company shall promptly, in writing, provide a second
written notice to each Major Investor that purchases all the New Securities
available to it (each, a "Fully-Exercising Investor") of any other Major
Investor's failure to do likewise. During the ten (10)-day period immediately
following the date of the second notice, each Fully-Exercising Investor shall
have an additional right to purchase its Major Investor's Percentage of the New
Securities not so purchased during the initial 20-day period by the other Major
Investor(s). The closing of the sale of New Securities by the Company to the
participating Major Investor upon exercise of its rights under this Section 3.1
shall take place simultaneously with the closing of the sale of New Securities
to third parties.

                    (c) The Company shall have sixty (60) days after the last
date on which the Major Investor's right of first refusal lapsed to enter into
an agreement (pursuant to which the sale of New Securities covered thereby shall
be closed, if at all, within forty-five (45) days from the execution thereof) to
sell the New Securities which the Major Investor did not elect to purchase under
this Section 3.1, at or above the price and upon terms not materially more
favorable to the purchasers of such securities than the terms specified in the
initial Notice given in connection with such sale. In the event the Company has
not entered into an agreement to sell the New Securities within such sixty (60)
day period (or sold and issued New Securities in accordance with the foregoing
within forty-five (45) days from the date of said agreement), the Company shall
not thereafter issue or sell any New Securities without first offering such New
Securities to the Major Investor in the manner provided in this Section 3.1.

                    (d)  (i) "New Securities" shall mean any shares of, or
securities convertible into or exercisable for any shares of, any class of the
Company's capital stock; provided that "New Securities" does not include: (i)
the Series A, Series B or Series C Preferred Stock, or the Common Stock issuable
upon conversion thereof; (ii) securities issued pursuant to the acquisition of
another business entity by the Company by merger, purchase of substantially all
of the assets of such entity, or other reorganization whereby the Company owns
not less than a majority of the voting power of such entity if such transaction
is approved by the Board of Directors; (iii) up to

                                       13
<PAGE>   16

7,000,000 shares of Common Stock issuable or issued to officers, directors,
employees and consultants of the Company pursuant to a stock option plan or
restricted stock purchase agreement approved by the Board of Directors of the
Company; (iv) shares of the Company's Common Stock or Preferred Stock of any
series issued in connection with any stock split, stock dividend or
recapitalization of the Company; (v) Common Stock issued upon exercise of
warrants, options or convertible securities if the issuance of such warrants,
options or convertible securities was a result of the exercise of the right of
first refusal granted under this Section 3.1 or was subject to the right of
first refusal granted under this Section 3.1; (vi) securities issued to banks,
equipment lessors or landlords, provided such issuances are primarily for other
than equity financing purposes, and (vii) securities sold to the public in an
offering pursuant to a registration statement filed with the Securities and
Exchange Commission under the Act.

                         (ii) The applicable "Percentage" for the Major Investor
shall be calculated by dividing (i) the total number of shares of Common Stock
owned by the Major Investor (assuming conversion of all shares of Preferred
Stock and exercise of any options or warrants held by said Major Investor) by
(ii) the total number of shares of Common Stock outstanding at the time the
Notice is given (assuming conversion of all shares of Preferred Stock and
exercise of all outstanding rights, options and warrants to acquire Common Stock
of the Company).

                    (e) The right of first refusal granted under this Section
3.1 shall expire upon the consummation of the Company's sale of its Common Stock
in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended, which
results in aggregate gross cash proceeds to the Company in excess of $30,000,000
and the public offering price of which is not less than $8.25 per share
(adjusted to reflect subsequent stock dividends, stock splits, recapitalizations
and the like) (other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction).

                    (f) The right of first refusal granted under this section
may only be assigned by a Major Investor to a transferee or assignee of the
Major Investor's shares of the Company's stock acquiring the lesser of (a) at
least 100,000 of the Major Investor's shares of the Company's Common Stock
(treating all shares of Preferred Stock for this purpose as though converted
into Common Stock) (equitably adjusted for any stock splits, subdivision stock
dividends, changes, combinations or the like) or (b) all of the Major Investor's
remaining shares of the Company's stock. In the event that the Investor shall
assign its right of first refusal pursuant to this Section 3.1 in connection
with the transfer of less than all of its shares of the Company's stock, the
Investor shall also retain its right of first refusal.

             3.2 Financial Statements.

                    (a) The Company shall deliver to each Investor: (i) as soon
as practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, an income statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and statements of income and
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"),

                                       14
<PAGE>   17

and audited and certified by independent public accountants of nationally
recognized standing selected by the Company.

                    (b) The Company shall deliver to each Major Investor:

                         (i) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) fiscal
quarters of each fiscal year of the Company, a balance sheet of the Company as
of the end of each such quarterly period, and statements of income and cash
flows for such period and for the current fiscal year to date, prepared in
accordance with GAAP, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company, except that such financial statements need
not contain the notes required by GAAP; and

                         (ii) as soon as practicable, but in any event within
thirty (30) days prior to the end of each fiscal year, a budget and business
plan for the next fiscal year, prepared on a monthly basis, including balance
sheets and sources and applications of funds statements for such months and, as
soon as prepared, any other budgets or revised budgets prepared by the Company.

                    (c) The Company shall deliver to each Major C Investor:

                         (i) as soon as practicable, but in any event within
thirty (30) days after the end of each month, an unaudited income statement and
a statement of cash flows and balance sheet for and as of the end of such month,
in reasonable detail; and

                         (ii) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the Major
Investor may from time to time request; provided, however, that the Company
shall not be obligated to provide information which it deems in good faith to be
proprietary.

             3.3 Inspection. The Company shall permit each Major Investor, at
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with officers, all at such reasonable times as may be
requested by such Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 3.3 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.

             3.4 Termination of Information and Inspection Rights. The covenants
set forth in this Section 3.2 and 3.3 shall terminate as to the Investors and be
of no further force or effect (i) immediately upon the consummation of the
Company's sale of its Common Stock in a bona fide, firm commitment underwriting
pursuant to a registration statement on Form S-1 under the Act, which results in
aggregate gross cash proceeds to the Company in excess of $30,000,000 and the
public offering price of which is not less than $8.25 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar

                                       15
<PAGE>   18

plan or a SEC Rule 145 transaction) or (ii) when the Company is required to file
reports pursuant to Section 13 or 15(d) of the 1934 Act.

             3.5 Confidentiality. Each Investor receiving information under the
covenants set forth in Sections 3.2 and 3.3 hereby agrees to hold in confidence
and trust and to act in a fiduciary manner with respect to all information so
provided; provided, however, that notwithstanding the foregoing, the Investors
may include summary financial information concerning the Company and general
statements concerning the nature and progress of the Company's business in their
reports to their limited partners.

             3.6 Observer Rights The Company shall invite a representative of
each holder of at least 1,000,000 shares of Series C Preferred Stock (excluding
any holder if such holder or any affiliate of such holder serves as a director
of the Company) to attend all regular meetings of its Board of Directors in a
nonvoting observer capacity (the " Observer Right"); provided, however, that
such representative shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information provided to such representative
at or during any such meeting; and, provided further, that the Company reserves
the right to withhold any information and to exclude such representative from
any meeting or portion thereof if access to such information or attendance at
such meeting could adversely affect the attorney-client privilege between the
Company and its counsel or would result in disclosure of trade secrets to such
representative. The Right shall terminate on the earlier of: (i) the
consummation of the Company's sale of its Common Stock in a bona fide, firm
commitment underwriting (with an nationally recognized underwriter) pursuant to
a registration statement on Form S-1 under the Securities Act of 1933, as
amended (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a Securities and Exchange Commission Rule 145
transaction); or (ii) such time when the Company is required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended.

        Section 4. Miscellaneous.

             4.1 Assignment. Subject to the provisions of Section 2.13 hereof,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.

             4.2 Third Parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.

             4.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California in the United States of
America as applied to agreements among California residents entered into and to
be performed entirely within California.

                                       16
<PAGE>   19

             4.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

             4.5 Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be effective when given, and shall in any event be
deemed to be given upon receipt, or, if earlier, (a) five (5) days after deposit
with the U.S. Postal Service or other applicable postal service, if delivered by
registered or certified mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid or (d) one business day
after the business day of facsimile transactions, if delivered by facsimile
transmission with copy by first class mail, postage prepaid.

             4.6 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.

             4.7 Amendment and Waiver. Any provision of this Agreement may be
amended with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities then outstanding; provided, however, that
any amendment of Section 2.2 shall also require the written consent of holders
of at least a majority of the Demand Right Shares then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder of Registrable Securities and the Company. In the event that an
underwriting agreement is entered into between the Company and any Holder, and
such underwriting agreement contains terms differing from this Agreement, as to
any such Holder the terms of such underwriting agreement shall govern.

             4.8 Effect of Amendment or Waiver. Investors and their respective
successors and assigns acknowledge that by the operation of Section 4.7 hereof
the holders of a majority of the Registrable Securities then outstanding, acting
in conjunction with the Company, will have the right and power to diminish or
eliminate all rights pursuant to this Agreement.

             4.9 Rights of Holders. Each Holder of Registrable Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such Holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such Holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.

             4.10 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party to this Agreement, upon any breach
or default of the other party, shall impair any such right, power or remedy of
such non-breaching party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or

                                       17
<PAGE>   20

approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to any
Holder, shall be cumulative and not alternative.

             4.11 Attorney's Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.

             4.12 Aggregation of Stock. All shares of the Preferred Stock held
or acquired by (i) affiliated entities or persons or (ii) persons or entities
under common investment management, shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.

             4.13 Specific Enforcement. It is agreed and understood that
monetary damages would not adequately compensate an injured party for the breach
of this Agreement by any party, that this Agreement shall be specifically
enforceable, and that any breach or threatened breach of this Agreement shall be
the proper subject of a temporary or permanent injunction or restraining order.
Further, each party hereto waives any claim or defense that there is an adequate
remedy at law for such breach or threatened breach.

             4.14 Adjustments for Stock Splits, Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.

                                       18
<PAGE>   21

        IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Rights Agreement as of the day and year first above written.

COMPANY:

ALLIANCE FIBER OPTICS PRODUCT, INC.

-----------------------------------
Peter C. Chang, President

SERIES C INVESTORS:

-----------------------------------
(Printed Name of Investor)

By:
   --------------------------------

Title:
      -----------------------------

SERIES A AND SERIES B INVESTORS:

-----------------------------------
(Printed Name of Investor)

By:
   --------------------------------

Title:
      -----------------------------

                       ALLIANCE FIBER OPTICS PRODUCT, INC.
                                SIGNATURE PAGE TO
                      AMENDED AND RESTATED RIGHTS AGREEMENT

                                       19
<PAGE>   22

                                    EXHIBIT A

                             SCHEDULE OF INVESTORS

New Enterprise Associates 9, L.P.
1119 St. Paul Street
Baltimore, MD 21202

NEA Ventures 2000, L.P.
1119 St. Paul Street
Baltimore, MD 21202

CMEA Ventures II, L.P.
c/o CMEA Ventures
235 Montgomery Street, Suite 920
San Francisco, CA 94104

CMEA Ventures Information Technology II, L.P.
c/o CMEA Ventures
235 Montgomery Street, Suite 920
San Francisco, CA 94104

CMEA Ventures Information Technology II,
Civil Law Partnership
c/o CMEA Ventures
235 Montgomery Street, Suite 920
San Francisco, CA 94104

TPG-Comm Partners, L.P.
c/o James O'Brien
301 Commerce Street, Suite 3300
Fort Worth, TX 76102

Weiss, Peck & Greer Venture Associates VI, L.P.
555 California Street, Suite 3130
San Francisco, CA 94104

Acorn Angels 2000, LLC
6 Results Way
Cupertino, CA 95014

Gerald W. Bottero
430 N. 15th Street
San Jose, CA 95112

Susan Shue
2 Possum Hollow Road
Andover, MA 01810

R. David Dicioccio
1900 Vallejo Street, #404
San Francisco, CA 94123

Jorge del Calvo and Genine Ongkeko
c/o Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304-1115

Pillsbury Madison & Sutro Venture Fund III
c/o Jorge del Calvo
2550 Hanover Street
Palo Alto, CA 94304-1115

Gabriella Lombardi
823 Fifteenth Avenue
Menlo Park, CA 94025

Kenny Liu
14598 Deer Spring Court
Saratoga, CA 95070

Henry Erard Matthiessen
46 Will Merry Lane
Greenwich, CT 06831

The Lee Trust
20018 Spaich Court
Saratoga, CA 95070

Albert Benzoni
1617 Monterey Road
South Pasadena, CA 91030

<PAGE>   23
                                   EXHIBIT A

                             SCHEDULE OF INVESTORS

A. Douglas Meyer
24917 Mandy Court
Woodland Hills, CA 91367

Elizabeth Denise Foster
5360 Brookside Court
Pleasanton, CA 94588

John M. & Cynthia E. Harland
25 Woodhill Drive
Redwood City, CA 94061

Richard M. Harland, Custodian for Jennifer
M. Harland, UCAUTMA
25 Woodhill Drive
Redwood City, CA 94061

Richard M. Harland, Custodian for Elizabeth
N. Harland, UCAUTMA
25 Woodhill Drive
Redwood City, CA 94061

Richard M. Harland, Custodian for David
J. Harland, UCAUTMA
25 Woodhill Drive
Redwood City, CA 94061

Hsiao Yun Juang
8 South Lane
Warren, NJ 07059

Chen Family Trust dtd 1-15-93
93 Ridgeview Drive
Atherton, CA 94027
c/o Susie A. Wong, Financial Assistant
Broadvision
585 Broadway
Redwood City, CA 94063

Wei Te Chung
1079 Lancer Drive
San Jose, CA 95129

Allison L. Lee
20567 Russell Lane
Saratoga, CA 95070

Kane Investment Group Corp.
No. 95, 16 Fl-2, Roosevelt Rd., Sec. 2
Taipei, Taiwan, R.O.C.

CPY USA II
45036 Cougar Circle
Fremont, CA 94539

CPY USA I
45036 Cougar Circle
Fremont, CA 94539

CPY International
45036 Cougar Circle
Fremont, CA 94539

CPY.com
570 Azevedo Common
Fremont, CA 94539

CPY California
45036 Cougar Circle
Fremont, CA 94539

CPY & Associate, LLC.
45036 Cougar Circle
Fremont, CA 94539

<PAGE>   24
                                   EXHIBIT A

                             SCHEDULE OF INVESTORS

Foxconn Holding Limited
Attn: Ms. C.L. Huang
Finance / Accounting Department
Hon Hai Precision Industrial Ltd.
No. 2, Tzu-Yu St., Tu-Cheng
Taipei Hsien, Taiwan, R.O.C.

Jackson Chia-Yuh Liu
16F, No. 162, Sec. 5, Nanking E. Rd.
Taipei City, Taiwan

Daniel Chang
7F, No. 173, Sec. 5, Ming-Sheng E. Road
Taipei City, Taiwan

Tricia Chu
13673 Verde Vista Court
Saratoga, CA 95070

Transpac Nominees Pte Ltd.
6 Shenton Way, #20-09
DBS Building, Tower Two
Singapore 068809

Peter C. Chang
c/o Alliance Fiber Optics Product, Inc.
735 N. Pastoria Avenue
Sunnyvale, CA 94086

S. C. Huang
930 W. Maude Avenue
Sunnyvale, CA 94086

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