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                                                                    EXHIBIT 10.3

                                LEASE AGREEMENT

        THIS LEASE, made this 6TH day of APRIL, 1999, between NORTH PASTORIA
PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, hereinafter called LANDLORD, and
ALLIANCE FIBER OPTIC PRODUCTS, A CALIFORNIA CORPORATION (A.K.A. "AFOP"),
hereinafter called TENANT.

                                   WITNESSETH:

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

        ALL OF THAT CERTAIN 11,716+/- SQUARE FOOT BUILDING LOCATED AT 733-735
        NORTH PASTORIA AVENUE, SUNNYVALE, CALIFORNIA. SAID PREMISES ARE LEASED
        ON AN "AS-IS" BASIS AND INCLUDE THE EXTERIOR AND THOSE PARKING SPACES
        SHOWN IN EXHIBIT "A" AND THE INTERIOR IMPROVEMENTS SHOWN IN EXHIBIT "B"
        AND FURTHER DETAILED IN PARAGRAPH 41, ATTACHED HERETO AND MADE A PART
        HEREOF.

        The word "Premises" as used throughout this Lease is hereby defined to
include the nonexclusive use of sidewalks and driveways. The leased area of the
Premises shall be measured from outside of exterior walls to outside of exterior
walls, and shall include any atriums, covered entrances or egresses and covered
loading areas. Said letting and hiring is upon and subject to the terms,
covenants and conditions and restrictions hereinafter set forth and Tenant
covenants as a material part of the consideration for this Lease to perform and
observe each and all of said terms, covenants and conditions. This Lease is made
upon the conditions of such performance or observance.

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

2. TERM:

        A. The term of this Lease shall be for a period of FIVE (5) YEARS
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B
and 3, shall commence on the 1ST day of JUNE, 1999 and end on the 31ST day of
MAY, 2004.

        B. Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence when the first of the following occurs:

               (a) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed;
or,

               (b) Upon the occupancy of the Premises by any of Tenant's
operating personnel.

3. POSSESSION: If Landlord, for any reason whatsoever, cannot deliver possession
of said Premises to Tenant at the commencement of said term, as hereinbefore
specified, the Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2B, above. The above is, however, subject
to the provision that the period of delay and delivery of the Premises shall not
exceed thirty (30) days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.

4. RENT:

        A. BASIC RENT. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the

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total sum of ONE MILLION THREE HUNDRED THOUSAND FOUR HUNDRED SEVENTY-SIX AND
00/100 DOLLARS ($1,300,476.00) in lawful money of the United States of America,
payable as follows:

        UPON EXECUTION OF THIS LEASE AGREEMENT, THE SECURITY DEPOSIT IN THE
        AMOUNT OF FORTY-FIVE THOUSAND AND 00/100 DOLLARS ($45,000.00) SHALL BE
        DUE IN ADDITION TO THE MONTHLY RENT FOR JUNE, 1999, IN THE AMOUNT OF
        NINETEEN THOUSAND THREE HUNDRED THIRTY-ONE AND 40/100 DOLLARS
        ($19,331.40) FOR A TOTAL DUE OF SIXTY-FOUR THOUSAND THREE HUNDRED
        THIRTY-ONE AND 40/100 DOLLARS ($64,331.40). PLEASE SEE PARAGRAPH 4(F).

        THE SUM OF NINETEEN THOUSAND THREE HUNDRED THIRTY-ONE AND 40/100 DOLLARS
        ($19,331.40) SHALL BE DUE ON OR BEFORE THE FIRST DAY OF JUNE, 1999 AND A
        LIKE SUM DUE ON OR BEFORE THE FIRST OF EACH AND EVERY MONTH THEREAFTER
        THROUGH AND INCLUDING MAY, 2000.

        THE SUM OF TWENTY THOUSAND FIVE HUNDRED THREE AND 00/100 DOLLARS
        ($20,503.00) SHALL BE DUE ON OR BEFORE THE FIRST DAY OF JUNE, 2000 AND A
        LIKE SUM DUE ON OR BEFORE THE FIRST OF EACH AND EVERY MONTH THEREAFTER
        THROUGH AND INCLUDING MAY, 2001.

        THE SUM OF TWENTY-ONE THOUSAND SIX HUNDRED SEVENTY-FOUR AND 60/100
        DOLLARS ($21,674.60) SHALL BE DUE ON OR BEFORE THE FIRST DAY OF JUNE,
        2001 AND A LIKE SUM DUE ON OR BEFORE THE FIRST OF EACH AND EVERY MONTH
        THEREAFTER THROUGH AND INCLUDING MAY, 2002.

        THE SUM OF TWENTY-TWO THOUSAND EIGHT HUNDRED FORTY-SIX AND 20/100 AND
        DOLLARS ($22,846.20) SHALL BE DUE ON OR BEFORE THE FIRST DAY OF JUNE,
        2002 AND A LIKE SUM DUE ON OR BEFORE THE FIRST OF EACH AND EVERY MONTH
        THEREAFTER THROUGH AND INCLUDING MAY, 2003.

        THE SUM OF TWENTY-FOUR THOUSAND SEVENTEEN AND 80/100 DOLLARS
        ($24,017.80) SHALL BE DUE ON OR BEFORE THE FIRST DAY OF JUNE, 2003 AND A
        LIKE SUM DUE ON OR BEFORE THE FIRST OF EACH AND EVERY MONTH THEREAFTER
        THROUGH AND INCLUDING MAY, 2004.

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

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

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

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

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

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

        The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within FIVE (5) DAYS after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled at the end of each calendar year as
compared to Landlord's actual expenditure for said Additional Rent items, with
Tenant paying to Landlord, upon demand, any amount of actual expenses expended
by Landlord in excess of said estimated amount, or Landlord refunding to Tenant
(providing Tenant is not in default in the performance of any of the terms,
covenants and conditions of this Lease) any amount of estimated payments made by
Tenant in excess of Landlord's actual expenditures for said Additional Rent
items.

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

        E. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at:

       NORTH PASTORIA PARTNERS, 2100 BRYANT STREET, PALO ALTO, CA 94301-3906
               TELEPHONE: (650) 329-9182 FACSIMILE: (650) 329-8410

or to such other person or to such other place as Landlord may from time to time
designate in writing.

        F. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of FORTY-FIVE THOUSAND AND 001/00
DOLLARS ($45,000.00). IN ADDITION TO THE SECURITY DEPOSIT, THE MONTHLY RENT FOR
JUNE, 1999, IN THE AMOUNT OF NINETEEN THOUSAND THREE HUNDRED THIRTY-ONE AND
40/100 DOLLARS ($19,331.40) SHALL BE DUE AND PAYABLE FOR A TOTAL SUM OF
SIXTY-FOUR THOUSAND THREE HUNDRED THIRTY-ONE AND 40/100 DOLLARS ($64,331.40).
Said sum shall be held by Landlord as a Security Deposit for the faithful
performance by Tenant of all the terms, covenants and conditions of this Lease
to be kept and performed by Tenant during the term hereof. If Tenant defaults
with respect to any provision of this Lease, including, but not limited to, the
provisions relating to the payment of rent and any of the monetary sums due
herewith, Landlord may (but shall not be required to) use, apply or retain all
or any part of this Security Deposit for

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

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

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

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

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

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

        Tenant shall indemnify Landlord for any payment for any utilities, which
Landlord pays on Tenant's behalf.

9.  TAXES:

        A. As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax
Collector, all Real Property Taxes relating to the Premises. In the event the
Premises leased hereunder consist of only a portion of the entire tax parcel,
Tenant shall pay to Landlord Tenant's proportionate share of such real estate
taxes allocated to the leased Premises by square footage or other reasonable
basis as is calculated and determined by Landlord. If the tax billing pertains
100% to the leased Premises, and Landlord chooses to have Tenant pay said real
estate taxes directly to the Tax Collector, then in such event it shall be the
responsibility of Tenant to obtain the tax and assessment bills and pay, prior
to delinquency, the applicable real property taxes and assessments pertaining to
the leased Premises, and failure to receive a bill for taxes and/or assessments
shall not provide a basis for cancellation of or non-responsibility for payment
of penalties for nonpayment or late payment by Tenant. The term "Real Property
Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Premises)
now or hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy assessments,
which are levied against, or with respect to the value, occupancy or use of, all
or any portion of the Premises (as now constructed or as may at any time
hereafter be constructed, altered, or otherwise changed) or Landlord's interest
therein; any improvements located within the Premises (regardless of ownership);
the fixtures, equipment and other property of Landlord, real or personal, that
are an integral part of and located in the Premises; or parking areas, public
utilities, or energy within the Premises; (ii) all charges, levies or fees
imposed by reason of environmental regulation or other governmental control of
the Premises; and (iii) all costs and fees (including reasonable attorneys'
fees) incurred by Landlord in reasonably contesting any Real Property Tax and in
negotiating with public authorities as to any Real Property Tax. If at any time
during the term of this Lease the taxation or assessment of the Premises
prevailing as of the commencement date of this Lease shall be altered so that in
lieu of or in addition to any Real Property Tax described above there shall be
levied, assessed or imposed (whether by reason of a change in the method of
taxation or assessment, creation of a new tax or charge, or any other cause) an
alternate or additional tax or charge (i) on the value, use or occupancy of the
Premises or Landlord's interest therein or (ii) on or measured by the gross
receipts, income or rentals from the Premises, on Landlord's business of leasing
the Premises, or computed in any manner with respect to the operation of the
Premises, then any such tax or charge, however designated, shall be included
within the meaning of the term "Real Property Taxes" for purposes of this Lease.
If any Real Property Tax is based upon property or rents unrelated to the
Premises, then only that part of such Real Property tax that is fairly allocable
to the Premises shall be included within the meaning of the term "Real Property
Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not
include estate, inheritance, gift or franchise taxes of Landlord or the federal
or state net income tax imposed on Landlord's income from all sources.

        B. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for and shall pay
TEN (10) DAYS before delinquency, taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right to
do regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.

10. LIABILITY INSURANCE: Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of comprehensive general liability
insurance for bodily injury and property damage occurring in, or about the
Premises, including parking and landscaped areas, in the amount of TWO MILLION
DOLLARS ($2,000,000.00) combined single limit. Such insurance shall be primary
and noncontributory as respects any insurance carried by Landlord. The policy or
policies effecting such insurance shall name Landlord as additional insureds,
and shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon THIRTY (30) DAYS'
prior written notice to Landlord. A copy of said policy should be delivered to
Landlord. If, during the term of this Lease, in the considered opinion of
Landlord's Lender, insurance advisor, or counsel, the amount of insurance
described in this Paragraph 10 is not adequate, Tenant agrees to increase said
coverage to such reasonable amount as Landlord's Lender, insurance advisor, or
counsel shall deem adequate.

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

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

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

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

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

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

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

16. ASSIGNMENT AND SUBLETTING: Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord may
require that Tenant agrees to pay Landlord, as additional rent, all rents or
additional consideration received by Tenant from its assignees, transferees, or
subtenants in excess of the rent payable by Tenant to Landlord hereunder. Tenant
shall, BY NINETY (90) DAYS' written notice, advise Landlord of its intent to
assign or transfer Tenant's interest in the Lease or sublet the Premises or any
portion thereof for any part of the term hereof. Within THIRTY (30) DAYS after
receipt of said written notice, Landlord may, in its sole discretion, elect to
terminate this Lease as to the portion of the Premises described in Tenant's
notice on the date specified in Tenant's notice by giving written notice of such
election to terminate. If no such notice to terminate is given to Tenant within
said THIRTY (30) DAY period, Tenant may proceed to locate an acceptable
sublessee, assignee, or other transferee for presentment to Landlord for
Landlord's approval, all in accordance with the terms, covenants, and conditions
of this Paragraph 16. If Tenant intends to sublet the entire Premises and
Landlord elects to terminate this Lease, this Lease shall be terminated on the
date specified in Tenant's notice. If, however, this Lease shall terminate
pursuant to the foregoing with respect to less than all the Premises, the rent,
as defined and reserved hereinabove shall be adjusted on a pro rata basis to the
number of square feet retained by Tenant, and this Lease as so amended shall
continue in full force and effect. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord. A consent of Landlord to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Tenant from
any of Tenant's obligations hereunder and be deemed to be a transfer,
hypothecation, subletting, occupation or use without such consent shall be void
and shall constitute a breach of this Lease by Tenant and shall, at the option
of Landlord exercised by written notice to Tenant, terminate this Lease. The
leasehold estate under this Lease shall not, nor shall any interest therein, be
assignable for any purpose by operation of law without the written consent of
Landlord. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under this Lease.

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

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

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

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

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

        The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of FIVE (5) DAYS from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of TEN (10) DAYS from the date of written
notice from Landlord within which to cure any other default under this Lease.
Upon an uncured default of this Lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:

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

               (b) The rights and remedies provided by California Civil Code
Section 1951.4 which allows Landlord to continue the Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right to
recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession. Acts of maintenance or preservation, efforts to
re-let the Premises, or the appointment of a receiver upon Landlord's initiative
to protect its interest under this Lease shall not constitute a termination of
Tenant's right to possession.

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

               (d) The right and power, as attorney-in-fact for Tenant, to enter
the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and apply such proceeds therefrom pursuant
to applicable California law. Landlord, as attorney-in-fact for Tenant, may from
time to time sublet the Premises or any part thereof for such term or terms
(which may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its reasonable sole discretion may deem advisable, with the
right to make alterations and repairs to the Premises. Upon each subletting, (i)
Tenant shall be immediately liable to pay Landlord, in addition to indebtedness
other than the rent due hereunder, the reasonable cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real estate
commissions actually paid, and the cost of such reasonable alterations and
repairs incurred by Landlord and the amount, if any, by which the rent hereunder
for the period of such subletting (to the extent such period does not exceed the
term hereof) exceeds the amount to be paid as rent for the Premises for such
period or (ii) at the option of Landlord, rents received from such subletting
shall be applied in payment of future rent as the same becomes due hereunder. If
Tenant has been credited with any rent to be received by such subletting under
option (i) and such rent shall not be promptly paid to Landlord by the
subtenant(s), or if such rentals received from such subletting under option (ii)
during any month be less that to be paid during that month by Tenant hereunder,
Tenant shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. For all purposes set forth in this subparagraph
(d), Landlord is hereby irrevocably appointed attorney-in-fact for Tenant, with
power of substitution. No taking possession of the Premises by Landlord, as
attorney-in-fact for Tenant, shall be construed as an election on its part to
terminate this Lease

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unless a written notice of such intention be given to Tenant. Notwithstanding
any such subletting without termination, Landlord may at any time hereafter
elect to terminate this Lease for such previous breach.

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

20. ABANDONMENT: Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease; and if Tenant shall abandon, vacate or surrender
the Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.

21. DESTRUCTION: In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7, Landlord may, at its option:

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

               (b) Terminate this Lease.

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

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

        In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not. In the event Tenant causes the destruction of the Premises,
Tenant shall pay the deductible portion of Landlord's insurance proceeds.

22. CONDEMNATION:

        22.1 DEFINITION OF "CONDEMNATION." As used in this Lease, the term
"Condemnation" means a permanent taking through (a) exercise of any government
power (by legal proceedings or otherwise) by any public or quasi-public
authority or by any other party having the right to eminent domain (Condemnor)
or (b) a voluntary or transfer by Landlord to any Condemnor, either under threat
or exercise of eminent domain by a Condemnor or while legal proceedings for
Condemnation are pending.

        22.2 EFFECT ON RIGHTS AND OBLIGATIONS. If, during the Lease Term
(including renewal thereof or holdover thereunder) there is any Condemnation of
all or part of the Premises, building, or real property on which the Premises
and buildings are constructed, the rights and obligations of the parties shall
be determined under this Section 22, and Rent shall not be affected or abated
except as expressly provided in this Section. Landlord shall notify Tenant in
writing of any Condemnation within THIRTY (30) DAYS after the later of (a) the
filing of a complaint by Condemnor or (b) the final agreement and determination
by Landlord and Condemnor of the extent of the taking (Condemnation Notice). For
purposes of notice(s) under Section 22, notice begins to run from the date of
actual delivery of notice in person or by overnight courier.

        22.3   TERMINATION OF LEASE.

               22.3.1 DEFINITION OF "TERMINATION DATE." The "Termination Date"
        shall be the earliest of:

               (a)     The date on which Condemnor takes possession of the
                       property that is subject to the Condemnation;

               (b)     The date on which title to the property subject to the
                       Condemnation is vested in Condemnation is vested in
                       Condemnor; or,

               (c)     If Landlord has elected to terminate, the date on which
                       Landlord requires possession of the property in
                       connection with the Condemnation, as specified in
                       written notice delivered to Tenant no less than THIRTY
                       (30) DAYS before that date.

               22.3.2 AUTOMATIC TERMIOATION. If the Premises are totally taken
        by Condemnation, this Lease shall terminate as of the Termination Date,
        and the Condemnation Award shall be allocated between Landlord and
        Tenant in accordance with subsection 19.4.

                22.3.3 LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the
        option to terminate this Lease if:

               (a)     TWENTY PERCENT (20%) or more of the Net Rentable Area,
                       or of the Premises is taken through Condemnation;

               (b)     Any other areas within APN 165-41-024 providing access to
                       the Premises are taken through Condemnation.

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                To elect to terminate the Lease under this subsection 22.3.3,
        Landlord shall provided written notice of its election (Landlord's
        Taking Termination Notice) to Tenant within THIRTY (30) DAYS after the
        later of (a) the filing of a complaint by Condemnor or (b) the final
        agreement and determination by Landlord and Condemnor of the extent of
        the taking. In that event, this Lease shall be terminated on the
        Termination Date, and all Rent shall be prorated to that date.

               22.3.4 TENANT'S RIGHT TO TERMINATE. In the event of a partial
        condemnation of part of the Premises, if the portion of the Premises
        taken through Condemnation is so substantial that the Tenant can no
        longer reasonably conduct its business, Tenant shall have the privilege
        of terminating this Lease within the sixty (60) days immediately after
        the date of such taking or conveyance). Upon Tenant's timely providing
        written notice to Landlord of its intentions so to terminate this Lease
        shall terminate on the last day of the calendar month next following the
        month in which such notice is given, upon payment by Tenant of their
        rent from the date of such taking or conveyance to the date of
        termination.

               22.3.5 PRORATION OF RENT. If this Lease is terminated under this
        Section 22, the termination shall be effective on the Termination Date,
        and Landlord shall prorate Rent to that date. Tenant shall be obligated
        to pay Rent for the period up to, but not including, the Termination
        Date as prorated by Landlord. Landlord shall return to Tenant prepaid
        Rent (if any) allocable to any period on or after the Termination Date.

        22.4   ALLOCATION OF AWARD.

               22.4.1 LANDLORD'S RIGHT TO AWARD. In connection with or arising
        out of any Condemnation and/or a related relocation:

                (a)     Landlord shall be entitled to receive all compensation
                        and anything of value awarded, paid, or received in
                        settlement or otherwise (Award); and

                (b)     Tenant irrevocably assigns and transfers to Landlord all
                        rights to and interests in the Award and fully releases
                        and relinquishes any and all claims to, right to make a
                        claim on, or interest in the Award, including but not
                        limited to any amount attributable to any excess of the
                        market value of the Premises for the remainder of the
                        Lease Term over the present value as of the Termination
                        date of the Rent payable for the remainder of the Term
                        (commonly referred to as the "bonus value" of the
                        Lease).

                22.4.2 TENANT'S RIGHT TO COMPENSATION. Subsection 22.4.1
        notwithstanding, Tenant shall have the right to make a separate claim in
        the Condemnation proceeding for:

                (a)     Reasonable removal and relocation costs for any
                        leasehold furniture, fixtures, and equipment that Tenant
                        has the right to remove under the Lease (which does not
                        include theater screens) and elects to remove;

                (b)     Loss of goodwill, as long as any recovery by Tenant for
                        loss of goodwill does not include any amount for any
                        loss due to below market rents at the condemned premises
                        (whether considered "bonus value" or otherwise); and

                (c)     Relocation costs under Government Code section 7262, the
                        claim for which Tenant may pursue by separate action
                        independent of this Lease.

                Tenant shall have the right to negotiate directly with Condemnor
        for the recovery of the portion of the Award to which Tenant is entitled
        under this subsection 22.4.2.

        22.5 TEMPORARY TAKING. If a temporary taking of part of the Premises
occurs through (a) the exercise of any government power (by legal proceedings or
otherwise) by Condemnor or (b) a voluntary sale or transfer by Landlord to any
Condemnor, either under threat of exercise of eminent domain by a Condemnor or
while legal proceedings for condemnation are pending, the entire Award relating
to the temporary taking shall be and remain the property or Landlord.

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

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

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

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

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

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

29. ATTORNEYS' FEES:

        A. In the event that Landlord should bring suit for the possession of
the Premises, for the recovery of any sum due under this Lease, or because of
the breach of any provision of this Lease, or for any other relief against
Tenant hereunder, then all costs and expenses, including reasonable attorneys'
fees, incurred by the prevailing party therein shall be paid by the other party,
which obligation on the part of the other party shall be deemed to have accrued
on the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgment.

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

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

31. NOTICES: All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at:

      NORTH PASTORIA PARTNERS, 2100 BRYANT STREET, PALO ALTO, CA 94301-3906
               TELEPHONE: (650) 329-9182 FACSIMILE: (650) 329-8410

Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.

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

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

34. CORPORATE AUTHORITY: If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
THIRTY (30) DAYS after

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execution of this Lease, deliver to Landlord a certified copy of the resolution
of the Board of Directors of said corporation authorizing or ratifying the
execution of this Lease.

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

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

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

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

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

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

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

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

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

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

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

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

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

37. HAZARDOUS MATERIALS/USE OF PREMISES:

        A. As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property, including all of those materials and substances designated
as hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency, the Consumer Product Safety Commission, the
Food and Drug Administration, the California Water Resources Control Board, the
Regional Water Quality Control Board, San Francisco Bay Region, the California
Air Resources Board, CAL/OSHA Standards Board, California Department of Food and
Agriculture, the California Department of Health Services, and any federal
agencies that have overlapping jurisdiction with such California agencies, or
any other governmental agency now or hereafter authorized to regulate materials
and substances in the environment. Without limiting the generality of the
foregoing, the term "Hazardous Material" shall include all of those materials
and substances defined as "Toxic Materials" in Sections 66680 through 66685 of
Title 22 of the California Administrative Code, Division 5, Chapter 30, as the
same shall be amended from time to time, or any other materials requiring
remediation under federal, state or local statutes, ordinances, regulations or
policies.

        B. Tenant agrees not to introduce any Hazardous Material in, on or
adjacent to the Premises without complying with all applicable federal, state
and local laws, rules, regulations, policies and authorities relating to the
storage, use or disposal, and cleanup of Hazardous Materials, including, but not
limited to, the obtaining of proper permits.

        C. Tenant shall immediately notify Landlord of any inquiry, test,
investigation, or enforcement proceeding by or against Landlord or the Premises
concerning a Hazardous Material. Tenant acknowledges that Landlord, as the owner
of the Premises, shall have the right, at its election, in its own name or as a
Tenant's agent, to negotiate, defend, approve, and appeal, at Tenant's expense,
any action taken or order issued with regard to a Hazardous Material by an
applicable governmental authority.

        D. If Tenant's storage, use or disposal of any Hazardous Material in, on
or adjacent to the Premises results in any contamination of the Premises, the
soil or surface or groundwater requiring remediation under federal, state or
local statutes, ordinances regulations or policies, Tenant agrees to cleanup the
contamination. Tenant further agrees to indemnify, defend and hold Landlord
harmless from and against any claims, suits, causes of action, costs, fees,
including attorneys' fees and costs, arising out of or in connection with any
cleanup work, inquiry or enforcement proceeding in connection therewith, and any
Hazardous Materials currently or hereafter used, stored or disposed of by Tenant
or its agents, employees, contractors or invitees on or about the Premises.

        E. Notwithstanding any other right or entry granted to Landlord under
this Lease, Landlord shall have the right to enter the Premises or to have
consultants enter the Premises throughout the term of this Lease for the purpose
of determining: (1) whether the Premises are in conformity with federal, state
and local statutes, regulations, ordinances and policies including those
pertaining to the environmental condition of the Premises, (2) whether Tenant
has complied with this Paragraph (37) and the Lease, and (3) the corrective
measures, if any, required of Tenant to ensure the safe use, storage and
disposal of Hazardous Materials, or to remove Hazardous Materials in accordance
with applicable laws. Tenant agrees to provide access and reasonable assistance
for such inspections. Such inspections may include, but are not limited to,
entering the Premises or adjacent property with drill rigs or other machinery
for the purpose of obtaining laboratory samples. Landlord shall not be limited
in the number of such inspections during the term of this Lease. If such
consultants determine that Tenant has contaminated the Premises with Hazardous
Materials used, stored or caused to be used or stored by Tenant, Tenant shall
reimburse Landlord for the cost of such inspections within TEN (10) DAYS of
receipt of a written statement thereof. Tenant shall, in a timely manner, at its
expense, remove such Hazardous Materials or otherwise comply with the
recommendations of such consultants to the reasonable satisfaction of Landlord
and any applicable governmental agencies. The right granted to Landlord herein
to inspect the Premises shall not create a duty on Landlord's part to inspect
the Premises, or liability of Landlord for Tenant's use, storage or disposal of
Hazardous Materials, it being understood that Tenant shall be solely responsible
for all liability in connection therewith.

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        F. Tenant shall surrender the Premises to Landlord upon the expiration
or earlier termination of this Lease free of Hazardous Materials used, stored or
caused to be used or stored by Tenant on the Premises, and in a condition which
complies with all governmental statutes, ordinances, regulations and policies,
recommendations of consultants hired by Landlord, and such other reasonable
requirements as may be imposed by Landlord with respect to those Hazardous
Materials used, stored or caused to be used or stored by Tenant.

        G. Tenant's obligations herein shall survive termination of this Lease.

        H. Tenant agrees to provide Landlord with a Hazardous Material audit or
list as to any Hazardous Materials Tenant used, stored, disposed of or caused to
be on the Premises during the term or earlier occupancy of this Lease, within
FIVE (5) DAYS of the written request by Landlord for said audit.

38. "ZERO-TOLERANCE" DRUG CLAUSE:

        Tenant covenants and agrees, as an express condition of continued
occupancy of the demised Premises, not to cause, permit or allow the use of any
controlled or illegal substances on the Premises, including, without implied
limitation, those substances defined by virtue of Health & Safety Code of the
State of California Section 11007.

        Tenant covenants and agrees that any such activity on more than one
occasion shall constitute a nuisance and Landlord will be entitled, but not
limited, 4o all remedies provided for under California Code of Civil Procedure,
Section 1164(4). Tenant acknowledges that such prohibited activity will, at the
sole discretion of Landlord, result in termination of Tenant's lease and subject
Tenant to eviction upon service of a THREE (3) DAY notice to quit. Further
Tenant agrees that breach of this covenant may not be cured by subsequent acts
of the Tenant.

        Tenant agrees to defend, indemnify and hold Landlord harmless from and
against any and all acts, which Landlord may perform in, attempted or actual
enforcement of this provision or in any acts or omissions with respect to its
policy of keeping the Premises "drug free". Tenant hereby adopts a "drug free"
policy for the Premises, and covenants to advise law enforcement officers and
Landlord when there is any actual, possible or suspected use or sale of
controlled substances on or near the subject Premises and to take all reasonable
steps to abate the same. In so doing Tenant shall not place Tenant, nor any of
Tenant's employees, guests or agents in any risk of physical danger but shall
defer to law enforcement officers.

39. MISCELLANEOUS AND GENERAL PROVISIONS:

        A. USE OF BUILDING NAME. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.

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

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

        The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations.

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

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

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

        G. AMENDMENTS FOR FINANCING. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.

        H. ADDITIONAL PARAGRAPHS. Paragraphs 40 THROUGH 42 are added hereto and
are included as a part of this Lease.

        I. CLAUSES, PLATS AND RIDERS. Clauses, plats and riders, if any, signed
by Landlord and Tenant and endorsed on or affixed to this Lease are a part
hereof.

        J. DIMINUTION OF LIGHT, AIR OR VIEW. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect this
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.

        K. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure to
the benefit of the heirs executors, administrators, successors and assigns (as
permitted pursuant to the provisions of this Lease) of the parties hereto.

        L. GENDER. All references to gender shall be deemed to include all
others, as the context may require.

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        M. HEADINGS. The captions contained herein are for convenience only and
shall be disregarded in the construction of this Lease.

        N. TIME OF ESSENCE. Time is of the essence of this Lease and of each and
all of its provisions.

        IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.

LANDLORD:                             TENANT:

NORTH PASTORIA PARTNERS,              ALLIANCE FIBER OPTIC PRODUCTS, INC.
A CALIFORNIA LIMITED PARTNERSHIP      (A.K.A. "AFOP"), A CALIFORNIA CORPORATION

/s/ Michael Siri                      /s/ Peter C. Chang
--------------------------------      ------------------------------------------
Michael Siri                          Peter C. Chang
Managing Partner                      President

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<PAGE>   13

                              ADDITIONAL PARAGRAPHS

40. GENERAL WARRANTY: Landlord warranties that the building's HVAC, plumbing,
electrical and roof systems will be in good operating condition at the
commencement of this Lease. Landlord further warranties these building systems
for a period of SIXTY (60) DAYS from the date of occupancy. As per this Lease
Agreement, it is Tenant's responsibility to keep and maintain these systems in
good working condition throughout the term of this Lease and to surrender these
systems in good working condition at the termination of this Lease as specified
hereinabove.

41. LANDLORD IMPROVEMENTS: In consideration of this Lease Agreement, Landlord
will provide the following changes, modifications, and/or additions to the
Premises, prior to Tenant's occupancy. (See Exhibit "B" attached hereto and made
part hereby for the area associated with each designated item.)

        1.  Replace current building entry-door system with a center-opening
            two-door system.

        2.  Remove front lobby separating wall and texture all walls to be
            similar.

        3.  Remove rear building separating wall.

        4.  Paint, add new light fixtures and generally clean up bathroom areas.

        5.  Add one (1) door in rear area of building demising wall.

        6.  Remove two (2) walls and double-door system

        7.  Remove double doors and replace with solid wall.

        8.  Relocate double doors slightly to right.

        9.  Install four (4) offices as shown on Exhibit "B". - office doors
            with glass side lights     /s/ MS   /s/ PC
                                      -------   ------

        10. Install two (2) offices as shown on Exhibit "B". - office doors with
            glass side lights    /s/ MS   /s/ PC
                                 -------   ------

        11. Carpet all front office areas and rear right area as indicated.

        12. Clean and/or replace dirty HVAC register outlets as needed. (Not
            shown on Exhibit "B".)

        13. Repair and/or replace all dirty and/or damaged ceiling tiles to
            achieve uniform ceiling grid (Not shown on Exhibit "B".)

        14. Remove two doors and fill in wall at those locations. Create one
            cased opening on right side to match existing left side opening.

42. AMERICANS WITH DISABILITY ACT (ADA): Tenant will not be responsible for ADA
(Americans with Disabilities Act) upgrades to the premises unless said upgrades
are triggered by Tenant's construction, alterations and/or additions to the
Premises. Tenant will be 100% responsible for any and all ADA upgrades and or
compliance with any and all governmental or regulatory agencies, triggered by
Tenants use of, or actions on the premises as stated herein above.

         (THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)

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                                                    EXHIBIT A TO LEASE AGREEMENT

                              [FLOOR PLAN DIAGRAM]

<PAGE>   15
                                                    EXHIBIT B TO LEASE AGREEMENT

                              [FLOOR PLAN DIAGRAM]<PAGE>   1

                                                                    EXHIBIT 10.4

                                   [CPS LOGO]
<PAGE>   2
                                  LEASE SUMMARY

                            PREMISES:    750 N. PASTORIA, SUNNYVALE, CA
                         SQUARE FEET:    10,560
                  LEASE COMMENCEMENT:    August 1, 2000
                    LEASE EXPIRATION:    July 31, 2004
                            LANDLORD:    Renault & Handley
               LANDLORD CONTACT NAME:    Ray Handley
             LANDLORD CONTACT NUMBER:    (650) 321-3040
                       TERM OF LEASE:    48 months
        TENANT IMPROVEMENT ALLOWANCE:    As-is
                        INITIAL RENT:    $4.50 psf
                    RENT ADJUSTMENTS:    4% annual increases
                    SECURITY DEPOSIT:    $53,453.54 in cash;
                                         $641,000.00 in Letter of Credit

                                  PRESENTED TO
                           Alliance Fiber Optics, Inc.

                                       BY
                                  Wendy Roberts
                                 Brittain Cheney

                  CPS, THE COMMERCIAL PROPERTY SERVICES COMPANY
                          475 EL CAMINO REAL, SUITE 100
                              SANTA CLARA, CA 95050
                                 (408) 615-3400

<PAGE>   3

                                                                     -----------
                                                                         NET
                                                                     -----------

               Renault & Handley
               INDUSTRIAL  &  COMMERCIAL  REAL  ESTATE

                     THIS LEASE, executed in duplicate at Palo Alto, California,
               this 26th day of June, 2000, by and between
PARTIES
               Renault & Handley Employees Investment Co.

               and

               Alliance Fiber Optic Products, Inc., a California corporation

               hereinafter referred to respectively as "Lessor" and "Lessee",
               without regard to number or gender,

PREMISES          1. WITNESSETH: That Lessor hereby leases to Lessee, and Lessee
               hires from Lessor, those certain premises, hereinafter referred
               to as "the Premises," situated in the City of Sunnyvale, County
               of Santa Clara, State of California, and more particularly
               described as follows:

                     An approximate 10,560 square foot freestanding building
               situated on and including an approximate 0.6-acre lot, commonly
               known as 750-752 N. Pastoria Avenue.

USE               2. The Premises shall be used and occupied by Lessee solely
               for the following purposes:

                     Research & Development and manufacturing of fiber optic
               components and general office and for no other purpose without
               the prior written consent of Lessor.

TERM              3. The term shall be for four (4) years, commencing on  the
               1st day of August, 2000, and ending on the 31st day of July,
               2004.

RENTAL            4. Monthly Base Rent shall be payable to the Lessor without
               defense, deduction or offset at the address set forth in
               paragraph 23 below, or at such other place or places as may be
               designated from time to time by the Lessor, in the following
               amounts:

                     Forty Seven Thousand Five Hundred Twenty and No/100ths
               Dollars ($47,520.00) shall be due upon execution of this Lease
               constituting Base Rent for August 2000. Forty Seven Thousand Five
               Hundred Twenty and No/100ths Dollars ($47,520.00) shall be due on
               September 1, 2000 and on the first day of each succeeding month
               to and including July 1, 2001. Forty Nine Thousand Four Hundred
               Twenty and 80/100ths Dollars $49,420.80) shall be due August 1,
               2001 and on the first day of each succeeding month to and
               including July 1, 2002. Fifty One Thousand Three Hundred Ninety
               Seven and 63/100ths Dollars ($51,397.63) shall be due August 1,
               2002 and on the first day of each succeeding month to and
               including July 1, 2003. Fifty Three Thousand Four Hundred Fifty
               Three and 54/100ths Dollars ($53,453.54) shall be due August 1,
               2003 and on the first day of each succeeding month to and
               including July 1, 2004.

                     Base Rent shall be paid monthly in advance. In addition,
               Lessee shall pay to Lessor with the Monthly Base Rent, as
               additional rent, a monthly management fee equal to three percent
               (3%) of the Monthly Base Rent. All other costs and charges
               payable by Lessee in accordance with the terms of this Lease
               (including property taxes, insurance premiums and maintenance
               costs) shall be deemed to be additional rent.

                                    1 of 10
<PAGE>   4
SECURITY            5. Lessee has deposited with Lessor $53,453.54  as security
DEPOSIT         for the full and faithful performance of each and every term,
                provision, covenant and condition of this Lease. In the event
                Lessee defaults in respect of any of the terms, provisions,
                covenants or conditions of this Lease, including, but not
                limited to the payment of rent, Lessor may use, apply or retain
                the whole or any part of such security for the payment of any
                rent in default or for any other sum which Lessor may spend or
                be required to spend by reason of Lessee's default. Should
                Lessee faithfully and fully comply with all of the terms,
                provisions, covenants and conditions of this Lease, the security
                or any balance thereof shall be returned to Lessee or, at the
                option of Lessor, to the last assignee of Lessee's interest in
                this Lease at the expiration of the term hereof. Lessee shall
                not be entitled to any interest on said security deposit. SEE
                PARAGRAPH 37

POSSESSION          6. If Lessor, for any reason whatsoever, cannot deliver
                possession of the Premises to Lessee at the commencement of the
                said term, as hereinbefore specified, this Lease shall not be
                void or voidable, nor shall Lessor, or Lessor's agents, be
                liable to Lessee for any loss or damage resulting therefrom; but
                in that event the commencement and termination dates of the
                Lease and all other dates affected thereby shall be revised to
                conform to the date of Lessor's delivery of possession.
                Notwithstanding the foregoing, if the period of delay of
                delivery exceeds thirty (30) days, Lessee, at his or its option,
                may declare this Lease null and void by notice to Lessor at any
                time prior to delivery of the Premises.

ACCEPTANCE OF       7. By entry hereunder, the Lessee accepts the Premises from
PREMISES AND    Lessor in its "as is", "where is" condition. Lessor has made no
CONSENT TO      representations or warranties respecting the Premises and
SURRENDER       Lessee has investigated and inspected the Premises and has
                satisfied itself that the Premises are suitable for the Lessee's
                intended use thereof and are in compliance with applicable laws
                and codes; provided, however, Lessor hereby warrants that it
                shall repair any material defects in the roof covering, HVAC
                system, (excluding however, those elements of the HVAC system
                serving and/or dedicated to the existing clean rooms),
                electrical and plumbing systems existing as of the commencement
                of the Lease, provided Lessee gives Lessor written notice
                specifying such defects in reasonable detail within thirty (30)
                days following commencement of this Lease. Lessor shall have no
                obligation to contribute toward any improvements to the Premises
                whatsoever. The Lessee agrees on the last day of the term
                hereof, or on sooner termination of this Lease, to surrender to
                Lessor the Premises, which shall, except as otherwise provided
                in paragraph 9 below, include all alterations, additions, and
                improvements which may have been made in, to, or on the Premises
                by Lessor or Lessee, in the same good condition as at Lessee's
                entry into the Premises excepting for such wear and tear as
                would be normal for the period of the Lessee's occupancy. The
                Lessee, on or before the end of the term or sooner termination
                of this Lease, shall remove all Lessee's personal property and
                trade fixtures from the premises and all property not so removed
                shall be deemed to be abandoned by the Lessee. If the Premises
                are not surrendered at the end of the term or sooner termination
                of this Lease, the Lessee shall indemnify the Lessor against
                loss or liability resulting from delay by the Lessee in so
                surrendering the Premises including, without limitation, any
                claims made by any succeeding tenant founded on such delay.

USES PROHIBITED     8. Lessee shall not commit, or suffer to be committed, any
                waste upon the Premises, or any nuisance, or other act or thing
                which may disturb the quiet enjoyment of any other tenant in or
                around the buildings in which the Premises may be located, or
                allow any sale by auction upon the Premises, or allow the
                Premises to be used for any improper, immoral, unlawful or
                objectionable purpose, or place any loads upon the floor, walls,
                or roof 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. No
                materials, supplies, equipment, finished products or
                semi-finished products, raw materials or articles of any nature
                shall be stored upon or permitted to remain on any portion of
                the Premises outside of the buildings proper.

ALTERATIONS AND     9. Lessee shall make no alterations, additions or
ADDITIONS       improvements to the Premises or any part thereof
                (collectively "Alterations") without first obtaining the prior
                written consent of the Lessor. All Alterations shall be in
                accordance with plans and specifications approved by Lessor and
                shall be carried out by a reputable licensed contractor and in
                compliance with all applicable laws, codes, rules and
                regulations. The Lessor may impose as a condition to the
                aforesaid consent such additional requirements as Lessor may
                deem necessary in Lessor's sole discretion, including without
                limitation requirements respecting the manner in which the work
                is done, Lessor's right of approval of the contractor by whom
                the work is to be performed, and the times during which it is to
                be accomplished. Upon written request of Lessor prior to the
                expiration or earlier termination of the Lease, Lessee will
                remove any or all Alterations installed by or for Lessee. All
                Alterations not specified to be removed shall at the expiration
                of earlier termination of the lease become the property of the
                Lessor and remain upon and be surrendered with the Premises. All
                movable furniture, business and trade fixtures, and machinery
                and equipment shall remain the property of the Lessee and may be
                removed by the Lessee at any time during the Lease term when
                Lessee is not in default hereunder. Items which are not to be
                deemed as movable furniture, business and trade fixtures, or
                machinery and equipment shall include heating, lighting,
                electrical systems, air conditioning, partitioning, carpeting,
                or any other installation which has become an integral part of
                the Premises. The Lessee will give the Lessor five (5) business
                days notice prior to the commencement of any Alterations work
                and will at all times permit notices of non-responsibility to be
                posted and to remain posted until the completion of Alterations.
                SEE PARAGRAPH 38

MAINTE-             10. Lessee shall, at Lessee's sole cost, keep and maintain
NANCE OF        the Premises and appurtenances and every part thereof, including
PREMISES        but not limited to, glazing, sidewalks, plumbing, and electrical
                systems, any store front, exterior paint and all components of
                the interior of the Premises in good order, condition, and
                repair. Lessor shall, at Lessor's sole cost and expense,
                maintain the structural integrity of the exterior walls, and
                structural portions of the roof, foundations and floors, except
                that Lessee shall pay, as additional rent, the cost of any
                repairs or replacements necessitated by the negligence or
                wrongful act of the Lessee or Lessee's agents or employees.
                Lessor shall, at Lessee's sole cost and expense, maintain,
                repair and (if necessary in the judgment of Lessor's experts)
                replace the roof covering, HVAC system, landscaping and parking
                lot surface ("Lessor's Maintenance Services") during the term of
                this Lease, as may be extended. Lessee shall reimburse Lessor as
                Additional Rent the cost incurred by Lessor in performing
                Lessor's Maintenance Services, without mark-up, within thirty
                (30) days after receipt of invoice from Lessor; provided,
                however, that (except where replacement of the parking lot
                surface, landscaping, roof or HVAC components are necessitated
                by the acts of the Lessee or Lessee's agents or employees, in
                which event Lessee shall pay the costs thereof in a lump sum on
                demand), costs of replacement (as opposed to repair) of the
                foregoing shall be amortized over the useful life thereof, and
                Lessee shall pay Lessor as Additional Rent a monthly payment
                equal to the monthly amortization, together with interest on the
                unamortized amount at an annual rate of twelve percent (12%).
                Lessee expressly waives the benefits of any statute now or
                hereafter in effect which would otherwise afford the Lessee the
                right to make repairs at Lessor's expense or to terminate this
                Lease because of Lessor's failure to

                                    2 of 10
<PAGE>   5

                keep the Premises in good order, condition or repair.

FIRE AND            11. Lessee shall not use, or permit the Premises, or any
EXTENDED        part thereof, to be used, for  any purposes other than that for
COVERAGE        which the Premises are hereby leased and no use shall be made
INSURANCE AND   or permitted to be made on the Premises, nor acts done, which
SUBROGATION     will cause a cancellation  of any insurance policy covering the
                Premises, or any part thereof, nor shall Lessee sell or permit
                to be kept, used or sold, in or about the Premises, any article
                which may be prohibited by the standard form of fire insurance
                policies. Lessee shall, at its sole cost and expense, comply
                with any and all requirements, pertaining to the Premises, of
                any insurance organization or company, necessary for the
                maintenance of reasonable fire and public liability insurance,
                covering said building and appurtenances.

                         11.1 Lessee shall, at its expense, obtain and keep in
                 force during the term of this Lease a policy of commercial
                 general liability insurance (including cross liability)
                 insuring Lessee, Lessor, Lessor's Officers, Lessor's property
                 manager and Lessor's lender, against any liability arising out
                 of the condition, use, occupancy or maintenance of the
                 Premises. Evidence of coverage must be in the form of a
                 certificate of insurance accompanied by the appropriate
                 additional insured endorsements. Such insurance policy shall
                 have a combined single limit for both bodily injury and
                 property damage in an amount not less than Two Million and
                 no/100ths Dollars ($2,000,000), which aggregate amount shall be
                 specific to the Premises. The limits of said insurance shall
                 not limit the liability of Lessee hereunder.

                         11.2 Lessee shall at its expense, keep in force during
                 the term of this Lease, a policy of fire and property damage
                 insurance in a "special" form with a sprinkler leakage
                 endorsement, insuring Lessee's inventory, fixtures, equipment
                 and personal property within the Premises for the full
                 replacement value thereof. Upon execution of this Lease and
                 annually thereafter upon renewal of such policies, Lessee shall
                 provide Lessor with certificates of insurance, together with
                 appropriate endorsements, evidencing coverages the Lessee is
                 required to carry pursuant to 11.1 and 11.2. The policies shall
                 provide for thirty (30) days advance written notice of
                 cancellation to Lessor and Lessor's lender.

                         11.3 Lessor shall maintain a policy of commercial
                 general liability insurance and a policy or policies of fire
                 and property damage insurance in a "special" form, with
                 sprinkler leakage and, at the option of Lessor, earthquake
                 endorsements, covering loss or damage to the building,
                 including Lessee's leasehold improvements installed with the
                 written consent of Lessor, for the full replacement cost
                 thereof.

                         11.4 Lessee shall pay to Lessor as additional rent,
                 during the term hereof, upon receipt of an invoice therefore,
                 one hundred percent (100%) of the premiums and deductibles
                 (provided, the deductible amount shall be amortized over the
                 useful life of the improvement for which such insurance
                 deductible is applicable and Lessee shall only be obligated to
                 reimburse Lessor for the amortized portion of the deductible
                 amount that occurs during the term of this Lease) for any
                 insurance obtained by Lessor pursuant to 11.3 above. Lessor may
                 obtain such insurance for the Premises separately, or together
                 with other property which Lessor elects to insure together
                 under blanket policies of insurance. In such case Lessee shall
                 be liable for only such portion of the premiums for such
                 blanket policies as are allocable to the Premises. It is
                 understood and agreed that Lessee's obligation under this
                 paragraph shall be prorated to reflect the Commencement Date
                 and Expiration Date of the Lease.

                         11.5 Lessee and Lessor each hereby waive any and all
                 rights of recovery against the other, or against the officers,
                 directors, employees, partners, agents and representatives of
                 the other, for loss of or damage to the property of the waiving
                 party or the property of others under its control, to the
                 extent such loss or damage is insured against under any
                 insurance policy carried or required to be carried by Lessor or
                 Lessee hereunder. Each party shall notify their respective
                 insurance carriers of this waiver.

ABANDON-            12. Lessee shall not abandon the Premises at any time during
MENT            the term; and if Lessee shall abandon or surrender the
                Premises, or be dispossessed by process of law, or otherwise,
                any personal property belonging to Lessee and left on the
                Premises shall be deemed to be abandoned, at the option of
                Lessor, except such property as may be mortgaged to Lessor.

FREE FROM LIENS     13. Lessee shall keep the Premises and the property
                in which the Premises are situated, free from any liens arising
                out of any work performed, materials furnished, or obligations
                incurred by Lessee.

COMPLIANCE WITH     14. Lessee shall, at his sole cost and expense, comply with
GOVERN-         all statutes, codes,  ordinances, rules, regulations and other
MENTAL          requirements of all Municipal, State and Federal  authorities
REGULATIONS     (collectively, "Laws") now in force, or which may hereafter be
                in force, pertaining to the Premises, and shall faithfully
                observe in the use of the Premises all Municipal ordinances and
                State and Federal statutes now in force or which may hereafter
                be in force. The judgment of any court of competent
                jurisdiction, or the admission of Lessee in any action or
                proceeding against Lessee, whether Lessor be a party thereto or
                not, that Lessee has violated, or that the Premises are not in
                compliance with, any Laws in the use of the Premises, shall be
                conclusive of that fact as between Lessor and Lessee. Lessee's
                obligations under this paragraph 14 shall include the obligation
                to make, at Lessee's sole cost, any alterations or improvements
                to the Premises which are required by applicable Laws, provided
                that (a) as to such alterations or improvements which are not
                required by reason of Lessee's particular use of the Premises or
                by reason of other alterations or improvements being undertaken
                by Lessee, Lessee shall only be required to pay an allocable
                portion of the costs of such required alterations or
                improvements based on the ratio of the remaining lease term to
                the useful life of such alterations or improvements, and (b)
                Lessee shall not be required to pay any portion of the cost of
                alterations or improvements which are legally required to be
                made as of the date of this Lease and as to which Lessor
                receives notice of such requirement prior to the date thirty
                (30) days after the date Lessor delivers possession of the
                Premises to Lessee.

INDEMNI-           15. Neither Lessor nor Lessor's agents, nor any shareholder,
FICATION OF     constituent partner or other  owner of Lessor or any agent of
LESSOR          Lessor, nor any contractor, officer, director or employee of any
                thereof shall be liable to Lessee and Lessee waives all claims
                against Lessor and such other persons for any injury to or death
                of any person or for loss of use of or damage to or destruction
                of property in or about the Premises by or from any cause
                whatsoever, unless caused solely by the gross negligence or
                willful misconduct of Lessor, its agents or employees. Lessee
                agrees to indemnify and hold Lessor, Lessor's agents, the
                shareholders, constituent partners and/or other owners of Lessor
                or any agent of Lessor, and all contractors, officers, directors
                and employees of any thereof (collectively, "Indemnitees"), and
                each of them, harmless from and to protect and defend each
                Indemnitee against any and all claims, demands, suits,

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<PAGE>   6

                liability, damage or loss and against all costs and expenses,
                including reasonable attorneys' fees incurred in connection
                therewith, (a) arising out of any injury or death of any person
                or damage to or destruction of property occurring in, on or
                about the Premises, from any cause whatsoever, unless caused
                solely by the gross negligence or willful misconduct of such
                Indemnitee, or (b) occurring in, on or about the Premises, when
                such claim, injury or damage is caused or allegedly caused in
                whole or in part by the act, neglect, default, or omission of
                any duty by Lessee, its former or current agents, contractors,
                employees, invitees, or subtenants, or (c) arising from any
                failure of Lessee to observe or perform any of its obligations
                hereunder. The provisions of this paragraph shall survive the
                termination of this Lease with respect to any claims or
                liability occurring prior to such termination.

ADVERTISE-          16. Lessee will not place or permit to be placed, in, upon
MENTS AND       or about the Premises any unusual or extraordinary signs, or
SIGNS           any signs not approved by the city or other governing
                authority. The Lessee will not place, or permit to be placed,
                upon the Premises, any signs, advertisements or notices without
                the written consent of the Lessor first had and obtained. Any
                sign so placed on the Premises shall be so placed upon the
                understanding and agreement that Lessee will remove same at the
                termination of the tenancy herein created and repair any damage
                or injury to the Premises caused thereby, and if not so removed
                by Lessee then Lessor may have same so removed at Lessee's
                expense.

UTILITIES           17. Lessee shall pay for all water, gas, heat, light, power,
                 telephone service and all other service supplied to the
                 Premises. If the Premises are not served by a separate water
                 meter, Lessee shall pay to Lessor its share of the water bill
                 for the entire property covered by said bill and of which the
                 Premises are a part, as determined by Lessor based on square
                 footage or other equitable method.

ATTORNEY'S          18. In case suit should be brought for the possession of
FEES             the Premises, for the recovery of any sum due hereunder, or
                 because of the breach of any other covenant herein, the losing
                 party shall pay to the prevailing party a reasonable attorney's
                 fee, which shall be deemed to have accrued on the commencement
                 of such action and shall be enforceable whether or not such
                 action is prosecuted to judgment.

DEFAULT AND         19. The occurrence of any one or more of the following
REMEDIES         events (each an "Event of Default") shall constitute a breach
                 of this Lease by Lessee:

                                (a) Lessee fails to pay any Monthly Base Rent or
                         additional rent under this Lease as and when it becomes
                         due and payable and such failure continues for more
                         than ten (10) days; or

                                (b) Lessee fails to perform or breaches any
                         other covenant of this Lease to be performed or
                         observed by Lessee as and when performance or
                         observance is due and such failure or breach continues
                         for more than ten (10) days after Lessor gives written
                         notice thereof to Lessee; provided, however, that if
                         such failure or breach cannot reasonably be cured
                         within such period of ten (10) days, an Event of
                         Default shall not exist as long as Lessee commences
                         with due diligence and dispatch the curing of such
                         failure or breach within such period of ten (10) days
                         and, having so commenced, thereafter prosecutes with
                         diligence and dispatch and completes the curing of such
                         failure or breach within a reasonable time; or

                                (c) Lessee files, or consents by answer or
                         otherwise to the filing against it of, a petition for
                         relief or reorganization or arrangement or any other
                         petition in bankruptcy or for liquidation or to take
                         advantage of any bankruptcy, insolvency or other
                         debtors' relief law of any jurisdiction; makes an
                         assignment for the benefit of its creditors; or
                         consents to the appointment of a custodian, receiver,
                         trustee or other officer with similar powers of Lessee
                         or of any substantial part of Lessee's property; or

                                (d) A court or government authority enters an
                         order, and such order is not vacated within thirty (30)
                         days, appointing a custodian, receiver, trustee or
                         other officer with similar powers with respect to
                         Lessee or with respect to any substantial part of
                         Lessee's property; or constituting an order for relief
                         or approving a petition for relief or reorganization or
                         arrangement or any other petition in bankruptcy or for
                         liquidation or to take advantage of any bankruptcy,
                         insolvency or other debtors' relief law of any
                         jurisdiction; or ordering the dissolution, winding-up
                         or liquidation of Lessee; or

                            (e) Lessee abandons the Premises.

                      19.1 If an Event of Default occurs, Lessor shall have the
                 right at any time to give a written termination notice to
                 Lessee and, on the date specified in such notice, Lessee's
                 right to possession shall terminate and this Lease shall
                 terminate. Upon such termination, Lessor shall have the right
                 to recover from Lessee:

                         (i) The worth at the time of award of all unpaid rent
                         which had been earned at the time of termination;

                         (ii) The worth at the time of award of the amount by
                         which all unpaid rent which would have been earned
                         after termination until the time of award exceeds the
                         amount of such rental loss that Lessee proves could
                         have been reasonably avoided;

                         (iii) The worth at the time of award of the amount by
                         which all unpaid rent for the balance of the term of
                         this Lease after the time of award exceeds the amount
                         of such rental loss that Lessee proves could be
                         reasonably avoided; and

                         (iv) All other amounts necessary to compensate Lessor
                         for all the detriment proximately caused by Lessee's
                         failure to perform all of Lessee's obligations under
                         this Lease or which in the ordinary course of things
                         would be likely to result therefrom.

                 The "worth at the time of award" of the amounts referred to in
                 clauses (i) and (ii) above shall be computed by allowing
                 interest at the maximum annual interest rate allowed by law for
                 business loans (not primarily for personal, family or household
                 purposes) not exempt from the usury law at the time of
                 termination or, if there is no such

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<PAGE>   7

                maximum annual interest rate, at the rate of eighteen percent
                (18%) per annum. The "worth at the time of award" of the amount
                referred to in clause (iii) above shall be computed by
                discounting such amount at the discount rate of the Federal
                Reserve Bank of San Francisco at the time of award plus one
                percent (1%). For the purpose of determining unpaid rent under
                clauses (i), (ii) and (iii) above, the rent reserved in this
                Lease shall be deemed to be the total rent payable by Lessee
                under this Lease, including Monthly Base Rent, additional rent
                and all other sums payable by Lessee under this Lease.

                     19.2 Even though Lessee has breached this Lease, this Lease
                shall continue in effect for so long as Lessor does not
                terminate Lessee's right to possession, and Lessor shall have
                all of its rights and remedies, including the right, pursuant to
                California Civil Code section 1951.4, to recover all rent as it
                becomes due under this Lease. Acts of maintenance or
                preservation or efforts to relet the Premises or the appointment
                of a receiver upon initiative of Lessor to protect Lessor's
                interest under this Lease shall not constitute a termination of
                Lessee's right to possession unless written notice of
                termination is given by Lessor to Lessee.

                     19.3 The remedies provided for in this Lease are in
                addition to all other remedies available to Lessor at law or in
                equity by statute or otherwise.

LATE CHARGES        20.  Lessee hereby acknowledges that late payment by Lessee
AND INTEREST    to Lessor of rent and other sums due hereunder will cause
                Lessor 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 Lessor by the
                terms of any mortgage or trust deed covering the Premises.
                Accordingly, if any installment of rent or any other sum due
                from Lessee shall not be received by Lessor or Lessor's designee
                within ten (10) days after such amount shall be due, Lessee
                shall pay to Lessor a late charge equal to ten percent (10%) of
                such overdue amount. The parties hereby agree that such late
                charge represents a fair and reasonable estimate of the costs
                Lessor will incur by reason of late payment by Lessee.
                Acceptance of such late charge by Lessor shall in no event
                constitute a waiver of Lessee's default with respect to such
                overdue amount, nor prevent Lessor from exercising any of the
                other rights and remedies granted hereunder.

                        If any rent payable under the Lease remains delinquent
                for a period in excess of ten (10) calendar days, then, in
                addition to any late charge payable, Lessee shall pay to Lessor
                interest on any rent that is not so paid from the date due until
                paid at the then maximum rate of interest not prohibited or made
                usurious by Law.

SURRENDER OF        21. The voluntary or other surrender of this Lease by
LEASE           Lessee, or a mutual cancellation thereof, shall not work a
                merger, and shall, at the option of Lessor, terminate all or any
                existing subleases or subtenancies, or may, at the option of
                Lessor, operate as an assignment to Lessor of any or all such
                subleases or subtenancies.

TAXES               22. The Lessee shall be liable for all taxes levied against
                personal property and trade or business fixtures. The Lessee
                also agrees to pay, as additional rental, during the term of
                this Lease and any extensions thereof, all real estate taxes
                plus the yearly installments of any special assessments which
                are of record or which may become of record during the term of
                this lease. If the Premises are a portion of a tax parcel or
                parcels and this Lease does not cover an entire tax parcel or
                parcels, the taxes and assessment installments allocated to the
                Premises shall be pro-rated on a square footage or other
                equitable basis, as calculated by the Lessor. It is understood
                and agreed that the Lessee's obligation under this paragraph
                will be pro-rated to reflect the commencement and termination
                dates of this Lease.

NOTICES            23. All notices to be given to Lessee may be given in writing
                personally, by commercial overnight courier or by depositing the
                same in the United States mail, postage prepaid, and addressed
                to Lessee at the said Premises, whether or not Lessee has
                departed from, abandoned or vacated the Premises, and any other
                address of Lessee set forth below. Notices given in accordance
                with this paragraph shall be deemed received one business day
                after sent by commercial overnight courier, three business days
                after being deposited in the United States mail, or when
                delivered if delivered personally. All notices to be given to
                Lessor may be given in writing personally or by depositing the
                same in the United States mail, postage prepaid, and addressed
                to Lessor at the following address or such other address as
                Lessor may, from time to time designate:

                       c/o Renault & Handley
                           2500 El Camino Real
                           Palo Alto, CA  94306

ENTRY BY LESSOR     24. Lessee shall permit Lessor and his agents to enter into
                and upon the Premises at all reasonable times for the purpose of
                inspecting the same or for the purpose of maintaining the
                building in which the Premises are situated, or for the purpose
                of making repairs, alterations or additions to any other portion
                of said building, including the erection and maintenance of such
                scaffolding, canopies, fences and props as may be required
                without any rebate of rent and without any liability to Lessee
                for any loss of occupation or quiet enjoyment of the Premises
                thereby occasioned; and shall permit Lessor and his agents, at
                any time within ninety days prior to the expiration of this
                Lease, to place upon the Premises any usual or ordinary "For
                Sale" or "For Lease" signs and exhibit the Premises to
                prospective tenants at reasonable hours.

DESTRUCTION OF      25. In the event of a partial destruction of the Premises
PREMISES        during the term of this Lease from any cause covered by
                insurance carried, or required to be carried, by Lessor under
                this Lease, Lessor shall forthwith repair the same, provided
                such repairs can be made within one hundred eighty (180) days
                under the laws and regulations of State, Federal, County or
                Municipal authorities, but such partial destruction shall in no
                way annul or void this Lease, except that Lessee shall be
                entitled to a proportionate reduction of rent while such repairs
                are being made, such proportionate reduction to be based upon
                the extent to which the making of such repairs shall interfere
                with the business carried on by Lessee in the Premises. If the
                cause of such repairs is not so covered by insurance or cannot
                be made in one hundred eighty (180) days, Lessor may, at his
                option, make same within a reasonable time, this Lease
                continuing in full force and effect and the rent to be
                proportionately reduced as aforesaid in this paragraph

                                    5 of 10
<PAGE>   8

                provided. In the event that Lessor does not so elect to make
                such repairs the cause of which is not so covered by insurance
                or cannot be made in one hundred eighty (180) days, or such
                repairs cannot be made under such laws and regulations, this
                Lease may be terminated at the option of either party. In
                respect to any partial destruction which Lessor is obligated to
                repair or may elect to repair under the terms of this paragraph,
                the provision of Section 1932, Subdivision 2, and of Section
                1933, Subdivision 4, of the Civil Code of the State of
                California are waived by Lessee. In the event that the building
                in which the Premises may be situated be destroyed to the extent
                of not less than 33 1/3% the replacement cost thereof, Lessor
                may elect to terminate this Lease, whether the Premises be
                injured or not. A total destruction of the building in which the
                Premises may be situated shall terminate this Lease. In the
                event of any dispute between Lessor and Lessee relative to the
                provisions of this paragraph, they shall each select an
                arbitrator, the two arbitrators so selected shall select a third
                arbitrator and the three arbitrators so selected shall hear and
                determine the controversy and their decision thereon shall be
                final and binding upon both Lessor and Lessee, who shall bear
                the cost of such arbitration equally between them.

ASSIGNMENT AND     26. The Lessee shall not assign, transfer, or hypothecate the
SUBLET-         leasehold estate under this Lease, or any interest therein, and
TING            shall not sublet the Premises, or any part thereof, or any
                right or privilege appurtenant thereto, or suffer any other
                person or entity to occupy or use the Premises, or any portion
                thereof, without, in each case, the prior written consent of the
                Lessor. Lessor shall not unreasonably withhold its consent to a
                subletting or assignment. The Lessee shall, by thirty (30) days
                written notice, advise the Lessor of its intent to assign this
                Lease or sublet the Premises or any portion thereof for any part
                of the term hereof, which notice shall include a description of
                all of the material terms of such assignment or subletting, and
                a reasonably detailed description of the proposed assignee or
                sublessee and its business and financial condition. Within
                thirty (30) days after receipt of Lessee's notice, Lessor shall
                either give approval to Lessee to assign the Lease or sublease
                the portion of the Premises described in Lessee's notice, or
                notify Lessee of Lessor's disapproval. In addition, Lessor shall
                have the right to terminate this Lease as to the portion of the
                Premises described in Lessee's notice on the date specified in
                Lessee's notice. If Lessee intends to assign this Lease or
                sublet the entire Premises and Lessor elects to terminate this
                Lease, this Lease shall be terminated on the date specified in
                Lessee's notice. If, however, this Lease shall terminate
                pursuant to the foregoing with respect to less than all the
                Premises, the rent, as defined and reserved hereinabove shall be
                adjusted on a prorata basis to the number of square feet
                retained by Lessee, and this Lease as so amended shall continue
                in full force and effect. If the Lessor approves an assignment
                or subletting, the Lessee may assign or sublet immediately after
                receipt of the Lessor's written approval. In the event Lessee is
                allowed to assign, transfer or sublet the whole or any part of
                the Premises, with the prior written consent of Lessor, then no
                assignee, transferee or sublessee shall assign or transfer this
                Lease, either in whole or in part, or sublet the whole or any
                part of the Premises, without also having obtained the prior
                written consent of the Lessor. In the event of any approved
                assignment or subletting, Lessee shall pay to the Lessor, as
                additional rental, fifty percent (50%) of all assignment
                proceeds and rents received by the Lessee from its assignee or
                sublessee which are in excess of the amount payable by the
                Lessee to the Lessor hereunder, after deducting the amount of
                any market rate real estate brokerage commissions paid by Lessee
                in connection with the assignment or subletting. A consent of
                Lessor to one assignment, transfer, hypothecation, subletting,
                occupation or use by any other person shall not release Lessee
                from any of Lessee's obligations hereunder or be deemed to be a
                consent to any subsequent similar or dissimilar assignment,
                transfer, hypothecation, subletting, occupation or use by any
                other person. Any such assignment, transfer, hypothecation,
                subletting, occupation or use without such consent shall be void
                and shall constitute a breach of this Lease by Lessee and shall,
                at the option of Lessor exercised by written notice to Lessee,
                terminate this Lease. The leasehold estate under this Lease
                shall not, nor shall any interest therein, be assignable for any
                purpose by operation of law without the written consent of
                Lessor. As a condition to its consent, Lessor may require Lessee
                to pay all expenses in connection with the assignment, and
                Lessor may require Lessee's assignee or transferee (or other
                assignees or transferees) to assume in writing all of the
                obligations under this Lease.

                        Any dissolution, merger, consolidation, recapitalization
                or other reorganization of Lessee, or the sale or other transfer
                in the aggregate over the term of the Lease of a controlling
                percentage of the capital stock of Lessee (excluding transfers
                over a national securities exchange), or the sale or transfer of
                all or a substantial portion of the assets of Lessee, shall be
                deemed a voluntary assignment of Lessee's interest in this
                Lease; provided that, a merger, consolidation, recapitalization,
                reorganization or sale of assets shall not require Lessor's
                consent hereunder unless Lessee's tangible net worth (determined
                in accordance with generally accepted accounting principles)
                immediately after such transaction is less than Lessee's
                tangible net worth immediately prior to such transaction. The
                phrase "controlling percentage" means the ownership of and the
                right to vote stock possessing more than fifty percent of the
                total combined voting power of all classes of Lessee's capital
                stock issued, outstanding and entitled to vote for the election
                of directors. If Lessee is a partnership, a withdrawal or
                change, voluntary, involuntary or by operation of Law, of any
                general partner, or the dissolution of the partnership, shall be
                deemed a voluntary assignment of Lessee's interest in this
                Lease. In the event that, through a merger, stock sale or other
                transaction, Lessee becomes the subsidiary of any other entity
                (a "parent"), Lessor shall have the right to require that the
                parent guaranty all of Lessee's obligations under the Lease
                pursuant to a form of guaranty reasonably satisfactory to
                Lessor.

CONDEM-             27. If any part of the premises shall be taken for any
NATION          public or quasi-public use, under  any statute or by right of
                eminent domain or private purchase in lieu thereof, and a part
                thereof remains which is susceptible of occupation hereunder,
                this Lease shall, as to the part so taken, terminate as of the
                date title shall vest in the condemnor or purchaser, and the
                rent payable hereunder shall be adjusted so that the Lessee
                shall be required to pay for the remainder of the term only such
                portion of such rent as the value of the part remaining after
                such taking bears to the value of the entire Premises prior to
                such taking; but in such event Lessor shall have the option to
                terminate this Lease as of the date when title to the part so
                taken vests in the condemnor or purchaser. If all of the
                premises, or such part thereof be taken so that there does not
                remain a portion susceptible for occupation hereunder, this
                Lease shall thereupon terminate. If a part or all of the
                Premises be taken, all compensation awarded upon such taking
                shall go to the Lessor and the Lessee shall have no claim
                thereto.

                                    6 of 10

<PAGE>   9

EFFECT OF          28. The term "Lessor" as used in this Lease, means only the
CONVEYANCE      owner for the time being of the land and building containing
                the Premises, so that, in the event of any sale of said land or
                building, the Lessor shall be and hereby is entirely freed and
                relieved of all covenants and obligations of the Lessor
                hereunder, and it shall be deemed and construed, without further
                agreement between the parties and the purchaser at any such
                sale, that the purchaser of the building has assumed and agreed
                to carry out any and all covenants and obligations of the Lessor
                hereunder. If any security be given by the Lessee to secure the
                faithful performance of all or any of the covenants of this
                Lease on the part of the Lessee, the Lessor may transfer and
                deliver the security, as such, to the purchaser at any such
                sale, and thereupon the Lessor shall be discharged from any
                further liability in reference thereto.

SUBORDI-            29. Lessee agrees that this Lease shall be subject and
NATION          subordinate to any mortgage, deed of trust or other instrument
                of security which has been or shall be placed on the land and
                building or land or building of which the Premises form a part,
                and this subordination is hereby made effective without any
                further act of Lessee. The Lessee shall, at any time
                hereinafter, on demand, execute any instruments, releases, or
                other documents that may be required by any mortgagee,
                mortgagor, or trustor or beneficiary under any deed of trust for
                the purpose of subjecting and subordinating this Lease to the
                lien of any such mortgage, deed of trust or other instrument of
                security, and the failure of the Lessee to execute any such
                instruments, releases or documents, shall constitute a default
                hereunder. Notwithstanding Lessee's obligations, and the
                subordination of the Lease, under this paragraph 29, no
                mortgagee, trustee or beneficiary under any deed of trust or
                other instrument of security which may be placed on the Premises
                shall have the right to terminate the Lease or disturb Lessee's
                occupancy thereunder so long as no Event of Default has occurred
                and is continuing under this Lease.

WAIVER              30. The waiver by Lessor of any breach of any term, covenant
                or condition, herein contained shall not be deemed to be a
                waiver of such term, covenant or condition or any subsequent
                breach of the same or any other term, covenant or condition
                therein contained. The subsequent acceptance of rent hereunder
                by Lessor shall not be deemed to be a waiver of any preceding
                breach by Lessee of any term, covenant or condition of this
                Lease, other than the failure of Lessee to pay the particular
                rental so accepted, regardless of Lessor's knowledge of such
                preceding breach at the time of acceptance of such rent.

HOLDING OVER        31. Any holding over after the expiration or other
                termination of the term of this Lease with the written consent
                of Lessor, shall be construed to be a tenancy from month to
                month, at a rental to be negotiated by Lessor and Lessee prior
                to the expiration of said term, and shall otherwise be on the
                terms and conditions herein specified, so far as applicable. Any
                holding over after the expiration or other termination of the
                term of this Lease without the written consent of Lessor shall
                be construed to be a tenancy at sufferance on all the terms set
                forth herein, except that the monthly rental shall be an amount
                equal to two hundred percent (200%) of the Monthly Base Rent
                payable by Tenant immediately prior to such holding over, or the
                fair market rent for the Premises as of such date, whichever is
                greater.

SUCCESSORS AND      32. The covenants and conditions herein contained shall,
ASSIGNS         subject to the provisions as to assignment, apply to and bind
                the heirs, successors, executors, administrators and assigns of
                all of the parties hereto; and all of the parties hereto shall
                be jointly and severally liable hereunder.

TIME                33. Time is of the essence of this Lease.

MARGINAL            34. The marginal headings or titles to the paragraphs of
CAPTIONS;       this Lease are not a part of  this Lease and shall have no
COMPLETE        effect upon the construction or interpretation of any part
AGREEMENT;      thereof. This instrument contains all of the agreements and
AMENDMENT       conditions made between the parties hereto and may not be
                modified orally or in any other manner than by an agreement in
                writing signed by all of the parties hereto or their
                respective successors in interest.

ENVIRON-            35. Lessee's obligations under Paragraph 35 shall survive
MENTAL          the expiration or termination of this Lease.
OBLIGATIONS

                    35.1 As used herein, the term "Hazardous Materials" shall
                mean any toxic or hazardous substance, material or waste or any
                pollutant or infectious or radioactive material, including but
                not limited to those substances, materials or wastes regulated
                now or in the future under any of the following statutes or
                regulations and any and all of those substances included within
                the definitions of "hazardous substances," "hazardous
                materials," "hazardous waste," "hazardous chemical substance or
                mixture," "imminently hazardous chemical substance or mixture,"
                "toxic substances," "hazardous air pollutant," "toxic
                pollutant," or "solid waste" in the (a) Comprehensive
                Environmental Response, Compensation and Liability Act of 1990
                ("CERCLA" or "Superfund"), as amended by the Superfund
                Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C.
                Section 9601 et seq., (b) Resource Conservation and Recovery Act
                of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq., (c) Federal
                Water Pollution Control Act ("FSPCA"), 33 U.S.C. Section 1251 et
                seq., (d) Clean Air Act ("CAA"), 42 U.S.C. Section 7401 et seq.,
                (e) Toxic Substances Control Act ("TSCA"), 14 U.S.C. Section
                2601 et seq., (f) Hazardous Materials Transportation Act, 49
                U.S.C. Section 1801, et seq., (g) Carpenter-Presley-Tanner
                Hazardous Substance Account Act ("California Superfund"), Cal.
                Health & Safety Code Section 25300 et seq., (h) California
                Hazardous Waste Control Act, Cal. Health & Safety code Section
                25100 et seq., (i) Porter-Cologne Water Quality Control Act
                ("Porter-Cologne Act"), Cal. Water Code Section 13000 et seq.,
                (j) Hazardous Waste Disposal Land Use Law, Cal. Health & Safety
                codes Section 25220 et seq., (k) Safe Drinking Water and Toxic
                Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety
                code Section 25249.5 et seq., (l) Hazardous Substances
                Underground Storage Tank Law, Cal. Health & Safety code Section
                25280 et seq., (m) Air Resources Law, Cal. Health & Safety Code
                Section 39000 et seq., and (n) regulations promulgated pursuant
                to said laws or any replacement thereof, or as similar terms are
                defined in the federal, state and local laws, statutes,
                regulations, orders or rules. The term "Hazardous Materials"
                shall also mean any and all other biohazardous wastes and
                substances, materials and wastes which are, or in the future
                become, regulated under applicable Laws for the protection of
                health or the environment, or which are classified as hazardous
                or toxic substances, materials or wastes, pollutants or
                contaminants, as defined, listed or regulated by any federal,
                state or local law, regulation or order or by common law
                decision. The term "Hazardous Materials" shall include, without
                limitation, (i) trichloroethylene, tetrachloroethylene,
                perchloroethylene and other chlorinated solvents, (ii) any
                petroleum products or fractions thereof, (iii) asbestos, (iv)
                polychlorinted biphenyls, (v) flammable explosives, (vi) urea
                formaldehyde, (vii) radioactive materials and waste, and (viii)
                materials and wastes that are harmful to or may threaten human
                health, ecology or the environment.

                    35.2 Notwithstanding anything to the contrary in this Lease,
                Lessee, at its sole cost, shall comply with all Laws relating to
                the storage, use and disposal of Hazardous Materials; provided,
                however, that Lessee shall not be responsible for contamination
                of the Premises by Hazardous Materials existing as of the date
                the Premises are

                                    7 of 10
<PAGE>   10

                delivered to Lessee unless caused by Lessee. Lessee shall not
                store, use or dispose of any Hazardous Materials except for
                those Hazardous Materials ("Permitted Materials") which are (a)
                listed in a Hazardous Materials management plan ("HMMP") which
                Lessee shall submit to appropriate governmental authorities as
                and when required under applicable Laws, and (b) are either
                normal quantities of ordinary office supplies or are approved in
                writing by Lessor. Lessee may use, store and dispose of provided
                Permitted Materials provided that (i) such Permitted Materials
                are used, stored, transported, and disposed of in strict
                compliance with applicable Laws, and (ii) such Permitted
                Materials shall be limited to the materials listed on and may be
                used only in the quantities specified in the HMMP. In no event
                shall Lessee cause or permit to be discharged into the plumbing
                or sewage system of the Premises or onto the land underlying or
                adjacent to the Premises any Hazardous Materials. If the
                presence of Hazardous Materials on the Premises caused or
                permitted by Lessee results in contamination or deterioration of
                water or soil, then Lessee shall promptly take any and all
                action necessary to clean up such contamination, but the
                foregoing shall in no event be deemed to constitute permission
                by Lessor to allow the presence of such Hazardous Materials.

                        35.3 Lessee shall immediately notify Lessor in writing
                of:

                        (a) Any enforcement, cleanup, removal, or other
                governmental or regulatory action instituted, completed or
                threatened against Lessee related to any Hazardous Materials;

                        (b) Any claim made or threatened by any person against
                Lessee or the Premises relating to damage, contribution, cost
                recovery compensation, loss or injury resulting from or claimed
                to result from any Hazardous Materials; and,

                        (c) Any reports made to any environmental agency arising
                out of or in connection with any Hazardous Materials in,
                discharged at, or removed from the Premises, including any
                complaints, notices, warnings or asserted violations in
                connection therewith.

                Lessee shall also supply to Lessor as promptly as possible, and
                in any event within five (5) business days after Lessee first
                receives or sends the same, with copies of all claims, reports,
                complaints, notices, warnings or asserted violations related in
                any way to the existence of Hazardous Materials at, in, under or
                about the Premises or Lessee's use thereof. Lessee shall, upon
                Lessor's request, promptly deliver to Lessor copies of any
                documents or information relating to the use, storage or
                disposal of Hazardous Material on or from the Premises.

                        35.4 Upon termination or expiration of the Lease, Lessee
                at its sole expense shall cause all Hazardous Materials placed
                in or about the Premises, by Lessee, its agents, contractors, or
                invitees, and all installations (whether interior or exterior)
                made by or on behalf of Lessee relating to the storage, use,
                disposal or transportation of Hazardous Materials to be removed
                from the property and transported for use, storage or disposal
                in accordance and compliance with all Laws and other
                requirements respecting Hazardous Materials used or permitted to
                be used by Lessee. Lessee shall apply for and shall obtain from
                all appropriate regulatory authorities (including any applicable
                fire department or regional water quality control board) all
                permits, approvals and clearances necessary for the closure of
                the Premises and shall take all other actions as may be required
                to complete the closure of the Premises. In addition, prior to
                vacating the Premises, Lessee shall undertake and submit to
                Lessor an environmental site assessment from an environmental
                consulting company reasonably acceptable to Lessor which site
                assessment shall evidence Lessee's compliance with this
                Paragraph 35.

                        35.5 At any time prior to expiration of the Lease term,
                subject to reasonable prior notice (not less than forty-eight
                (48) hours) and Lessee's reasonable security requirements and
                provided such activities do not unreasonably interfere with the
                conduct of Lessee's business at the Leased Premises, Lessor
                shall have the right to enter in and upon the Premises in order
                to conduct appropriate tests of water and soil to determine
                whether levels of any Hazardous Materials in excess of legally
                permissible levels has occurred as a result of Lessee's use
                thereof. Lessor shall furnish copies of all such test results
                and reports to Lessee and, at Lessee's option and cost, shall
                permit split sampling for testing and analysis by Lessee. Such
                testing shall be at Lessee's expense if Lessor has a reasonable
                basis for suspecting and confirms the presence of Hazardous
                Materials in the soil or surface or ground water in, on, under,
                or about the Premises, which has been caused by or resulted from
                the activities of Lessee, its agents, contractors, or invitees.

                        35.6 Lessor may voluntarily cooperate in a reasonable
                manner with the efforts of all governmental agencies in reducing
                actual or potential environmental damage. Lessee shall not be
                entitled to terminate this Lease or to any reduction in or
                abatement of rent by reason of such compliance or cooperation.
                Lessee agrees at all times to cooperate fully with the
                requirements and recommendations of governmental agencies
                regulating, or otherwise involved in, the protection of the
                environment.

                        35.7 Lessee shall indemnify, defend by counsel
                reasonably acceptable to Lessor, protect and hold Lessor and
                each of Lessor's partners, employees, agents, attorneys,
                successors, and assignees, free and harmless from and against
                any and all claims, damages, liabilities, penalties,
                forfeitures, losses or expenses (including reasonable attorney's
                fees) or death of or injury to any person or damage to any
                property whatsoever arising from or caused in whole or in part,
                directly or indirectly by (A) the presence in, or under or about
                the Premises or discharge in or from the Premises of any
                Hazardous Materials caused by Lessee, its agents, employees,
                invitees, contractors, assignees, or Lessee's use, analysis,
                storage, transportation, disposal, release, threatened release,
                discharge or generation of Hazardous Materials to, in, on,
                under, about or from the leased Premises, or (B) Lessee's
                failure to comply with any Hazardous Materials Law. Lessee's
                obligations hereunder shall include, without limitation, whether
                foreseeable or unforeseeable, all costs, of any required or
                necessary repair, cleanup or detoxification or decontamination
                of the Premises, and the preparation and implementation of any
                closure, remedial action or other required plans in connection
                therewith, and shall survive the expiration or earlier
                termination of the term of this Lease. For purposes of indemnity
                provision hereof, any actions or omissions of Lessee or by
                employees, agents, assignees, contractors or subcontractors of
                Lessee or others acting for or on behalf of Lessee (whether or
                not they are negligent, intentional, willful or unlawful) shall
                be strictly attributable to Lessee.

                                    8 of 10
<PAGE>   11

LESSOR'S RIGHT      36. If Lessee shall fail to perform any obligation or
TO PERFORM      covenant pursuant to this Lease within a reasonable
                period of time (not to exceed 15 days) following notice from
                Lessor to do so, then Lessor may, at its election and without
                waiving any other remedy it may otherwise have under this Lease
                or at law, perform such obligation or covenant and Lessee shall
                pay to Lessor, as Additional Rent, the costs incurred by Lessor
                in performing such obligation or covenant.

                    37. In addition to the Security Deposit set forth in
                paragraph 5 of this Lease, Lessee shall deliver to Lessor
                concurrent with the execution of this Lease an unconditional,
                irrevocable stand-by letter of credit (the "LC") in the amount
                of Six Hundred Forty One Thousand and No/100ths Dollars
                ($641,000.00), which LC shall be issued by a national bank with
                assets of over $500 million ( a bank which has a local office in
                Santa Clara County which will negotiate a letter of credit and
                whose deposits are insured by the FDIC) reasonably acceptable to
                Lessor, and which LC shall be in a form and content as presented
                in Exhibit "A" to this Lease. Lessee shall pay all expenses,
                points and/or fees incurred by Lessee in obtaining and
                maintaining the LC. Lessee shall maintain the LC (or a
                substitute letter of credit acceptable to Lessor) in full force
                and effect during the entire term of the Lease (including any
                extension period).

                The LC shall be held by Lessor as security for the faithful
                performance by Lessee of all the terms, covenants and conditions
                of this Lease to be kept and performed by Lessee during the
                Lease Term. The LC shall not be mortgaged, assigned or
                encumbered in any manner whatsoever by Lessee without the prior
                written consent of Lessor. If Lessee is in default under the
                Lease with all applicable cure periods having expired during the
                Lease Term, Lessor may, but shall not be required to, draw upon
                all or any portion of the LC for the payment of any amount that
                Lessor may reasonably spend or may become obligated to spend by
                reason of any such default by Lessee, or to compensate Lessor
                for any other loss or damage that Lessor may suffer by reason of
                a default by Lessee under the Lease. The use, application or
                retention of the LC, or any portion thereof, by Lessor shall not
                prevent Lessor from exercising any other right or remedy
                provided by this Lease or by law, it being intended that Lessor
                shall not be first required to proceed against the LC and shall
                not operate as a limitation on any recovery to which Lessor may
                otherwise be entitled. If any portion of the LC is drawn upon,
                Lessee shall, within five (5) days after written demand
                therefor, reinstate the LC to the amount required under the
                Lease. Within ten (10) days following expiration of the Lease,
                Lessor shall return LC to Lessee, less any portion drawn by
                Lessor pursuant to the terms hereunder. In addition, Lessor
                shall be entitled to draw upon the LC at any time within sixty
                (60) days of the expiration date of the LC, unless Lessee shall
                have delivered to Lessor a replacement LC meeting the
                requirements of this Paragraph and with an expiration date not
                less than twelve (12) months after the date of delivery. If
                Lessor so draws upon the LC in accordance with the immediately
                preceding sentence, Lessor shall hold the proceeds thereof as
                security for the performance of Lessee's covenants, and such
                proceeds shall be available to Lessor in accordance with the
                terms of this Paragraph.

                    38. Notwithstanding anything to the contrary contained
                in Paragraph 9 hereof, Lessor hereby agrees that Lessee may
                remove the existing clean rooms at its sole expense during the
                lease term and shall not be required to restore them upon
                expiration or sooner termination of the Lease, provided,
                however, said removal shall be subject to all the terms of this
                Lease including but not limited to Paragraphs 9 and 14.

                THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY WHO
                WILL REVIEW THE DOCUMENT AND ASSIST YOU TO DETERMINE WHETHER
                YOUR LEGAL RIGHTS ARE ADEQUATELY PROTECTED. RENAULT & HANDLEY IS
                NOT AUTHORIZED TO GIVE LEGAL AND TAX ADVICE. NO REPRESENTATION
                OR RECOMMENDATION IS MADE BY RENAULT & HANDLEY OR ITS AGENTS OR
                EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX
                CONSEQUENCES OF THIS DOCUMENT OR ANY TRANSACTION RELATING
                THERETO. THESE ARE QUESTIONS FOR YOUR ATTORNEY WITH WHOM YOU
                SHOULD CONSULT BEFORE SIGNING THIS DOCUMENT.

                IN WITNESS WHEREOF, Lessor and Lessee have executed these
                presents, the day and year first above written.

<TABLE>
<CAPTION>

                <S>                                             <C>
                LESSOR                                                        LESSEE
                Renault & Handley Employees Investment Co.      Alliance Fiber Optic Products, Inc.

                         /s/ R. G. Handley                      By:            /s/ Peter Chang
                ------------------------------------------         ---------------------------------------
                Raymond G. Handley, President
                                                                Its:           CEO
                ------------------------------------------         ---------------------------------------

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

                                                                Its:
                ------------------------------------------         ---------------------------------------
</TABLE>

                                    9 of 10

<PAGE>   12

                                                                       EXHIBIT A

                            [Issuing Bank Letterhead]

                                                  __________, 19__

                   IRREVOCABLE LETTER OF CREDIT NO. __________

BENEFICIARY:                                       APPLICANT:

                                                   Amount: $___________

                                                   Expiry Date: ________, 19__

Gentlemen:

      By order of and for the account of __________ (the "Applicant"), we (the
"Bank") hereby establish this Irrevocable Standby Letter of Credit (the "Letter
or Credit") in the aggregate amount of $__________ in your favor.

      Funds under this Letter of Credit are available to you or the transferee
of this Letter of Credit (you, or such transferee during the period such
transferee has possession of this Letter of Credit, being referred to herein as
"Beneficiary") against Beneficiary's sight draft(s) drawn on us, at our office
at ________________________________________, mentioning our Letter of Credit No.
__________ and accompanied by the original of this Letter of Credit and
Beneficiary's signed statement, in the form of Annex A attached hereto, that the
Beneficiary is entitled to draw under this Letter of Credit.

      We engage with you that all drafts drawn by Beneficiary under and in
compliance with this Letter of Credit will be duly honored by us.

      Partial draws are permitted under this Letter of Credit. Upon any partial
draw, this Letter of Credit shall immediately be returned to the Beneficiary.

      This Letter of Credit shall expire on __________, 19__; provided, however,
that on __________, 19__ and each anniversary thereof, this Letter of Credit
shall automatically be extended for successive periods of one year until not
later than __________, 19__; and provided further that this Letter

<PAGE>   13

-------------------
             19
------------'  ----
Page 2
                               L/C No.
                                      ---------

of Credit shall not be so extended if the Bank in its sole discretion gives to
you and the Beneficiary (if different) and to Applicant, sixty days' written
notice prior to the Expiration Date (as hereinafter defined) then in effect that
the Bank will not renew this Letter of Credit for any additional period. It is
understood that, if, upon such notice of nonrenewal, the Applicant fails to
deliver to the Beneficiary a replacement letter of credit from a bank acceptable
to the Beneficiary, and in form and substance to the Beneficiary, this Letter of
Credit may be drawn upon by Beneficiary at any time within thirty days prior to
the Expiration Date.

      This Letter of Credit shall automatically expire at 5:00 P.M. local time
in __________, ____, on the date (the "Expiration Date") which is the earlier of
(i) __________, 19__, or the date to which expiration has been extended pursuant
to the immediately preceding paragraph hereof; (ii) the date on which the Bank
shall have honored Beneficiary's draft or drafts presented hereunder in the full
amount hereof; and (iii) the date when Beneficiary surrenders this Letter of
Credit to the Bank (it being understood that presentation of this Letter of
Credit for purposes of transfer of or a partial draw under this Letter of Credit
shall not constitute a surrender of this Letter of Credit).

      All documents presented to the Bank in connection with any drawing and all
other communications and notices to the Bank with respect to this Letter of
Credit, shall be in writing, and delivered to the Bank in person, by registered
or certified mail or via express delivery service at the address set forth in
the second paragraph of this Letter of Credit, and shall specifically refer to
__________ __________ Bank Irrevocable Standby Letter of Credit No. __________.

      This Letter of Credit is transferable by the Beneficiary in its entirety,
from time to time, in each case upon presentation to the Bank of a Certificate
of Transfer in the form of Annex B attached hereto.

<PAGE>   14
-------------------
             19
------------'  ----
Page 3

                               L/C No.
                                      ---------

        This Letter of Credit is irrevocable. This letter of Credit is subject
to the Uniform Customs and Practices for Documentary Credits, 1983 Revision,
International Chamber of Commerce Publication No. 400.

                                         Very truly yours,

-------------------------------          --------------------------------------
(Authorized Signature)                   (Authorized Signature)

<PAGE>   15

             THIS FORMS AN INTEGRAL PART OF OUR IRREVOCABLE STANDBY
             LETTER OF CREDIT NO. __________ DATED __________, 19__

                                    "ANNEX A
                             TO IRREVOCABLE STANDBY
                                LETTER OF CREDIT

                             CERTIFICATE OF DRAWING

      The undersigned hereby certifies to [Issuing Bank] (the "Bank"), with
reference to the Bank's Irrevocable Standby Letter of Credit No. __________ (the
"Letter of Credit," the terms defined therein and not otherwise defined herein
being used herein as therein defined) in favor of __________ that:

      1.       He/she is a duly authorized officer of the undersigned.

      2.       The undersigned is the Beneficiary under the Letter of Credit.

      3.       The undersigned is entitled to draw under the Letter of Credit.

      IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the __________ day of __________, 19__.

                                            By
                                              ----------------------------------

                                            Name
                                                --------------------------------

                                            Title                              "
                                                 ------------------------------

<PAGE>   16

             THIS FORMS AN INTEGRAL PART OF OUR IRREVOCABLE STANDBY
             LETTER OF CREDIT NO. __________ DATED __________, 19__

                                    "ANNEX B
                             TO IRREVOCABLE STANDBY
                                LETTER OF CREDIT

                             CERTIFICATE OF TRANSFER

                                                    __________ __, 19__

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

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

------------------------------
Attn:  Letter of Credit Department

Gentlemen:

      The undersigned authorized officer of the beneficiary of your Irrevocable
Standby Letter of Credit No. __________ (the "Letter of Credit") hereby
irrevocably instructs you to transfer the Letter of Credit in its entirety to:

          ------------------------------------------------------------
                              (Name of transferee)

          ------------------------------------------------------------
                                    (Address)

who shall upon your transfer of the Letter of Credit have the sole rights as
beneficiary thereof. This request for transfer complies with the requirements of
the Letter of Credit pertaining to transfers.

      The original of the Letter of Credit is returned herewith, and in
accordance therewith we ask you to endorse the transfer on the reverse thereof
and deliver it directly to the above-named transferee together with your
customary notice of transfer.

      By this transfer, all rights of the undersigned beneficiary in the Letter
of Credit are transferred to the above-named transferee who shall hereafter have
the sole rights as beneficiary thereof.

                                            By
                                              ----------------------------------

                                            Name
                                                --------------------------------

                                            Title                              "
                                                 ------------------------------

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}]]