VENTURE LENDING & LEASING III INC
EX-10
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>ex-10.txt
<DESCRIPTION>EX-10
<TEXT>

<PAGE>
                                                               CUSTODY AGREEMENT



ACCOUNT INFORMATION

ACCOUNT NUMBER: 700016472-00

ACCOUNT NAME: VENTURE LENDING & LEASING III, INC. "CLIENT"

ACCOUNT TYPE:

     /X/ Corporation                 / / Public Funds

     / / Separate Property           / / Community Property

     / / Joint Tenants with Rights   / / Tenants in Common
           of Survivorship

     / / Other: _________________________________________

TAX ID / SOCIAL SECURITY #: 77-0534084

TAX STATUS:

     / / U.S. Citizen                /X/ U.S. Corporation

     / / U.S. Partnership            / / Non-Resident Alien

     / / Other: _________________________________________

SHAREHOLDER INFORMATION:

     In accordance with the Shareholder Communications Act of 1985, Union Bank
     of California

              /X/ is authorized           / / is NOT authorized

     to disclose upon request to companies whose securities are held in the
     Account (a) Client's and/or Agent's name and address, and (b) holdings in
     the Account of securities issued by such companies. If client does not
     object to such disclosure above, Bank is required by law to provide such
     information.

COST METHOD:  /X/ FIFO    / / LIFO    / / HIFO     / / LOFO

CUSTODIAN FEES:

      / / Charge Account                OR               /X/ Bill Client

      /X/ Monthly                       OR               / / Quarterly

STATEMENTS:

     Client:  /X/ Monthly               OR               / / Quarterly

     Other:   / / Monthly               OR               / / Quarterly

     Other Address: _______________________________________________________

     ______________________________________________________________________

     ______________________________________________________________________

     ______________________________________________________________________


TERMS AND CONDITIONS

1. APPOINTMENT AS AGENT

Client hereby appoints Union Bank of California, N.A. ("Bank"), as agent to act
as custodian of the cash, marketable securities described in Schedule A
("Property") included herein, and other Property which may be deposited by
Client with Bank from time to time to be held in the account established by this
Agreement ("Account"). Bank agrees to act as Client's agent for such Property
according to the terms and conditions of this Agreement; provided however, that
Bank shall have no duties or responsibilities with respect to any assets other
than cash or marketable securities that may be held in this Account from time to
time, unless specifically set forth in an Addendum to this Agreement and
provided further that Bank in its sole discretion, may reasonably refuse to
accept any assets now or hereafter delivered to it for inclusion in the Account
and shall promptly so notify Client and return the assets to Client. Client
represents and warrants that Client is authorized to enter into this Agreement
and to retain Bank on the terms and conditions and for the purposes described
herein.

2. REGISTRATION

     2.1 INVESTMENT AUTHORITY. Client shall have sole responsibility for the
investment, review, and management of all Property held in this Account. Bank
shall make or settle all purchases, sales, exchanges, investments and
reinvestments of the Property held in this Account only upon receipt of, and
pursuant to, Cllient's instructions. Bank shall have no duty or obligation to
review, or to make recommendations for, the investment and reinvestment of any
of the Property held in this Account, including uninvested cash.

     2.2 IDENTIFICATION OF SECURITIES. Bank shall ensure the securities are at
all times properly identified as being held for the appropriate Account. Bank
shall segregate physically the securities from other securities or property held
by Bank. Bank shall not be required to segregate physically the securities from
other securities or property held by Bank for third parties as custodian, but
Bank shall maintain adequate records showing the true ownership of the
securities.

     2.3 DELIVERY OF SECURITIES. If Client directs Bank to deliver certificates
or other physical evidence of ownership of securities to any broker or other
party, other than a depository employed by Bank for purposes of maintaining the
Account, Bank's sole responsibility shall be to exercise care and diligence in
effecting the delivery as instructed by Client. Upon completion of the delivery,
Bank shall be discharged completely of any further liability or responsibility
with respect to the safekeeping and custody of securities so delivered.

     2.4 USE OF NOMINEES. Bank shall have the right to hold all registered
securities in the name of its nominee.

     2.5 USE OF SECURITIES DEPOSITORY. Bank may, in its discretion, deposit in a
securities depository any securities which, under applicable law, are eligible
to be so deposited. If Bank deposits securities with a depository, Bank shall
maintain adequate records showing the identity and location of the depository,
the securities held by the depository and each account to which such securities
belong.

     2.6 USE OF INSTITUTIONAL DELIVERY SYSTEM. Notwithstanding any other
language in this Agreement, Bank may settle all securities transactions effected
by Client through the use of an institutional delivery system. Bank may deliver
or receive securities in accordance with appropriate trade reports or statements
received through an institutional delivery system without having received
written direction directly from Client.

<PAGE>

3.   TRANSACTIONS

     3.1 INCOME. Bank shall collect the income when paid on Property and invest
it in that cash management vehicle as designated from time to time by Client
upon receipt of instructions to that effect.

     3.2 PRINCIPAL. Bank shall collect principal of Property when paid on
maturity, redemption, sale or otherwise and invest it in that cash management
vehicle designated from time to time by Client upon receipt of instructions to
that effect.

     3.3 COLLECTION OBLIGATIONS. Bank shall diligently collect income and
principal of which the Bank has received actual notice in accordance with normal
industry practices. However, Bank shall be under no obligation or duty to take
any action to effect collection of any amount if the securities or other
property upon which such amount is payable is in default, or if payment is
refused after due demand. Bank shall notify Client promptly of such default or
refusal to pay.

     3.4 ADDITIONS TO AND WITHDRAWALS FROM ACCOUNT. Bank shall make all
additions and withdrawals of Property to and from this Account only upon receipt
of and pursuant to written instructions from Client.

     3.5 FRACTIONAL INTERESTS. Bank shall receive and retain all stock
distributed by a corporation as a dividend, stock split, or otherwise; however,
in connection therewith, if a fractional share is received, Bank shall sell such
fractional share.

     3.6 PURCHASE AND SALES. Client from time to time may instruct Bank
regarding the purchase or sale of securities in accordance with this paragraph
3.6:

          (a) Bank shall effect purchases by charging the Account with the
amount necessary to make the purchase and effecting payment to the seller or
broker for the securities or other property purchased. Bank shall have no
liability of any kind to any person, including Client, except in the case of
negligent or intentional tortuous acts, or willful misconduct, if Bank effects
payment on behalf of Client, and the settler or broker fails to deliver the
securities or other property purchased. Bank shall exercise such ordinary care
and diligence as would be employed by a reasonably prudent custodian and due
diligence in examining and verifying the certificates or other indicia of
ownership of the property purchased before accepting them.

          (b) Bank shall effect sales by delivering certificates or other
indicia of ownership of the Property, and, as instructed, shall receive cash for
such sales. Bank shall have no liability of any kind to any person, including
Client, if Bank exercises due diligence and delivers such certificates or
indicia of ownership and the purchaser or broker fails to effect payment. If a
purchase or sale is effected through a depository, Bank shall exercise such
ordinary care and diligence as would be employed by a reasonably prudent
custodian and due diligence in verifying proper consummation of the transaction
by the depository.

          (c) Client, is responsible for ensuring that Bank receives timely
instructions and/or funds to enable Bank to effect settlement of any purchase or
sale of securities. If Bank does not receive such timely instructions or funds,
Bank shall have no liability of any kind to any person, including Client, for
failing to effect settlement. However, Bank shall use reasonable efforts to
effect settlement as soon as possible after receipt of appropriate instructions.


4.   PROXIES AND CORPORATE ACTIONS AND LITERATURE

     4.1 PROXIES. Bank shall forward all proxies and accompanying material
issued by any company whose securities are held in the Account to Client as
directed.

     4.2 CORPORATE LITERATURE. Bank shall have no duty to forward or to retain
any other corporate material received by the Account unless required to do so by
law.

     4.3 DISCLOSURE TO ISSUERS OF SECURITIES. Unless Client directs Bank in
writing to the contrary, Client agrees that Bank may disclose the name and
address of the party with the authority to vote the proxies of the securities
held in this Account as well as the number of shares held, to any issuer of said
securities or its agents upon the written request of such issuer or agent in
conformity with the provisions of the applicable law.

     4.4 CORPORATE ACTIONS. Bank shall notify Client of the receipt of notices
of redemptions, conversions, exchanges, calls, puts, subscription rights, and
scrip certificates ("Corporate Action(s)"). Bank need not monitor financial
publications for notices of Corporate Actions and shall not be obligated to take
any action unless actual notice has been received by Bank. Client shall have
full responsibility for all monitoring, notices, and other actions necessary in
connection with Corporate Actions and Bank shall have no duty to provide
notification to Client. If a Corporate Action has a fixed expiration date, and
Bank has not received written instructions (including facsimile transmissions),
regarding it five business days prior to such date, Bank shall take such action
as it deems appropriate in its sole discretion.

5.   STATEMENTS AND CONFIRMATIONS

     5.1 STATEMENTS. Each month Bank shall send Client a statement showing all
income and principal transactions and cash positions, and a list of assets,
showing market values, if such values are readily available from a nationally
recognized pricing service; otherwise assets will be listed at such nominal
value as Bank shall determine. Bank shall have the right to rely on the prices
quoted by its pricing services, and shall have no obligation to question the
accuracy of the valuation provided by any such service. Client may approve or
disapprove any such statement within sixty (60) days of its receipt, and, if no
written objections are received within the sixty (60) day period, such statement
of Account shall be deemed approved.

     5.2 CONFIRMATIONS. Bank shall have no responsibility to send confirmations
of security transactions occurring in this Account to Client for security
transactions at any time at no additional cost to Client, and such confirmations
shall be sent to Client within the time prescribed by law.

6.   USE OF OTHER BANK SERVICES

Client may direct Bank to utilize for this Account other services or
facilities provided by Bank, its subsidiaries or affiliates. Such services
shall include, but not be limited to (1) the purchase or sale of securities
as principal to or from, or, (2) the placing of orders for the purchase,
sale, exchange, investment or reinvestment of securities through any
brokerage service conducted by, or, (3) the placing of orders for the
purchase or sale of units of any investment company managed or advised by
Bank, UnionBanCal Corporation, or their subsidiaries or affiliates, and for
which Bank, UnionBanCal Corporation, or their subsidiaries or affiliates act
as custodian or provide other services. Client hereby acknowledges that Bank
will receive additional fees for such services in accordance with Bank's
standard fee schedules, which shall be delivered to Client from time to time.
Notwithstanding the above, Client may direct Bank to utilize for this Account
for cash management purposes the HighMark-SM- Group of mutual funds advised
by Bank, and for which Bank may also act as custodian and provide other
services. Client shall designate the particular HighMark-SM- Fund that Client
deems appropriate for the Account. Client hereby acknowledges that Bank will
receive fees for such services, which shall be in addition to those fees
charged by Bank as agent for the Client's custody Account.

7.   INSTRUCTIONS

Bank is authorized to take actions in the administration of the Account as
instructed by Client in the Account Information Section of this Agreement.
Client agrees that such instructions remain in force until canceled or amended
by Client in writing.

All instructions from Client shall be in writing, and shall continue in force
until changed by subsequent instructions. Pending receipt of written
authority, Bank may in its absolute discretion at any time, accept oral,
wired or electronically transmitted instructions from Client provided Bank
believes in good faith that the instructions are genuine. Client shall
confirm such instructions in writing immediately thereafter. Client shall
certify or cause to be certified to Bank in writing the names and specimen
signatures of all persons authorized to give instructions, notices, or other
communications on behalf of Client. The Client signatures to this agreement
shall be considered to be specimen signatures. Such certification shall
remain effective until Bank receives notice to the contrary.

<PAGE>

Client and all Authorized Representatives initiating funds transfers and
receiving call backs on behalf of Client must also be designated as Authorized
Signers on a separate Authorized Signature List, which must provide an original
specimen signature for each Authorized Representative. Designation of Authorized
Representatives will remain in force until canceled or amended in writing by
Client. Client hereby designates all individuals listed on Client's Authorized
Signature List, as amended from time to time, as Authorized Representatives of
Client to initiate instructions and receive call backs for funds transfers from
the Account. As used herein Authorized Representatives means the individual(s)
designated by Client to initiate funds transfer instructions in accordance with
Paragraph 8 of this Agreement.

8.   FUNDS TRANSFER INSTRUCTIONS.

     (a) Client authorizes Bank to act upon instructions for the transfer of
funds from the Account to any other account(s) of Client or to any third party
when such instructions are received from Client or Client's Authorized
Representative (as designated in Paragraph 7 hereof) and have been authenticated
by Bank in accordance with the securities procedures agreed to by Client as set
forth in Paragraph (b) below.

     (b) Client agrees to the security procedure(s) offered by Bank to
authenticate, amend, and request cancellation of funds transfer instructions as
set forth below. If a funds transfer instruction received by Bank purports to
have been transmitted or authorized by Client, it will be deemed effective as
Client's instruction if Bank followed the security procedure(s) set forth below:

          i) AUTHENTICATED ELECTRONIC INSTRUCTION. Funds transfer instructions
received by Bank via secured electronic systems, e.g., Telex, Swift, etc. carry
the same force as if Client or the Authorized Representative gave such
instruction directly.

          ii) STANDING INSTRUCTION FOR FUNDS TRANSFERS. If Client instructs Bank
in writing to initiate funds transfers to any account(s) of Client or to any
designated third party beneficiary under standing instructions, Bank will
perform no callback for such Bank initiated funds transfers.

          iii) REPETITIVE FUNDS TRANSFERS. Repetitive funds transfers may be
initiated via facsimile by Client or Authorized Representative after Bank has
performed an initial call back to a different Authorized Representative to
verify the repetitive transfer information. Upon receiving each funds transfer
request, Bank will verify that the individual whose signature appears on the
funds transfer request is an Authorized Representative, and that the repetitive
payment destination matches the beneficiary data on the initial authorization.

          iv) NON-REPETITIVE FUNDS TRANSFERS. Non-repetitive funds transfers may
be initiated via facsimile by Client or Authorized Representative after Bank has
performed a call back to a different Authorized Representative and has verified
that the individual whose signature appears on the funds transfer request is an
Authorized Representative. If Client selects this security procedure for
non-repetitive funds transfers, Client acknowledges that Client may assume a
greater risk of unauthorized transfers than with other procedures offered by
Bank.

     (c) Bank will use its best efforts to execute each properly authorized
funds transfer instructions on the day of receipt if Bank receives the
instruction and is able to authenticate it before Bank's cut-off time, and the
day of receipt is a funds transfer business day for Bank and the transmission
facility selected. Bank may change its cutoff time without prior notice to
Client.

      (d) Bank at its sole discretion may reject any funds transfer instructions
which (i) exceeds the collected and available funds on deposit in the Account;
(ii) is not authenticated to Bank's satisfaction or which Bank believes may not
be authorized by Client; (iii) contains incorrect, inconsistent, ambiguous, or
missing information; (iv) involves funds which are subject to a lien, security
interest, claim, hold, dispute, or legal process prohibiting withdrawal. Bank
shall incur no liability to Client for any loss occasioned by Bank's refusal,
with or without notice to Client, to honor any funds transfer instructions.

     (e) If there are insufficient available funds in the Account to cover
Client's obligations under this Agreement, Bank may at is sole discretion choose
to complete funds transfers initiated by Client, and Client agrees to
immediately repay Bank the amount of any overdraft created thereby plus any
overdraft charges imposed in connection therewith, without notice or demand to
Client.

     (f) If Client's transfer instructions identifies the beneficiary, the
beneficiary's bank, or an intermediary bank by name and an account or other
identifying number, Bank and subsequent parties to the funds transfer may act
solely on the basis of such number, even if the name and number do not agree.

     (g) Client shall have no right to cancel or amend a funds transfer
instruction after its receipt by Bank. However, Bank shall use reasonable
efforts to act on a request by Client to cancel or amend an instruction prior to
executing it, but shall have no liability if cancellation or amendment is not
effected.

      (h) Except as otherwise required by the California Commercial Code, Bank
shall not be responsible for any loss or liability arising in connection with
this Addendum from (i) any inaccuracy, act or failure to act on the part of any
person not within Bank's reasonable control, including, without limitation, the
failure of other financial institutions to provide accurate or timely
information to Bank or Client; (ii) the failure of other financial institutions
to accept payment orders; (iii) Client's negligence or breach of this Agreement;
(iv) any ambiguity or inaccuracy in any instruction or in the information set
forth in this Agreement given to Bank by Client; (v) any error, failure or delay
in execution of any funds transfer instruction, or cancellation or amendment,
including without limitation, any inoperability of computer or communication
facilities, or other circumstances beyond Bank's reasonable control.

     (i) AUTHORIZATION FOR FACSIMILE INSTRUCTIONS. Client hereby authorizes Bank
to accept funds transfer instructions via facsimile transmittal from Client or
Client's Authorized Representative under the procedures set forth in Section
1(b) of this Agreement.

9.   BANK RESPONSIBILITIES AND LIABILITIES

     (a) In performing its duties hereunder, Bank shall exercise no less than
the same degree of care and diligence it ordinarily exercises with respect to
similar property of its own.

     (b) Bank shall not be liable or responsible for any loss, damage, expense,
failure to perform or delay caused by accidents, strikes, fire, flood, war,
riot, electrical or mechanical or communication line or facility failures, acts
of third parties (including without limitation any messenger, telephone or
delivery service), acts of God, war government action, civil commotion, fire,
earthquake, or other casualty or disaster or any other cause or causes which are
beyond Bank's reasonable control. However, Bank shall use reasonable efforts to
replace securities lost or damaged due to such causes with securities of the
same class and issue with all rights and privileges pertaining thereto. In all
cases, Bank's liability for any act or failure to act under this Agreement shall
be limited to the resulting direct loss, if any, of Client. Under no
circumstances shall Bank be liable for any consequential, indirect, punitive, or
special damage which Client may incur or suffer in connection with this
Agreement.

     (c) The parties intend that Bank shall not be considered a fiduciary of the
Account. Accordingly, Bank shall have no power to make decisions regarding any
policy, interpretation, practice, or procedure with respect to the Account, but
shall perform the ministerial and administrative functions described in the
Agreement as provided herein and within the framework of policies,
interpretations, rules, practices, and procedures made by Client, as

<PAGE>

the same shall be reflected in instructions to Bank from Client.

     (d) Bank shall not be required to appear in or defend any legal proceedings
with respect to the Account or the securities unless Bank has been indemnified
to its reasonable satisfaction against loss and expense (including reasonable
attorney's fees).

10.  COMPENSATION AND OTHER CHARGES

     10.1 COMPENSATION. Bank's annual fee as agent shall be based on the fee
schedule of the Bank as accepted by Client from time to time. Fees shall be
invoiced monthly in advance, and charged to Account, unless Bank is otherwise
instructed.

     10.2 CHARGING THE ACCOUNT. Upon receipt of approval from Client, Bank is
authorized to charge the Account for incidental expenses as well as for the
funds necessary for Bank to complete any purchase or expense, to make any
directed disbursement or to take any other action regarding the Account. Bank
shall have no duty to make any purchases, exchanges, or disbursements or to
incur any expenses, unless the funds necessary to cover the amount of expense
are available in the Account. Client will pay back any fees or costs incurred
directly if funds in the account are insufficient.

11.  COST BASES AND DATES OF ACQUISITION

Client agrees to furnish Bank with the income tax cost bases and dates of
acquisition of all Property held in the Account to be carried on its records. If
Client does not furnish such information for any such Property, Bank shall carry
the Property at any such nominal value it determines, such value to be for
bookkeeping purposes only. All statements and reporting of any matters requiring
this information will use this nominal value. Bank shall have no duty to verify
the accuracy of the cost bases and dates of acquisition furnished by Client.
Property purchased in the Account shall be carried at cost.

12.  LIMITED POWER OF ATTORNEY

Bank is hereby granted a limited power of attorney by Client to execute on
Client's behalf any declarations, endorsements, assignments, stock or bond
powers, affidavits, certificates of ownership or other documents required (1) to
effect the sale, transfer, or other disposition of Property held in the Account,
(2) to obtain payment with respect to Property held in the Account, or (3) to
take any other action required with respect to the Property held in the Account,
and in the Bank's own name to guarantee as Client's signature any signature so
affixed.

13.  INDEMNIFICATION

As additional consideration for the Bank's acceptance of this Account and its
agreement to act as agent, Client agree to indemnify, and hold Bank, its
officers, directors, employees, agents, successors and assigns harmless from and
against any and all losses, liabilities, demands, claims, and expenses,
attorney's fees and taxes (other than those based on Bank's net income) arising
out of or in connection with this Agreement, or out of any actions of Client or
Client's agents which are not caused by Bank's gross negligence or willful
misconduct. This provision shall survive the termination of this Agreement and
shall be binding upon each party's successors, assigns, heirs and personal
representatives.

14.  AMENDMENT AND TERMINATION OF AGREEMENT

     14.1 AMENDMENT. This Agreement may be amended only by a written agreement
executed by Bank and Client.

     14.2 TERMINATION. This Agreement may be terminated at any time by written
notice from one party to the other. Such termination shall be effective
immediately. Upon termination, Bank shall have a reasonable amount of time to
transfer the Property held in the Account in accordance with the written
instructions of Client or the person or entity legally entitled to receive such
Property. Bank's fees and costs related to termination, including without
limitations, costs for shipping securities and other Property held in the
Account and costs of reregistering securities, generating reports and accounting
for disposition of cash shall be charged to the Account.

15.  ENTIRE AGREEMENT

This Agreement and Supplement constitutes the entire Agreement among the
parties. All previous agreements, and instructions whether written or oral,
between the Bank and Client are hereby superseded.

16.  SINGULAR AND PLURAL

If more than one person shall execute this Agreement, then where the context
permits, singular pronouns shall be deemed to be plural personal pronouns.

17.  GOVERNING LAW

This Agreement shall be governed by, and construed under, the laws of the State
of California.

18.  TAXATION OF ACCOUNT

     18.1 CERTIFICATION. Client agrees to provide a completed W-9 or W-8
certification, as appropriate, to Bank.

     18.2 CLIENT'S RESPONSIBILITY FOR FILING TAX RETURNS AND PAYING TAXES.
Client is responsible for filing any and all tax returns and for paying the
taxes on all property and income of this account.

19.  NOTICES

     19.1 MAILING OF NOTICES. ALL NOTICES, REQUESTS, DEMANDS AND OTHER
COMMUNICATIONS UNDER THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE DEEMED AS
HAVING BEEN DULY GIVEN ON THE DATE OF SERVICE, IF SERVED PERSONALLY ON THE PARTY
TO WHOM NOTICE IS TO BE GIVEN, OR ON THE FIFTH DAY AFTER MAILING, IF MAILED TO
THE PARTY TO WHOM NOTICE IS TO BE GIVEN AND PROPERLY ADDRESSED AS FOLLOWS:


     Client Address:

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

     ATTN: Chief Financial Officer


     Bank:

         Union Bank of California
         Corporate Trust Department
         475 Sansome Street, 12th Floor
         San Francisco, CA 94111
         Attn:  Douglas J. Schlafer, Vice President

     19.2 CHANGE OF ADDRESS. Either party may change the address at which notice
may be given by giving ten (10) days prior written notice of such change to the
other party.



20. EFFECTIVE DATE

This Agreement shall be effective upon the date of receipt by the Bank of the
Property described in the attached Schedule A.


     Client:  Venture Lending & Leasing III, Inc.


     By:      /s/ Ronald W. Swenson
              -------------------------------
     Name:    Ronald W. Swenson
     Title:   Chief Executive Officer

<PAGE>

     Date:    May 18, 2000


     By:      /s/ Salvador O. Gutierrez
              -------------------------------
     Name:    Salvador O. Gutierrez
     Title:   President
     Date:    May 18, 2000


     By:      /s/ Brian R. Best
              -------------------------------
     Name:    Brian R. Best
     Title:   Chief Financial Officer
     Date:    May 18, 2000

Accepted:

              UNION BANK OF CALIFORNIA, N.A., Agent


     By:      /s/ Douglas Schlafer
              -------------------------------

     Title:   Vice President
              -------------------------------

     Date:    May 18, 2000


SCHEDULE A

         Bank Accounts
         Bankers Acceptances
         Certificates of Deposit
         Collateralized Mortgage Obligations
         Commercial Paper
         Common Stocks
         Convertible Stocks
         Corporate Bonds
         Foreign Listed Securities Futures
         Government Agency Issues
         Government Bonds
         Insurance Contracts
         Lease Agreements
         Limited Partnership Units - Publicly Traded
         Loan Agreements
         Municipal Bonds
         Mutual Funds
         Options
         Preferred Stocks
         Private Placements
         Repurchase Agreements
         Reverse Repurchase Agreements
         Warrants



<PAGE>


                                SCHEDULE OF FEES

                             (Revised May 11, 2000)

                                       FOR

                          WESTERN TECHNOLOGY INVESTMENT

                       Venture Lending & Leasing III, LLC
                       Venture Lending & Leasing III, INC.

ANNUAL ADMINISTRATION FEE                $ 24,000

         Custodian fees for services rendered under a Custodian-Depository
Agreement are as follows:

SERVICES INCLUDED


     -    Initial Loan Examination

     -    Asset Safekeeping

     -    Income Collection

     -    Capital Changes - Proxies

     -    Monthly Cash and Asset Statements

     -    Personal Account Coordinator assigned to your account

     -    Dial-in access to the Bank's Trustware Accounting System

     -    Disbursements

     -    Wires

     -    Receipt of funds

     -    Out of pocket expenses except air courier service




<PAGE>

     SUPPLEMENT TO CUSTODY AGREEMENT ("CUSTODY AGREEMENT"), DATED AS OF MAY
    18, 2000, BETWEEN VENTURE LENDING & LEASING III, INC. AND UNION BANK OF
                                CALIFORNIA, N.A.

     Notwithstanding any provision of the Custody Agreement, the following
provisions shall apply with full force and effect as if contained in the Custody
Agreement. In the event of a conflict between any provision of the Custody
Agreement and this Supplement, the provisions of this Supplement shall control.

     1) INSTRUCTIONS. With the exception of transfers to Venture Lending &
Leasing III, LLC, which will require one signature, all Instructions regarding
the transfer of cash or Property must be signed by two Authorized
Representatives. Authorized Representatives shall be designated by the Client by
means of a certificate of the Secretary or Assistant Secretary of the Client
certifying that the Board of Directors of the Client has passed a resolution
authorizing and empowering the Authorized Representatives to provide
Instructions under the Custody Agreement.

     2) PAYMENT OF CASH. The Bank shall make payment of cash to the Account or
shall debit the Account only (a) for the purchase of Property for the Client
upon the delivery of such Property to the Bank, registered in the name of the
Client or of the nominee of the Bank; (b) for payments in connection with the
conversion, exchange or surrender of Property owned or subscribed to by the
Client held by or to be delivered to the Bank; (c) for payments in connection
with the return of the cash collateral received in connection with Property
loaned by the Client; (d) for payments of interest, dividends, taxes and in
connection with rights offerings; or (e) for other proper Client purposes as are
specified in an Instruction. All securities and other Property accepted in
connection with the purchase of such Property, if (a) usual in the course of
local market practice or (b) specifically required in instructions from the
Client, shall be accompanied by payment of, or a "due bill" for, any dividends,
interest or other distributions of the issue due the purchaser.

     3) DELIVERY OF PROPERTY. The Bank shall have sole power to release or
deliver any Property of the Client held by the Bank pursuant to the Custody
Agreement. The Bank agrees that Property held by the Bank will be transferred,
exchanged or delivered only (a) for sales of securities for the account of the
Client in accordance with (i) "New York Street Practice", (ii) predominant
established practice in the relevant local market, or (iii) specific
instructions from the Client; or (b) when Property is called, redeemed or
retired or otherwise become payable; (c) for examination by any broker selling
any such securities in accordance with "street delivery" custom or other
relevant local market practice; (d) in exchange for or upon conversion into
other Property whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise; (e) upon
conversion of such Property pursuant to its terms into other Property; (f) upon
exercise of subscription, purchase or other similar rights represented by such
Property pursuant to its terms; (g) for the purpose of exchanging interim
receipts or temporary securities for definitive securities; (h) for the purpose
of tendering Property; (i) for the purpose of delivering Property lent by the
Client; (j) for purposes of delivering collateral upon redelivery of Property
lent or for purposes of delivering excess collateral; or (k) for other proper
Client purposes. As to any deliveries made by Bank pursuant to items (b), (d),
(e), (f), (g), (i), (j) and (k), Property in exchange

<PAGE>

therefor shall be deliverable to the Bank. The Bank may rely upon any
Instructions relating thereto as provided for in the Custody Agreement and this
Supplement.

     4) Additional Termination Provisions. Upon termination of the Custody
Agreement, the Bank shall deliver the Property of the client to such entity as
is designated by the Client by means of a certificate of the Secretary or
Assistant Secretary of the Client certifying that the Board of Directors has
appointed such entity as the successor custodian and in the absence of such a
designation may, but shall not be obligated to, deliver them to a bank or trust
company of the Bank's own selection having an aggregate capital, surplus and
undivided profits as shown by its last published report of not less than 50
million dollars ($50,000,000), the Property to be held by such bank or trust
company for the benefit of the Client under terms similar to those of the
Custody Agreement as supplemented and the Client to be obligated to pay to such
transferee the then current rates of such transferee for services rendered by
it; provided, however, that the Bank may decline to transfer such amount of such
Property equivalent to all fees and other sums owing by the Client to the Bank,
and the Bank shall have a charge against and security interest in such amount
until all monies owing to it have been paid, or escrowed to its satisfaction.

     5) Document Custody Services. The Bank will provide custody of loan
documentation, warrants and other documents as follows:

     A.   The Bank will provide physical safekeeping of documents executed in
          connection with loans, leases, and installment sales contracts held
          within custodial accounts and subaccounts;

     B.   The Bank shall review each document received from or on behalf of the
          Client in accordance with Instructions provided by the Client from
          time to time for that purpose;

     C.   The Bank shall notify the Client of any missing, incomplete, or
          inconsistent documents by means agreeable to Client and the Bank. The
          Client may deposit such missing documents or complete or correct the
          documents as may be specified in instructions of record.

     D.   The Bank will release and deliver said documents pursuant to Client's
          Instructions as required.

     6) Investments. Unless otherwise instructed in writing by two Authorized
Representatives, all cash balances in the account shall be invested as soon as
reasonably practicable by the Custodian in the Provident Institutional Funds'
Institutional Shares' TempFund, Cusip 743884579.



<PAGE>


     Client:      VENTURE LENDING & LEASING III, INC.


     By:          /s/ Ronald W. Swenson
                  ---------------------
     Title:       Chief Executive Officer
     Date:        May 18, 2000

     By:          /s/ Salvador O. Gutierrez
                  -------------------------
     Title:       President
     Date:        May 18, 2000

     By:          /s/ Brian R. Best
                  -----------------
     Title:       Chief Financial Officer
     Date:        May 18, 2000


Accepted:

         UNION BANK OF CALIFORNIA, N.A., Agent


     By:          /s/ Douglas Schlafer
                  --------------------
     Title:       Vice President

     Date:        May 18, 2000



</TEXT>
</DOCUMENT>
